SALEX HOLDING CORP /DE/, 10-K, 1999-01-07

SALEX HOLDING CORP /DE/
10-K, 1999-01-07
AUTO RENTAL & LEASING (NO DRIVERS)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).

For the fiscal year ended April 30, 1998

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from __________ to __________

Commission file number 1-12856S
--------

SALEX HOLDING CORPORATION
-------------------------
(Exact Name of Registrant as Specified in Its Charter)

Delaware 42-1358036
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

50 Laser Court, P.O. Box 18029 Hauppauge, New York 11788
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (516) 436-5000
--------------
Securities registered under Section 12 (b) of the Exchange Act:

<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
- ---------------------------------------- ------------------------------------------
<S> <C>
Common Stock, par value $.01 OTC Bulletin Board
Warrants to Purchase Common Stock OTC Bulletin Board
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

- --------------------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the Common Stock held by non-affiliates as of
December 4, 1998, (based upon the average of the closing bid and asked prices of
the Common Stock as quoted on the OTC Bulletin Board on December 4, 1998) was
approximately $221,081. For purposes of this computation the shares of Common
Stock held by directors, executive shareholders owning more than 5% of the
Company's outstanding Common Stock were deemed to be stock held by affiliates.
As of December 4, 1998, there were 4,709,424 shares of Common Stock outstanding
held by non-affiliates.

As of December 4, 1998, 13,004,770 shares of the Common Stock were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>

PART I

Item 1. Business

All statements contained herein that are not historical facts including,
but not limited to, statements regarding the future development plans of Salex
Holding Corporation (the "Company" or the Registrant) and the Company's ability
to generate cash from its operations, are based upon current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially from the anticipated results or
other expectations expressed in the Company's forward looking statements are the
following: competition in the automobile asset management business, the
inability of the Company to obtain additional financing and general business and
economic conditions.

Recent Events

Sale of Registrant's Executive Offices

On December 23, 1998, the Registrant entered into a real estate purchase
agreement ("Purchase Agreement") by and among the Registrant, Salvatore Crimi
and Sun Associates, LLC ("Sun Associates"), a limited liability company
controlled by Betty Sun, (as record title holder) who is the wife of Pershing
Sun, a director of the Registrant. Pursuant to the terms of the Purchase
Agreement, the Registrant and Salvatore Crimi agreed to sell to Sun Associates
certain property located in Hauppauge New York which is improved with the
Registrant's executive offices containing approximately 12,000 square feet of
space and a surface parking lot (the "Property"). The purchase price for the
Property was $1,100,000. Mr. Crimi was not personally entitled to any portion
of the proceeds for the sale of the Property and was only involved in the
transaction to the extent that certain title issues required his involvement.
Of the proceeds received by the Registrant $782,325.74 was used to pay the
mortgage securing the Property. The balance of the proceeds was used for
working capital by the Registrant. Simultaneously with the sale of the
Property, the Registrant and Sun Associates entered into a lease agreement (the
"Lease Agreement") pursuant to which Sun Associates leased the Property to the
Registrant. Under the lease agreement, the annual basic rent for the Property
during the period commencing December 31, 1998 and ending on December 31, 1999
is $168,000. Such annual basic rent increases, by an amount not greater than
$8,985 during each year of the term of the Lease Agreement. As part of the
Lease Agreement, the Registrant and Sun Associates entered into a repurchase
option agreement (the "Option Agreement") which provides that the Registrant
may repurchase the property at any time prior to June 23, 1999 at a purchase
price of $1,155,000, net of Sun Associates' transaction costs, provided that
the Registrant is not in default under the Lease Agreement. The Lease Agreement
further provides that if Sun Associates sells the Property prior to the
December 31, 1999 then 50% of the profits resulting from the sale will be paid
to the Registrant provided that the Registrant is not in default under the
Lease Agreement.

Description of the Company

Corporate Fleet Program

The Company is in the business of automobile asset management and through
such business manages, on a nationwide basis, the maintenance and repair of
fleets of automobiles and small trucks which are owned and operated by
corporate customers (the "Corporate Fleet Program"). If a vehicle of one of the
Company's corporate customers needs repair, the Company directs the customers
to the most conveniently located service center that is part of its nationwide
servicing network (the "Service Network"). All of the service centers that are
part of the Service Network are independently owned or affiliated with a
national chain of repair centers, have been pre-screened and pre-approved by
the Company and are reviewed by the Company from time to time. Before any work
is commenced by the service center on a vehicle referred to it by the Company,
the service center must contact the Company's certified mechanics and other
auto specialists, who are located at its Hauppauge offices, to discuss all the
proposed necessary repairs and the proposed cost thereof. The Company's
specialists negotiate with the service centers to ensure that the customer is
not overcharged or subjected to unnecessary repairs. The Company monitors the
repairs, if needed, to assure on time completion of the work, expedites the
delivery

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of needed parts when necessary and, in certain locations, provides the customer
with access to a discount rental car until the repairs are completed.
Participation in the Corporate Fleet Program provides the corporate customers
with quality and price control over all work performed and provides the service
centers with reliable levels of volume. In exchange for its services, the
Company receives a monthly management fee, per-occurrence or monthly management
fee based on the number of vehicles in the fleet, from the corporate customer
based on the number of vehicles registered in the program and a fee from the
Service Network of a percentage of the cost of repair and maintenance
(including both parts and labor) depending upon the type of service
rendered.

The Service Network

The Company services all of its customers through its nationwide network
of pre-screened, pre-approved maintenance and repair centers. Over 30,000
franchised and independently owned service centers are affiliated with the
Service Network. The service centers are located in all 50 states, Canada and
Puerto Rico. The Service Network includes service centers associated with
national chains of auto repair centers, such as The Goodyear Tire and Rubber
Company and Jiffy Lube, as well as smaller local centers. The Company retains
complete control over which repair centers are affiliated with the Service
Network. Generally, the Company's written affiliation agreements with the
service centers are terminable at will with short notice requirements, and thus
any service center that fails to perform to the Company's standards will be
terminated. The Company has developed and maintains proprietary software and
telecommunications at its corporate headquarters in Hauppauge, New York. The
database allows the Company to (i) keep track of the labor rates, areas of
specialty and hours of operation of each service center which helps the Company
direct customers to appropriate service centers and (ii) communicate with the
service centers, enabling the Company to oversee and monitor the maintenance
and repair work performed by the centers. For the period ended April 30, 1998,
net revenues from the Company's operation of its Corporate Fleet Program were
$22,530,587.

Guaranties

Most of the repair and maintenance services provided to the corporate
fleets are guaranteed against defects in parts and workmanship for certain
periods of time and/or for a certain number of miles. As part of their
affiliation agreements with the Company, the individual service centers are
required to make such a guaranty to the Company. The Company, in turn, grants
an identical guaranty to its corporate customers. If a vehicle has been
improperly repaired, the customer contacts the Company and the Company arranges
to have the appropriate repairs done at no additional cost to the customer
either through the service center that originally performed the work, or
through a service center responsible for the costs of rectifying any improper
or faulty repairs. The Company coordinates the reimbursement of costs between
service centers. In rare cases, an improper repair is not covered by the
Service Network's member and the Company must pay for the repairs to the
vehicle from its own funds. Historically, claims which are not covered by a
Service Network member have been insignificant. If the vehicle is under a
manufacturer's warranty, the Company arranges for the repairs to be done by an
authorized dealer. The Company incurs no costs for work performed by an
authorized dealer that is covered by a manufacturer's warranty.

Other Services Provided by the Company

In addition to the services provided under the Corporate Fleet Program,
the Company also provides its customers with other services relating to
automobile repair, repossession and disposal.

Computerized Auction System and the Collateral Disposal Services

The Company maintains a proprietary computer network of buyers nationwide
who submit bids on vehicles which according to the Company's vehicle condition
reports, are considered demolished or clients do not wish to repair. The
Company receives a fee from the corporate fleet or financial institution
customer who wishes to dispose of the demolished vehicle, in addition to a fee
from the buyer upon its purchase of the demolished

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vehicle. The Company believes that these fees are generally lower than
traditional auction and disposal service fees. The Company has focused on
selling its customers' salvaged and demolished vehicles. In addition, the
Company has begun to use its disposal services to sell non-salvage vehicles to
auto wholesalers and retailers.

The Collateral Disposal Service is a vehicle disposal service that the
Company provides to loan servicing companies and lenders that assists these
entities in the repossession, storage and auctioning off of repossessed
automobiles. The Company provides the proper control, documentation and
conversion of vehicle collateral into cash. Under the program, loan servicing
companies and lenders receive significant discounts on storage, access to the
Computerized Auction System and access to the Company's nationwide vehicle
transport system. These services enable loan servicing companies and lenders to
convert repossessed vehicles more quickly into cash and receive a higher price
for each vehicle than they are presently able to receive in the marketplace
from traditional services and auction companies.

Insurance Subrogation

If one of the Company's customers has a vehicle that has been in an
accident, the Company offers to the customer its expertise and experience in
the area of insurance subrogation (i.e. making a determination of fault and the
payment of damages and claims based upon that determination). Insurance
subrogation is a process that has numerous regulations and reporting
requirements that vary from state to state. Corporate fleet operators and
financial institutions rarely have the expertise or desire to perform this
function. The Company has the ability to perform these services and it earns a
percentage of the amount collected from third parties or their insurance
companies. The Company generally retains a percentage of amounts collected,
plus expenses, as a fee for its subrogation services.

Retail Customer Autocare Plan

Through its retail customer autocare plan the Company extends its current
services to individual automobile owners. The services provided to the customer
and the economic benefits to the Company are essentially the same as those that
are provided to its corporate customers under the Corporate Fleet Program. In
addition to the fees that the Company receives from the service centers, the
Company also charges its retail customers an annual membership fee to enter the
network, depending upon the service option level that the customer chooses.

Unlike roadside service clubs which only arrange for towing service in the
event of a breakdown or collision, the Company actually monitors and negotiates
all repairs with the repair centers in the Service Network. The Company
believes that its retail customers are able to receive collision, maintenance
and repair services anywhere in the country for less than they would pay if
they were not members of the Company's Program.

Extended Service Contracts

In April 1996, the Company entered into an agreement with Virginia Surety,
an insurance company specializing in the issuance of extended mechanical
service contract agreements for automobiles and light trucks nationwide. Under
the Agreement, the Company offers to corporate customers, financial
institutions and retail customers service contracts covering mechanical repairs
for the covered vehicle for twelve to twenty-four months. In addition to the
up-front fees earned on the sale of the contracts, the Company generates
revenues from the management of related repairs coordinated through the Service
Network.

Corporate Customer Base

The Company's customers include corporations that have automobile fleets,
insurance companies, financial institutions and individuals that want to take
advantage of fleet pricing for automotive repair and vehicle disposal. The
typical customer for our product is a company, which provides automobiles and
or trucks to employees in the ordinary course of business. For the fiscal year
ended April 30, 1998, only one customer accounted for more than 10% of the
Company's revenues.

Competition

The Company believes the principal competitive factors in its corporate
fleet business are prices and service. Key factors that have resulted in the
present competitive position in this industry are use of technology and

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bundling of services. This is especially present for those companies that use
the funding of leases and whose primary function is to sell money to finance a
corporate fleet. Collision and mechanical maintenance is more a sideline for
these lenders and not the primary product. Companies such as PH&H Corp. and GE
Capital bundle the cost of these services into the lending rate.

Management Information Systems

The Salex Response System is software developed by the Company which
offers a full range of interactive functions for the analysis of trends;
comparison to industry of fleet standards; and identification of opportunities
for future improvement. It presents various modifiable systems, which can be
tailored to meet the exact current and future requirements of the individual
fleet. Salex Response is available and operational on Windows 3.X, 95 and NT.

Main Fleet Management Menu -- The Main Fleet Management menu allows the
fleet administrator to design and print standard and customized reports and to
display interactive graphics.

Vehicle Operations Menu -- The Vehicle Operations Menu tracks, in detail,
the vehicle from order status through delivery for new acquisition and provides
a comprehensive fleet cycling and disposal capability. In addition, it monitors
all of the operational aspects of fleet management, including analysis of
operating, fixed and maintenance costs.

Driver Administration Menu -- The Driver Administration Menu provides the
Company control over vehicle assignment and usage by individual drivers. It
tracks historical assignment of drivers to vehicles by date and mileage, and
vehicle assignment by driver. Personal mileage and Fair Market Value can be
detailed for personal tax liabilities.

Safety Administration Menu -- The Safety Administration Menu audits any
accidents that the vehicle or driver may have been involved in, and the
resulting salvage or subrogation that may be realized. It also monitors any
formal training programs that the driver is enrolled in or has completed; and a
history of parking violations and DMV reporting.

Accident Menu -- The Accident Menu details every accident that involves a
company vehicle. It describes not only which vehicle was involved in the
accident, but also who was driving at the time. It details the third party
vehicle(s), who was at fault, what citations were issued, any injuries that
were sustained and their extent, and all witnesses. Finally, it monitors the
process of subrogation or salvage and the cost of recovery process. Through
exception reporting and live interactive graphics, the system will allow our
customers to bench mark and project trends, and to provide senior management
with unlimited specialized analysis.

Marketing and Advertising

Sales of the Company's vehicle management services are made by the
Company's sales staff, which consists of six full-time salespeople and
Salvatore Crimi, the Company's Chief Executive Officer and founder. Marketing
is presently conducted through direct solicitation, which enables the Company
to deal directly with, and be readily accessible to its major customers. New
marketing and advertising strategies and the addition of new personnel will be
necessary to accommodate the Company's anticipated expansion plans. The Company
also markets its services through labor organizations, credit card companies,
insurance companies, universities, credit unions and other associations.

Federal Regulation

The Federal Trade Commission, under the Magnuson-Moss Warranty Act, and
various state and local laws regulate the requirements and mechanics of
consumer product warranties. Since the Company provides products and services
to consumers and guarantees work performed by the service centers, it is
subject to these regulations in addition to other laws regarding consumer
products. The Company believes that it is in compliance with all such laws and
regulations.

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The promulgation of any additional laws or regulations regarding
warranties or consumer products could have an adverse effect on the Company's
business. There can be no assurance that the Company will have the ability to
comply with any such laws or regulations. The failure to comply with such
statutes and regulations could have a material adverse effect upon the Company.

Employees

As of December 16, 1998, the Company employed 66 full and part-time
employees. Of the 66 employees, 7 are classified as executives, 13 as sales and
administrative personnel, 37 as customer service personnel and 9 as clerical
personnel. None of the Company's employees are represented by collective
bargaining agreements. The Company believes that its relations with its
employees are good and has not experienced any interruption of its operations
due to labor disagreements.

Item 2. Properties

The Company leases its executive office which is comprised of
approximately 12,000 square feet and is located at 50 Laser Court, Hauppauge,
New York 11788. See: "Recent Events -- Sale of Executive Offices" and "Certain
Transactions."

Item 3. Legal Proceedings

There are no material legal proceedings now pending or threatened against
the Company.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to the shareholders of the Company during
the fourth quarter of the fiscal year ended April 30, 1998.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

There does not exist any established trading market for the Common Stock.
The Common Stock is presently being quoted on the OTC Bulletin Board. On April
16, 1997, the Company's Common Stock, which was trading on the NASDAQ Small-Cap
Market, under the trading symbol "SYNH" was delisted. On January 17, 1997, the
Company's Common Stock, which was trading on the Boston Stock Exchange under
the trading symbol "SNH" was delisted. No dividends were paid during fiscal
years ended April 30, 1998 and 1997.

For the fiscal year ended April 30, 1998, the table entitled "Year Ended
April 30, 1998, sets forth the high and low bid information for the Common
Stock (based on transaction data as reported by the OTC Bulletin Board). For
the fiscal year ended April 30, 1997, the table entitled "Year Ended April 30,
1997" sets forth the high and low closing sale prices for the Common Stock
(based on transaction data as reported by the NASDAQ Small Cap Market).

Stock Price(s)
-------------------------
High Low
---------- ------------
YEAR ENDED April 30, 1998:
07/31/97 ................. First Quarter:
Common Stock 0.375 0.15625
10/31/97 ................. Second Quarter:
Common Stock 0.1875 0.125
01/31/98 ................. Third Quarter:
Common Stock 0.15625 0.125
04/30/98 ................. Fourth Quarter:
Common Stock 0.21875 0.125
YEAR ENDED April 30, 1997:
07/31/96 ................. First Quarter:
Common Stock 3.625 2.50
10/31/96 ................. Second Quarter:
Common Stock 4.125 2.75
01/31/97 ................. Third Quarter:
Common Stock 1.875 1.00
04/30/97 ................. Fourth Quarter:(1)
Common Stock 0.625 0.375

- ------------
(1) On April 16, 1997, the Company's Common Stock was delisted by the NASDAQ
Small Cap Market. From April 16, 1997, through April 30, 1997, the
Company's Common Stock was quoted on the OTC Bulletin Board. During such
period the average closing bid and ask prices were .241 and .463
respectively.

HOLDERS

The number of holders of record of the Company Common Stock as of December
4, 1998, was 124.

DIVIDENDS

No dividends were paid during the fiscal year ended April 30, 1998. Based
on the Company's current financial situation, the Company is unable to pay
dividends to its shareholders.

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Item 6. Selected Financial Data (In thousands, except per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ............................................ 23,273 22,959 25,482 33,884 29,235
Cost of Sales ........................................ 18,866 18,643 21,174 28,392 24,298
Gross profit ......................................... 4,407 4,316 4,308 5,492 4,937
Selling, general & administrative expenses ........... 4,510 5,022 6,188 5,123 4,454
Non-cash imputed compensation ........................ 400 -- -- -- --
Operating income (loss) .............................. (503) (706) (1,880) 369 483
Interest expense and other -- net .................... 239 380 460 432 282
Net income (loss) .................................... (744) (1,087) (2,399) (94) 120
Accretion of preferred stock ......................... -- (1,062) -- -- --
Net loss attributable to Common Stockholders ......... (744) (2,149) (2,399) (94) 120
Net income (loss) per common share ................... (0.06) (0.19) (0.21) (0.01) (0.01)

April 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ---------- ----------
BALANCE SHEET DATA:
Accounts receivable .................................. 3,348 3,452 3,219 3,288 4,881
Total assets ......................................... 6,354 6,847 7,821 8,208 9,601
Long-term debt ....................................... 556 781 1,054 1,278 1,329
Stockholders' equity (deficit) ....................... (1,847) (1,528) 821 1,201 1,359
</TABLE>

Item 7. Management's Discussion and Analysis or Plan of Operation

All statements contained herein (other than historical facts) including,
but not limited to, statements regarding the Company's future development
plans, the Company's ability to generate cash from its operations and any
losses related thereto, are based upon current expectations. These statements
are forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially from the anticipated results or other
expectations expressed in the Company's forward looking statements. Generally,
the words "anticipate," "believe," "estimate," "expects," and similar
expressions as they relate to the Company and/or its management, are intended
to identify forward looking statements. Among the factors that could cause
actual results to differ materially are the following: the inability of the
Company to obtain additional financing to meet its capital needs; competition
in the automotive maintenance industry; and general business and economic
conditions.

Results of Operations -- Year Ended April 30, 1998 vs. Year Ended April 30,
1997

Net sales increased by $.3 million or 1.3% to $23.27 million for the
fiscal year ended April 30, 1998, as compared to $22.96 for fiscal year ended
April 30, 1997. This was the result of increases in the Company's core
operations (mechanical repairs, glass replacement and auto rentals) as well as
continued growth in its insurance subrogation division and its MVR service
accounts. This was partially offset by a reduction in the number of accidents
reported by our Corporate customers.

The Company's gross margin of 18.9% was .14 percentage points higher than
the previous year level of 18.8%. This increase was attributable to increases
in those areas which yield a higher gross margin than that of other segments of
its core business. Such departments are subrogation, MVR reporting and fees
charged for specialized reports available to all fleet customers.

General and administrative expenses for the fiscal year ended April 30,
1998, of $4.5 million was $.51 million less than the previous year. This 10.16%
decrease was attributable to a 29.9% reduction in the Company's workforce. Such
a reduction decreased salaries by more than $.582 million which had a
corresponding effect on most of the Company's other administrative expenses.

Non-cash imputed compensation of $.400 million for year ended April 30,
1998 is attributable to the value of Common Stock issued as compensation to
outside consultants. There was no comparable expense for the prior year.

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Interest expense of $400,660 for year ended April 30, 1998, was $21,004
higher than the previous year. This 5.5% increase was partially attributable to
the interest charged on a loan to a former officer of the Company.

Net Loss, Liquidity and Capital Resources

Net cash flows used in operating activities were $539,242 for the year
ended April 30, 1998, as compared to $57,194 for the comparable prior period.
This change of $482,048 resulted primarily from changes in accounts receivable,
accrued expenses, accounts payable and compensation relating to the issuance of
Common Stock to outside consultants.

Net cash flows used in investing activities were $54,423 for the year
ended April 30, 1998, as compared to $105,346 for the comparable prior period.
This difference of $50,923 was primarily attributable to a reduction in capital
expenditures as well as a decrease in security deposits.

Net cash flows provided by financing activities were $523,670 for the year
ended April 30, 1998 as compared to $213,955 for the comparable prior year.
This was primarily the result of an increase in the Bank overdraft, in addition
to increased borrowing from our finance company.

The Company has suffered a loss for the fiscal year ended April 30, 1998,
and has negative working capital. The Company has limited availability under
its existing credit facility and the Company will need additional capital to
have sufficient liquidity and to meet its working capital needs for the
foreseeable future.

The Company has sold its executive office and entered into a sale and
leaseback arrangement. This transaction has resulted in $253,400 of additional
working capital. In addition, the Company is currently negotiating to expand
its credit capacity with its current finance institution.

Results of Operations -- Year Ended April 30, 1997 vs. Year Ended April 30,
1996

Net sales decreased by $2.52 million or 9.81% to $22.96 million for the
fiscal year ended April 30, 1997, as compared to $25.48 million for fiscal year
ended April 30, 1996. This decrease resulted from the loss of several major
corporate accounts.

The Company's gross margin of 18.8% was 1.9 percentage points higher than
the previous year level of 16.9%. This increase resulted from the loss of one
of its corporate fleet customers that yielded a significantly lower gross
margin than standard.

General and administrative expenses for the fiscal year ended April 30,
1997, of $5.022 million was $1.16 million less than the previous year. This
18.7% decrease was attributable to significant expenditures incurred for
implementing the Company's plan for the development of service and products to
be provided to insurance companies, financial institutions and retail
consumers. In the future, the Company intends to restructure its operations and
management in order to minimize its expenditures and increase productivity.

Interest expense of $379,656 for year ended April 30, 1997, was $80,444
less than the previous year. This 17.4% decrease was partially attributable to
a decrease in the interest rate charged on the Company's revolving credit with
a finance company, in addition to the interest charged on the Company's loan to
an officer.

Net Loss, Liquidity and Capital Resources

Net cash flows used in operating activities were $57,194 for the year
ended April 30, 1997, as compared to $117,675 provided by operations for the
comparable prior period. This change of $174,869 resulted primarily from
changes in accounts receivable, refund on taxes, accrued expense and
compensation expense in the prior year relating to the sale of Common Stock.

Net cash flows used in investing activities were $105,346 for the Year
Ended April 30, 1997, as compared to $290,086 that was used in investing
activities for the comparable prior period. This difference of $184,740 was
attributable to the reduction in loans receivable due from an officer.

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Net cash flows provided by financing activities were $213,955 as compared
to $21,629 that were provided by financing activities for the comparable prior
year. This was primarily the result of the acquisition and constructive
retirement of common stock and was partially offset by the issuance of
preferred stock.

The Company has suffered a loss for the fiscal year ended April 30, 1997,
and has negative working capital. The Company has limited availability under
its existing credit facility and the Company will need additional capital to
have sufficient liquidity and to meet its working capital needs for the
foreseeable future. It is the Company's intention to refinance its mortgage
liability on a short term basis. The Company expects to enter into a sale and
leaseback arrangement with respect to the property in the near future.

Impact of Inflation and Changing Prices

Although the Company cannot accurately predict the precise effect of
inflation on its operation, it does not believe inflation has had a material
effect on sales or results of operations.

Year 2000

Management believes that based on available information that the Company
will be able to handle the Year 2000 transition without any material adverse
effects on its business, operations or products.

A majority of the software used by the Company is owned by the Company.
With respect to such software, the Company is taking all the necessary actions
to make such software Year 2000 Compliant.

The Company's staff of programmers and systems people are converting all
software to the four digit year protocol necessary for the next millennium.
Such conversions are necessary for only ten percent of our system functions.
These conversions will be completed by March 31, 1999.

The impact of any software purchased from outside vendors is presently,
and in the future, evaluated on a case by case basis.

All imported data from our fleets or vendors that have only a two digit
year will be converted at the office of the Company to a four digit year. All
exported data will contain a four digit year unless the individual fleet or
vendor requires us to conform to their two digit year format.

Item 7A. Quantitative and Qualitative Disclosures about Market Research

Not Applicable.

Item 8. Financial Statements and Supplementary Data

See F-1 -- F-14.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not Applicable.

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<PAGE>

SALEX HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page #
-------
<S> <C>
Independent auditor's report ............................................. F-2

Consolidated balance sheets
April 30, 1998 and 1997 ............................................... F-3
Consolidated financial statements for the three years ended April 30, 1998
Statements of operations .............................................. F-4
Statements of stockholders' equity and capital deficit ................ F-5
Statement of cash flows ............................................... F-6

Notes to consolidated financial statements ............................... F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Salex Holdings Corp.

We have audited the accompanying combined consolidated balance sheets of
Salex Holdings Corp. as of April 30, 1998 and 1997, and the related combined
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended April 30, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined consolidated 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Salex
Holdings Corp. as of April 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1998, in conformity with generally accepted accounting principles.

/s/ Feldman Sherb Ehrlich & Co., P.C.
-------------------------------------
New York, New York Feldman Sherb Ehrlich & Co., P.C.
July 13, 1998, except Certified Public Accountants
for note 12, for which the date is (Formerly Feldman Radin & Co., P.C.)
December 23, 1998

F-2
<PAGE>
SALEX HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
April 30,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash ..................................................................... $ 55,774 $ 125,769
Accounts receivable, net of allowance for doubtful accounts of $238,000
in 1998 and $188,000 in 1997 ........................................... 3,347,504 3,451,589
Prepaid expenses and other current assets ................................ 97,824 77,263
------------ ------------
Total Current Assets .................................................. 3,501,102 3,654,621
------------ ------------
PROPERTY AND EQUIPMENT, net ............................................... 1,620,430 1,746,120
------------ ------------
OTHER NONCURRENT ASSETS:
Goodwill, net ............................................................ 1,113,125 1,210,625
Noncompetition and consulting agreement, net ............................. 86,667 186,667
Other assets ............................................................. 32,321 48,635
------------ ------------
1,232,113 1,445,927
------------ ------------
$ 6,353,645 $ 6,846,668
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft ........................................................... $ 856,365 $ 471,236
Note payable -- finance company .......................................... 1,728,294 1,283,699
Accounts payable ......................................................... 3,594,490 4,161,585
Accrued expenses and other ............................................... 437,006 487,260
Current portion of long-term debt ........................................ 1,018,589 1,179,906
------------ ------------
Total Current Liabilities ............................................. 7,634,744 7,583,686
------------ ------------
LONG-TERM DEBT:
Long-term debt ........................................................... 30,059 71,000
Mortgage payable ......................................................... -- --
Capital leases obligations ............................................... 5,101 33,155
Note payable ............................................................. 521,120 676,948
------------ ------------
556,280 781,103
------------ ------------
DEFERRED INCOME TAXES ..................................................... 10,000 10,000
------------ ------------
STOCKHOLDERS' DEFICIT:
Preferred stock-series A, $.01 par value -- shares authorized 20,000,
issued and outstanding 1,625 and 10,625, respectively (liquidation
preference $100 per share) ............................................. 110,608 737,387
Preferred stock-series B, $.01 par value -- shares authorized, issued and
outstanding 0 and 1,000, respectively .................................. -- 10
Preferred stock-series C, $.01 par value -- shares authorized, issued and
outstanding 25,000 ..................................................... 250 --
Common stock, $.01 par value -- shares authorized 39,000,000 ............. 130,048 91,873
Additional paid-in capital ............................................... 4,514,527 3,501,163
Accumulated deficit and proprietor's capital deficiency .................. (6,102,812) (5,358,554)
Less: Note receivable .................................................... (500,000) (500,000)
------------ ------------
Total stockholders' deficit ........................................... (1,847,379) (1,528,121)
------------ ------------
$ 6,353,645 $ 6,846,668
============ ============
</TABLE>
See notes to financial statements.

F-3
<PAGE>

SALEX HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended April 30,
----------------------------------------------------
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales ............................................ $23,272,987 $ 22,958,814 $ 25,481,629
Cost of sales ........................................ 18,866,443 18,642,887 21,174,290
----------- ------------ ------------
Gross profit ......................................... 4,406,544 4,315,927 4,307,339
Selling, general & administrative expenses ........... 4,170,708 4,669,128 5,892,493
Depreciation and amortization ........................ 338,841 352,629 294,973
Non-cash imputed compensation ........................ 400,000 -- --
----------- ------------ ------------
Income (loss) from operations ........................ (503,005) (705,830) (1,880,127)
Interest expense, net ................................ 400,660 379,656 460,100
Other income ......................................... (162,125) -- --
----------- ------------ ------------
Loss before taxes .................................... (741,540) (1,085,486) (2,340,227)
Taxes ................................................ 2,718 1,062 58,686
----------- ------------ ------------
Net loss to common shareholders ...................... (744,258) (1,086,548) (2,398,913)
Accretion of preferred stock dividends attributable to
increase to conversion value ........................ -- (1,062,500) --
----------- ------------ ------------
Net loss to common shareholders ...................... $ (744,258) $ (2,149,048) $ (2,398,913)
=========== ============ ============
Basic loss per share of common stock ................. $ (0.06) $ (0.19) $ (0.21)
=========== ============ ============
Weighted average common shares outstanding ........... 13,004,770 11,246,366 11,246,366
=========== ============ ============
</TABLE>

See notes to financial statements.

F-4
<PAGE>
SALEX HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
STATEMENT OF STOCKHOLDERS' DEFICIT (CAPITAL DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock
Series A Series B ($.01 par)
-------------------------- ---------------------
<S> <C> <C> <C> <C>
Balance, April 30, 1995 .............................. -- -- -- --
Sale of common stock ................................
Compensation related to sale of shares ..............
Net loss ............................................
Balance, April 30, 1996 .............................. -- -- -- --
------ ----------- ------ ------
Acquisition and constructive retirement of
treasury stock purchased from principal
shareholder ........................................
Reserve stock split and issuance of series B
preferred stock .................................... -- -- 1,000 $ 10
Acquisition of Synergistic Holding Corporation
and constructive retirement of treasury stock ......
Private placement of preferred stock and
warrants net of related expenses ................... 10,625 $ 737,387
Accretion of preferred stock to conversion value
Net loss ............................................
------ ----------- ------ ------
Balance, April 30, 1997 .............................. 10,625 $ 737,387 1,000 $ 10
Conversion of Series A preferred to common
stock .............................................. (9,000) (626,779)
Conversion of Series B preferred to common
stock .............................................. (1,000) (10)
Issuance of series C preferred stock ................
Net Loss ............................................
------ ----------- ------ ------
Balance, April 30, 1998 .............................. 1,625 $ 110,608 -- --
====== =========== ====== ======

Preferred Stock Common Stock Paid-In
Series C ($.01 par) ($.01 par) Capital
------------------ ----------------------------- ---------------
Balance, April 30, 1995 .............................. -- -- 5,356,200 53,562 1,958,438
Sale of common stock ................................ 2,543,800 25,438 1,206,562
Compensation related to sale of shares .............. 786,546
Net loss ............................................
------ ---- ------------ --------- -------------
Balance, April 30, 1996 .............................. -- -- 7,900,000 79,000 3,951,546
Acquisition and constructive retirement of
treasury stock purchased from principal
shareholder ........................................ (1,453,600) (14,536) (1,985,464)
Reserve stock split and issuance of series B
preferred stock .................................... -- -- (715,550) (7,155) 7,145
Acquisition of Synergistic Holding Corporation
and constructive retirement of treasury stock ...... 3,456,410 34,564 465,436
Private placement of preferred stock and
warrants net of related expenses ...................
Accretion of preferred stock to conversion value 1,062,500
Net loss ............................................
------ ---- ------------ --------- -------------
Balance, April 30, 1997 .............................. -- -- 9,187,260 $ 91,873 $ 3,501,163
Conversion of Series A preferred to common
stock .............................................. 1,758,404 17,584 609,195
Conversion of Series B preferred to common
stock .............................................. 2,059,106 20,591 (20,581)
Issuance of series C preferred stock ................ 25,000 $250 424,750
Net Loss ............................................
------ ---- ------------ --------- -------------
Balance, April 30, 1998 .............................. 25,000 $250 $ 13,004,770 $ 130,048 $ 4,514,527
====== ==== ============ ========= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

(Capital Note
deficit) Receivable Total
--------------- -------------- ---------------
<S> <C> <C> <C>
Balance, April 30, 1995 .............................. (810,593) -- 1,201,407
Sale of common stock ................................ 1,232,000
Compensation related to sale of shares .............. 786,546
Net loss ............................................ (2,398,913) (2,398,913)
---------- ---------- ----------
Balance, April 30, 1996 .............................. (3,209,506) -- 821,040
Acquisition and constructive retirement of
treasury stock purchased from principal
shareholder ........................................ (2,000,000)
Reserve stock split and issuance of series B
preferred stock .................................... --
Acquisition of Synergistic Holding Corporation
and constructive retirement of treasury stock ...... (500,000) --
Private placement of preferred stock and
warrants net of related expenses ................... 737,387
Accretion of preferred stock to conversion value (1,062,500) --
Net loss ............................................ (1,086,548) (1,086,548)
---------- ---------- ----------
Balance, April 30, 1997 .............................. ($ 5,358,554) ($ 500,000) ($ 1,528,121)
Conversion of Series A preferred to common
stock .............................................. --
Conversion of Series B preferred to common
stock .............................................. --
Issuance of series C preferred stock ................ 425,000
Net Loss ............................................ (744,258) (744,258)
---------- ---------- ----------
Balance, April 30, 1998 .............................. ($ 6,102,812) ($ 500,000) ($ 1,847,379)
=========== ========= ===========
</TABLE>

See notes to financial statements.

F-5
<PAGE>

SALEX HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended April 30,
------------------------------------------------------
1998 1997 1996
--------------- ---------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................... $ (744,258) $ (1,086,548) $ (2,398,913)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........................ 338,841 352,629 294,973
Provision for doubtful accounts ...................... 50,000 -- 31,000
Deferred income taxes ................................ -- -- (1,000)
Compensation related to sale of share ................ 400,000 -- 786,546
Increase (decrease) in cash flows from changes in
operating assets and liabilities:
Accounts receivable .................................. 54,085 (232,680) 57,360
Prepaid expenses and other current asssets ........... (20,561) 12,998 58,554
Refundable taxes ..................................... -- 58,239 239,022
Accounts payable ..................................... (567,095) 838,019 921,908
Accrued expenses and other current liabilities ....... (50,254) 149 128,225
----------- ------------ -------------
Net cash provided by (used in) operating activities ..... (539,242) (57,194) 117,675
----------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net ............................ (15,651) (50,260) (63,626)
Decrease (increase) in other assets .................. 16,314 -- (600)
Loan to officer, net of repayments ................... (55,086) (55,086) (225,860)
----------- ------------ -------------
Net cash used in investing activities ................... (54,423) (105,346) (290,086)
----------- ------------ -------------
(593,665) (162,540) (172,411)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft ............................. 385,129 25,796 (757,514)
Net proceeds from (repayments of) note payable
-- finance company ................................ 444,595 (172,744) (232,062)
Principal payments on long-term debt ................. (197,635) (210,687) (54,753)
Payments on capital leases obligations ............... (61,419) (61,363) (58,906)
Payments on mortgage obligation ...................... (72,000) (72,000) (72,000)
Distribution to stockholders ......................... -- -- 89,181
Proceeds from promissory note -- Bank ................ -- (32,433) (35,135)
Net proceeds from issuance of preferred stock......... 25,000 737,386 --
Net proceeds from issuance of common stock ........... -- -- 1,142,818
----------- ------------ -------------
Net cash provided by (used in) financing activities ..... 523,670 213,955 21,629
----------- ------------ -------------
Net increase (decrease) in cash ......................... (69,995) 51,415 (150,782)
Cash, at beginning of period ............................ 125,769 74,354 225,136
----------- ------------ -------------
Cash, at end of period .................................. $ 55,774 $ 125,769 $ 74,354
=========== ============ =============
SUPLEMENTARY CASH FLOW DISCLOSURE
Interest paid ..................................... $ 403,293 $ 379,656 $ 460,000
=========== ============ =============
Taxes paid ........................................ -- -- $ 33,000
=========== ============ =============

</TABLE>

See notes to financial statements.

F-6
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of Business

Salex Holdings Corp. (the "Company") operates in the automobile asset
management industry. Through the Company's "Corporate Fleet Program" it
manages, on a nationwide basis, the maintenance and repair of fleets of
automobiles which are owned and operated by corporate customers. The Company
maintains a nationwide "Service Network" of over 30,000 independently owned
pre-screened and pre-approved maintenance and repair centers. The Company
receives a monthly management fee from its corporate customers as well as
fees from its service network. Other services of the Company include the
Collision Management Program, the Computerized Auction System and Collateral
Service Shield and the Insurance Subrogation Program.

b. Basis of Presentation and Principles of Combination and Consolidation

Pursuant to the merger agreement dated September 19, 1996 Salex Industries,
Inc. ("SII") a wholly-owned subsidiary of Synergistic Holdings Corp. was
merged with and into Salex Holding Corporation (Salex) whereby all of the
shares of common stock of Salex held by the Company were canceled and all of
the 4,503,000 shares of common stock owned by the Salex Stockholders were
converted into (a) 4,003,165 shares of common stock, par value $.01 per share
and (b) 1,000 shares of Series B Convertible Preferred Stock.

Immediately after the closing, the Company, pursuant to a Stock and Asset
Purchase Agreement with Dickinson Holding Corporation ("Dickinson"), a
Delaware corporation, sold ( the "Divestiture") all of the outstanding shares
of its subsidiary, Dickinson & Co., Inc. ("DCI"), a registered broker/dealer
and its investment in Electronic Designs, Inc. ("EDI"). As consideration for
the stock and assets that were transferred in connection with the
divestiture, Dickinson transferred to the Company 750,000 shares of its
Synergistic Common Stock and a $500,000 promissory note secured by 250,000
shares of its Synergistic Common Stock pursuant to a Pledge Agreement between
Dickinson and the Company.

Because the Company's only asset after the Divestiture was its investment in
Salex and its collateralized promissory note from Dickinson., the Company was
deemed to be in substance a "shell" at the Closing of the merger. The SEC
believes that shells are not businesses and therefore, cannot initiate
business combinations. For accounting purposes the SEC views the transaction
as an equity transaction by the private operating company ("Salex") rather
than as an acquisition of Salex by the Company. The SEC requires that the net
assets of the public shell be recorded at carryover basis in which no
goodwill arises on the transaction. Accordingly the merger transaction has
been accounted for as a recapitalization of Salex (stock split, distribution
of preferred stock, and treasury stock purchase) followed by an issuance of
common stock by Salex in exchange for treasury stock and Synergistic's note
receivable from Dickinson. The note receivable, which is collateralized by
Salex stock, has been recorded as a reduction of additional paid-in capital.

c. Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation and amortization are
provided on either the straight-line basis or accelerated methods over the
estimated useful lives of the assets.

d. Taxes on Income

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases (temporary
differences) and operating loss and tax credit carry forwards. These
temporary differences arise primarily from the allowance for doubtful
accounts provision and differences in depreciation methods between the
financial statements and the depreciation utilized on the Company tax
returns. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance
has been provided to reduce the deferred tax assets to a level that will be
realized.

F-7
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

e. Use of Estimates

In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.

f. Revenue Recognition

The Company's principal revenues are derived from billings for repairs and
maintenance for vehicles covered in its fleet management program. Revenues
are recorded when the services have been rendered.

g. Goodwill

The excess of cost over fair value of net assets acquired is being amortized
on the straight-line method over a twenty year period. Amortization of
goodwill for each of the years ended April 30, 1998, 1997 and 1996 amounted
to $97,500.

The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over fair value of net assets
acquired which is other than temporary is to evaluate the recoverability and
remaining life of its goodwill and determine whether the goodwill should be
completely or partially written-off or the amortization period accelerated.
The Company will recognize an impairment of goodwill if undiscounted
estimated future operating cash flow of the Company is determined to be less
than the carrying amount of goodwill. If the Company determines that goodwill
has been impaired, the measurement of the impairment will be equal to the
excess of the carrying amount of the goodwill over the amount of the
discounted estimated operating cash flow using the Company's average cost of
funds. If an impairment of goodwill were to occur, the Company would reflect
the impairment through a reduction in the carrying value of goodwill. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.

h. Noncompetition and Consulting Agreements

Amortization is provided over the three to five year contractual lives of the
agreements. Amortization of the agreements was $100,000, $83,333 and $60,000
for the years ended April 30, 1998, 1997 and 1996 respectively.

i. Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including cash,
accounts receivable and payable, and short-term debt, approximated fair value
as of April 30, 1997 and 1998. The carrying value of long-term debt,
including the current portion, approximated fair value as of April 30, 1997
and 1998, based on the borrowing rates currently available to the Company for
bank loans with similar terms and maturities.

j. Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement
No.123, "Accounting for Stock-Based Compensation," which is effective for
transactions entered into after December 31, 1995. Statement No.123
establishes a fair value method of accounting for stock-based compensation,
through either recognition or disclosure. The Company adopted the employee
stock-based compensation disclosure-only provisions of Statement No. 123 in
fiscal 1997 by disclosing the pro forma net income amounts assuming the fair
value method was adopted May 1, 1996. The adoption of Statement No. 123 did
not impact the Company's results of operations, financial position or cash
flows.

F-8
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)

k. Earnings Per Share

The Company has adopted the provisions of Financial Accounting Standard No.
128, "Earnings per share", which became effective for financial statements
for fiscal years ending after December 15, 1997.

Basic earnings per share are based on the weighted average number of common
and common equivalent shares outstanding. The diluted calculation when
applicable takes into account the shares that may be issued upon exercise of
stock options and warrants, reduced by the shares repurchased with the funds
received from their exercise.

l. Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The Company's largest customer accounts for approximately 7% of
accounts receivable at April 30, 1998. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:
<TABLE>
<CAPTION>
April 30,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Land ................................................... $ 490,000 $ 490,000
Building ............................................... 1,227,261 1,227,261
Furniture & Fixture .................................... 1,419,060 1,417,052
Vehicles ............................................... 91,404 77,760
Leasehold improvements ................................. 21,920 21,920
---------- ----------
3,249,645 3,233,993
Less accumulated depreciation and amortization ......... 1,629,215 1,487,873
---------- ----------
$1,620,430 $1,746,120
========== ==========
</TABLE>

3. NOTE PAYABLE -- FINANCE COMPANY

The Company has a $2,250,000 revolving credit agreement with a finance
company, which renews annually on January 1. Interest on borrowings are at
prime plus 2% or 10.25% at April 30, 1998 and 1997. Borrowings are
collateralized by substantially all of the Company's assets not otherwise
encumbered and are personally guaranteed by the Company's principal
stockholder.

F-9
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Mortgage payable to bank, payable in monthly installments of $6,000
through December 1997, plus interest at 2% above the bank's "peg rate"
(10.75% at April 30, 1996). The balance of $792,203 was due January 20,
1998. The bank did not renew this mortgage and has demanded payment
and the Company is in default and trying to refinance it. The mortgage is
collateralized by land and building with a book value of $1,423,031 at
April 30, 1998. ............................................................ $ 768,203 $ 840,203

Consulting and Noncompetition agreement was payable in monthly
installments of $5,000 through November 1998. Company did not pay last
six installments and renegotiated agreement in June 1998. According to
new term and conditions the Company will pay $10,000 in the beginning
of next fiscal year. Remaining $45,000 will be paid over eighteen (18)
months in semi-monthly installments of $1352.35 including interest at
10.5%. ..................................................................... 55,000 90,000

Capital lease obligations with varying monthly payments and interest rates
ranging from 15% to 17% per annum maturing 1998 through 2000; secured
by interests in computer equipment. ........................................ 33,099 94,518

Promissory note payable to bank in monthly installments of $2,703, plus
interest, through April 1998; interest at prime plus 2% (10.25% at April 30,
1996); secured by an interest in computer equipment. Promissory note was
paid off as of April 30, 1998. ............................................. -- 29,729

Buy out agreement payable in monthly installments of $4,000 through
September. 1998 and then $1,750 through September 1999. .................... 41,619 89,000

Note payable in quarterly installments of $55,086 including interest at 11%. 676,948 817,559
--------- ---------
1,574,869 1,961,009
Less: Current maturities of long-term debt and capital lease obligations ... 1,018,589 1,179,906
--------- ---------
$ 556,280 $ 781,103
========= =========
</TABLE>

The following is a schedule by years of future minimum lease payments
under capital leases, together with the present value of the net minimum lease
payments as of April 30, 1998:

Year ending April 30,
---------------------
1999 ......................................... $31,202
2000 ......................................... 5,200
-------
Total minimum lease payments ....................... 36,402
Less: amount representing interest ................. 3,303
-------
Present value of net minimum lease payment ......... $33,099
=======

F-10
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS -- (Continued)

The following is a schedule of long-term debt maturities (including
capital lease obligations) as of April 30, 1998:

Year ending April 30,
---------------------
1999 ................................ 207,855
2000 ................................ 191,385
2001 and thereafter ................. 157,040
-------
$556,280
========

5. MAJOR CUSTOMERS

For the year ended April 30, 1998, one customer accounted for 10% of net
sales.

6. EMPLOYMENT AGREEMENTS

Upon termination of the Company's previous employment agreements, the
Company entered into new employment agreements with five officers and employees
which provide for automatic annual renewals and no fixed salary. Current annual
salary levels under each of these agreements are $75,000.

7. RETIREMENT PLANS

The Company has a 401(K) plan for eligible salaried employees. The
contribution for any participant may not exceed statutory limits. During fiscal
years ended April 30, 1996 the Company matched each employee participant's
contributions up to the first 6% of compensation. No matching contributions
were recorded for the year ended April 30, 1998 and 1997. The total matching
contributions charged against operations approximated $60,000 for the year
ended April 30, 1996.

8. TAXES ON INCOME

The provisions for (recoveries of) taxes on income in the consolidated
statements of operations consist of the following:

<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal ....................................... $ -- $ -- $ 50,733
State ......................................... 2,218 1,062 8,953
------ ------ --------
Total current .............................. 2,218 1,062 59,686
Deferred:
Federal ....................................... -- -- (850)
State ......................................... -- -- (150)
------ ------ --------
Total deferred ............................. -- -- (1,000)
------ ------ --------
Total taxes on income (recoveries) ......... $2,218 $1,062 $ 58,686
====== ====== ========

</TABLE>

F-11
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

8. TAXES ON INCOME -- (Continued)

Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
April 30,
-----------------------------------------------
1998 1997 1996
--------------- ------------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Receivable reserve .................................. $ 75,000 $ 75,000 $ 75,000
Net operating loss carryforwards .................... 954,000 886,000 515,000
------------ ---------- ----------
Total deferred tax asset ......................... 1,029,000 961,000 590,000
Valuation allowance for deferred tax assets ......... (1,029,000) (961,000) (590,000)
------------ ---------- ----------
Net deferred tax asset ........................... $ -- $ -- $ --
============ ========== ==========
Deferred tax liability:
Depreciation ........................................ $ 10,000 $ 10,000 $ 27,000
------------ ---------- ----------
Noncurrent deferred income tax liability ......... $ 10,000 $ 10,000 $ 27,000
============ ========== ==========

</TABLE>
The provision for taxes on income (loss) before taxes differs from the
amounts computed applying Federal statutory rates due to the following:
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Provision for Federal income taxes at the statutory rate ......... (34%) (34%) (34%)
Loss (income) earned by S Corporation taxable to individual
stockholders .................................................... 0 0 0
Adjustment for under (over) accrual from prior year .............. 0 0 (3)
State taxes, net of Federal tax benefit .......................... (6) (6) (6)
Non-deductible expenses .......................................... 5 9 16
Valuation allowance for deferred tax assets ...................... 35 31 24
--- --- ---
Provision for taxes on income .................................... 0% 0% 3%
=== === ===
</TABLE>

As of April 30, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $2,300,000, expiring in the year
2013.

The Company has established valuation allowances equal to its deferred tax
assets because of the uncertainty as to their future utilization.

9. STOCKHOLDERS' EQUITY

In January 1998, the Company amended its Certificate of Incorporation to
increase the authorized common stock to 39,000,000 shares and the preferred
stock authority to 1,000,000 shares.

The Company in an effort to raise additional capital issued its series A
convertible Preferred Stock pursuant to a private placement offering dated July
9, 1996. The shares are redeemable solely at the option of the Company based on
a redemption value of $100 plus any accrued but unpaid dividends. The Series A
Preferred Stock sold in 250 share "units" which includes 25,000 Warrants per
unit each exercisable for 1 share of Common Stock at an exercise price of $4.75
per Warrant.

Each share of the Series A Preferred Stock is convertible based on the
average price of the common stock for the (10) day trading period immediately
preceding the conversion but in no event less than $0.50 per share. Preferred
shareholders are able to convert the series A preferred stock at twice its
liquidation preference. The

F-12
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

9. STOCKHOLDERS' EQUITY -- (Continued)

substance of this adjustment to the series A preferred stock is that of a 100%
stock dividend. Accordingly the Company has recorded accretion to increase paid
in capital and charge retained earnings for the amount of the adjustment.
During the fiscal year ended April 30, 1998, a total of 9,000 shares of Series
A Preferred stock were converted into 1,758,404 shares of common.

As part of the merger agreement all of the issued and outstanding shares
of Salex Holding Corp. were converted into shares of Salex Common Stock and as
part of a reverse stock split, 1,000 shares of series B Convertible Preferred
Stock. Each share of the series B Preferred Stock automatically converted into
2,059.106 shares of Salex Common Stock as soon as the Company amended its
certificate of incorporation increasing the authorized Common Stock of the
Company.

During May 1997 the Board of Directors of the Company adopted a resolution
providing for the authorization and issuance of 25,000 shares of its $.01 par
value Series C Preferred Stock. The Preferred Stock has an issue price of $1.00
per share and each share issued is convertible into 100 shares of Common Stock.
The Series C Preferred Stock shall rank prior to all of the Company's $.01par
value common stock. The 25,000 shares of Preferred stock were issued in May in
connection with a consulting agreement.

The Series A Preferred are entitled to dividends of 8.5% per year. As of
April 30, 1998 no payment or accrual of these dividends has been recorded
because under Delaware Law the Company can not legally pay dividends unless
there is sufficient retained earnings or current profits from which the
dividends can be distributed. Said dividends although unpaid are cumulative and
will become payable to the preferred stockholders at such time in which the
Company has restored its capital deficiency. The amount of unpaid dividends
otherwise applicable to the period ended April 30,1998 was approximately
$55,000.

10. STOCK BASED COMPENSATION

The following table summarizes the changes in options and warrants
outstanding and the related price range for shares of the Company's common
stock.

Stock Options and Warrants
<TABLE>
<CAPTION>
Options Warrants Price
------------- ------------ ---------------
<S> <C> <C> <C>
Outstanding at April 30, 1994 ................... 247,000 173,500
Granted ......................................... -- --
Exercised ....................................... -- --
Expired ......................................... (67,000) (57,832)
Retired ......................................... -- --
------- -------
Outstanding at April 30, 1995 ................... 180,000 115,668
Granted ......................................... 58,300 $ 2.00
Granted ......................................... 625,000 $ 2.00
Exercised ....................................... -- --
Expired ......................................... (66,000) 115,668
------- -------
Retired ......................................... -- --
------- -------
Outstanding at April 30, 1996: .................. 172,300 625,000
Granted ......................................... 1,129,333 $ 1.00-2.12
Granted ......................................... 1,062,500 $ 4.75
Exercised ....................................... -- --
Expired ......................................... (500,000) --
Retired ......................................... -- --
Outstanding at April 30, 1997 and 1998 ..........
--------- ---------
801,633 1,687,500
========= =========
</TABLE>
F-13
<PAGE>

SALEX HOLDINGS CORP.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)

10. STOCK BASED COMPENSATION -- (Continued)

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations. As such, compensation
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. The Company has adopted the
disclosure only provisions of SFAS 123 "Accounting for Stock Based
Compensation". Accordingly, no compensation cost has been recognized for the
plan. Had compensation cost for the Company's option plans been determined
based on fair value at the grant date for the awards consistent with the
provisions of SAS 123, the Company's net loss and net loss per share would have
been increased by $515,547 and $.05 for the year ended April 30, 1997 and not
effected for the fiscal year ended April 30, 1998.

The fair value of each option grant is estimated based on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for grants: No dividend yield; expected volatility of .87%;
risk free interest rate of 6%; and expected lives of 3 years.

11. CONSULTING AGREEMENT

In May 1997, the Company entered into a consulting agreement with Meadows
Management ("Meadows") for a two year period at $2,000 per week. In addition to
the fee arrangement, Meadows received 25,000 shares of Series C Preferred Stock
for $1.00 per share, each of which are convertible into 100 shares of common
stock. The Company attributed a value of $425,000 to the stock, with the excess
of $400,000 over the amount paid recorded as prepaid compensation.
Subsequently, in December 1997, the Company terminated the arrangement because
of its belief of non performance by Meadows. Any remaining prepaid compensation
related to the stock was written off to expense upon termination. The Company
has been attempting to get the stock back from Meadows.

12. SUBSEQUENT RELATED PARTY TRANSACTIONS

Sale of Building

On December 23, 1998, the Company entered into a real estate purchase
agreement ("Purchase Agreement") by and among the Company, Salvatore Crimi and
Sun Associates, LLC ("Sun"), a company controlled by Betty Sun, (as record
title holder) who is the wife of Pershing Sun a director of the Registrant. The
Company has agreed to sell the property for $1,100,000. A portion of the
proceeds was used to pay the mortgage securing the property. The balance was
used for working capital. Simultaneously with this sale the Company and Sun
entered into a lease agreement (the "Lease Agreement") pursuant to which Sun
leased the property to the Company. The annual basic rent for the period
December 31, 1998 ending December 31, 1999 is $168,000. Annual rent increases
will not be greater than $8,985 per year. The Company has a repurchase option
(the "Option") to repurchase the property up to June 23, 1999 for $1,155,000
net of Sun Associates' transaction costs, based on the Company being in
compliance with certain covenants. The Option provides that if Sun Associates
sells the property prior to December 31, 1999, 50% of the profits go to the
Company based on the Company being in compliance with certain covenants.

F-14
<PAGE>
PART III

Item 10. Directors and Executive Officers of the Company

The following table sets forth certain information concerning each nominee
for the office of Director, each Director and each executive officer of the
Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Salvatore Crimi .............. 73 Chief Executive Officer and Chairman of the Board
of Directors

Pershing Sun ................. 55 President and Director

Angelo Crimi ................. 46 Secretary and Director

Franklin Pinter .............. 48 Director

Syd Mandelbaum ............... 48 Director

Francis Fitzpatrick .......... 57 Director
</TABLE>

Salvatore Crimi has served as the Chairman of the Board of Directors and
Chief Executive Officer of the Company since September 18, 1996. From 1974 to
1996 Mr. Crimi served as Chairman of the Board and Chief Executive Officer of
Salex Holding Corporation a corporate entity separate and distinct from the
Company (the "Prior Company"). He is the father of Angelo Crimi, Secretary of
the Company.

Pershing Sun has served as a Director of the Company and Chief Information
Officer of the Company since September 18, 1996. In March 1998, Mr. Sun was
also appointed President of the Company. From September 1996, until March 1998,
Mr. Sun served as Senior Vice President of the Company. From 1991 to 1996 Mr.
Sun served as Chief Information Officer of the Prior Company.

Angelo Crimi has served as Secretary of the Company since September 18,
1996. From September 1996 until March 1998. Mr. Crimi was Vice President of the
Company and from September 1996 until June 1998, Mr. Crimi was a Director of
the Company. From 1995 to September 1996 Mr Crimi served as President of the
Prior Company. Mr. Crimi is the son of Salvatore Crimi.

Franklin T. Pinter has served as a Director of the Company since January
7, 1997. From 1984 to the present Mr. Pinter has served as a Financial
Consultant and Estate Planner with the firms of Merrill Lynch and Arnone, Lowth
& Fanning.

Francis Fitzpatrick has served as a Director of the Company since
September 18, 1996. Mr. Fitzpatrick has served as a Vice President of
Fitzpatrick Brothers Corporation, an auto collision repair facility, since
1982.

Syd Mandelbaum has served as a Director of the Company since December 29,
1997. Mr. Mandelbaum has been an account executive for Toshiba American Medical
Systems since 1997. From 1993 to 1997 Mr. Mandelbaum served as a laser flow
cytometry specialist with the Coulter Corporation. Form 1990 to 1993 Mr.
Mandelbaum was a Vice President of Cell Measurement Systems for Imager
Instrumentation.

FILING DISCLOSURE

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the rules thereunder require officers and directors of companies with
securities registered under the Exchange Act and persons who own more than 10%
of such companies' common stock to file reports of ownership and changes in the
ownership with the Securities and Exchange Commission and to furnish the
Company with copies.

Based upon its review of the copies of such forms received by it, or
written representation from certain reporting persons, the Company believes
that, during the last fiscal year, all filing requirements applicable to its
officers, directors, and greater than 10% beneficial owners were complied with.

III-1
<PAGE>
Item 11. Executive Compensation

The following table sets forth the cash and non-cash compensation awarded
to or earned by the Chief Executive Officer during fiscal years ended April 30,
1998 and 1997, and the most highly compensated executive officers of the
Company earning at least $100,000 per year during fiscal year ended April 30,
1998.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------- -----------------------
Awards
Other Securities
Fiscal Annual Underlying
Name & Principal Position Year Salary Compensation Options/SAR's
------------------------- ---- ------ ------------ -------------
<S> <C> <C> <C> <C>
($) ($) (#)
Salvatore Crimi,
Chairman of the Board and 1998 $ 140,000(1) $ 10,072(3) --
Chief Executive Officer ......... 1997 $ 95,866(2) $ 12,214(4) 79,610
Pershing Sun, 1998 $ 120,000(5) $ 8,449(6) --
President ....................... 1997 $ 66,365(2) $ 12,299(7) --
Angelo Crimi, 1998 $ 100,000(8) $ 11,477(9) --
Secretary ....................... 1997 $ 67,654(2) $ 11,782(10) --
</TABLE>

- ------------
(1) Includes $47,946 representing accrued but unpaid salary.

(2) Includes the compensation earned prior to the acquisition by the Company
of the prior Company on Sepember 18, 1996.

(3) Includes $6,110 representing car and commuting allowance and $3,962
representing the value of certain health insurance benefits provided by
the Company.

(4) Includes $7,041 representing car and commuting allowance and $5,173
representing the value of certain health insurance benefits provided by
the Company.

(5) Includes $34,615 representing accrued but unpaid salary.

(6) Includes $4,207 representing car and commuting allowances and $4,242
representing the value of certain health insurance benefits provided by
the Company.

(7) Includes $4,750 representing car and commuting allowances and $7,549
representing the value of certain health insurance benefits provided by
the Company.

(8) Includes $21,154 representing accrued but unpaid salary.

(9) Includes $5,212 representing car and commuting allowances and $6,264
representing the value of certain health insurance benefits provided by
the Company.

(10) Includes $5,686 representing car and commuting allowances and $6,096
representing the value of certain health insurance benefits provided by
the Company.

AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE*

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
(#) ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
Salvatore Crimi ......... 31,844 47,766 -- --
Pershing Sun ............ 15,190 22,706 -- --
Angelo Crimi ............ -- -- -- --

- ------------
(1) Calculated based on the average closing bid and ask prices as quoted the
OTC Bulletin Board for the last business day of the fiscal year ($.017 per
share) less the exercise price payable for such shares.

III-2
<PAGE>

Directors' Compensation

Directors of the Company receive compensation for serving on the Board of
Directors or any of its committees. Each non-employee director also receives
options, as a formula grant, to purchase 5,000 shares of Common Stock at an
exercise price equal to their market value on the first trading day of each
May.

Employment Contracts and Termination of Employment and Change-In-Control
Agreements

Salvatore Crimi

On April 24, 1998 the Company entered into a new employment agreement with
Salvatore Crimi, for the fiscal year ending April 30, 1999. Mr. Crimi's
employment agreement provides for his appointment as Chief Executive Officer
for a one year term which ends on April 30, 1999. The term is automatically
extended for additional one-year periods unless either party gives written
notice to the other of its desire not to renew such term which notice must be
given no later than ninety (90) days prior to the end of each term on any such
renewal. The agreement provides that Mr. Crimi receive an annual base salary at
the rate of $75,000. The agreement provides that the Company reserves the right
to adjust Mr. Crimi's salary during the term of the agreement. To demonstrate
his commitment to the Company during the fiscal year ended April 30, 1997, Mr.
Crimi reduced his base salary approximately 31.52% from $140,000 to $95,866.

In the event that the Company terminates Mr. Crimi's employment, other
than for cause, or Mr. Crimi terminates his employment as a result of a breach
by the Company of the agreement, Mr. Crimi will be paid severance compensation
equal to his annual base salary (at the rate payable at the time of such
termination) and accrued benefits plus an amount equal to the lesser of one
year's full base salary (as in effect at the time of such termination) and any
other amounts owed to him under the agreement or the full base (as in effect at
the time of such termination) and any other amounts that would have been
payable to Mr. Crimi from the date of termination through the original stated
expiration date of the employment agreement. In the event that the Company
terminates Mr. Crimi's employment for cause or Mr. Crimi shall terminate his
employment for reasons other than a breach of the agreement by the Company, the
Company shall pay Mr. Crimi his full base salary and accrued benefits through
the date of termination at the rate in effect at the time notice of termination
is given. For a period of two years following termination of Mr. Crimi's
employment for any reason (other than a termination by the Company without
cause) Mr. Crimi cannot perform services for or have an equity interest in
(except for an interest of 2% of less in an entity which is engaged in a
competitive business and which is publicly traded) any competitive business. In
addition, the Agreement provides that for the two year period following
termination of Mr. Crimi's employment for any reason, with or without cause,
Mr. Crimi cannot, directly or indirectly (including without limitation, as
owner employee, agent consultant or independent contractor) provide or solicit
services of the type provided by the Company to any of its existing customers
or potential customers with which or with whom the Company has negotiated
within the twelve months preceding the date of termination of Mr. Crimi's
employment.

Pershing Sun

On April 24, 1998, the Company entered into a new employment agreement
with Pershing Sun, for the fiscal year ending April 30, 1999. Mr. Sun's
employment agreement provides for his appointment as President of the Company
for a one year term, which ends on April 30, 1999. The term is automatically
extended for additional one (1) year periods unless either party gives written
notice to the other of its desire not to renew such term which notice must be
given no later than ninety (90) days prior to the end of each term on any such
renewal. The agreement provides that Mr. Sun received an annual base salary at
the rate of $75,000. The agreement provides that the Company reserves the right
to adjust Mr. Sun's salary during the term of the agreement. To demonstrate his
commitment to the Company during the fiscal year ended April 30, 1997, Mr. Sun
reduced his base salary approximately 44.47% from $120,000 to $66,635.

In the event that the Company terminates Mr. Sun's employment, other than
for cause, or Mr. Sun terminates his employment as a result of a breach by the
Company of the agreement, Mr. Sun will be paid severance compensation equal to
his annual base salary (at the rate payable at the time of such termination)
and accrued benefits plus an amount equal to the lesser of one year's full base
salary (as in effect at the time of such termination) and any other amounts
owed to him under the agreement or the full base (as in effect at the time of
such termination) and any other amounts that would have been payable to Mr. Sun
from the date of termination

III-3
<PAGE>

through the original stated expiration date of the employment agreement. In the
event that the Company terminates Mr. Sun's employment for cause or Mr. Sun
shall terminate his employment for reasons other than a breach of the agreement
by the Company, the Company shall pay Mr. Sun his full base salary and accrued
benefits through the date of termination at the rate in effect at the time
notice of termination is given. For a period of two years following termination
of Mr. Sun's employment for any reason (other than a termination by the Company
without cause) Mr. Sun cannot perform services for or have an equity interest
in (except for an interest of 2% of less in an entity which is engaged in a
competitive business and which is publicly traded) any competitive business. In
addition, the Agreement provides that for the two year period following
termination of Mr. Sun's employment for any reason, with or without cause, Mr.
Sun cannot, directly or indirectly (including without limitation, as owner
employee, agent consultant or independent contractor) provide or solicit
services of the type provided by the Company to any of its existing customers
or potential customers with which or with whom the Company has negotiated
within the twelve months preceding the date of termination of Mr. Sun's
employment.

Angelo Crimi

On April 24, 1998 the Company entered into a new employment agreement with
Angelo Crimi for the fiscal year ending April 30, 1999. Mr. Crimi's employment
agreement provides for his appointment as Secretary of the Company for a one
year term, which ends on April 30, 1999. The term is automatically extended for
additional one (1) year periods until Mr. Crimi's death, unless either party
gives written notice to the other of its desire not to renew such term which
notice must be given no later than ninety (90) days prior to the end of each
term on any such renewal. The agreement provides that Mr. Crimi receive an
annual base salary at the rate of $75,000. The agreement further provides that
the Company reserves the right to adjust Mr. Crimi's salary during the term of
the agreement. To demonstrate his commitment to the Company during fiscal year
ended April 30, 1997, Mr. Crimi reduced his base salary approximately 32.35%
from $100,000 to $67,654.

Item 12. Security Ownership of Management and Certain Beneficial Owners (1)

The following table sets forth certain information, as of December 4,
1998, regarding the beneficial ownership of the Company's Common Stock by: (i)
each shareholder known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of the Company's Common Stock; (ii) each
Director of the Company and nominees for director; (iii) each Named Executive
Officer (as hereinafter defined) of the Company; and (iv) all Directors,
nominees and executive officers of the Company as a group.

III-4
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Owner (2) (3) Class (2) (3)
------------------------------------ ------------------------ -------------
<S> <C> <C>
Salvatore Crimi Family Limited Partnership ......... 1,631,696 12.55
c/o Salex Holding Corporation
50 Laser Court
Hauppauge, New York 11788

Meadows Management, LLC ............................ 1,250,000(4)(5) 8.77
1500 Hempstead Turnpike
East Meadow, New York 11554

Dr. Robert Cohen ................................... 1,250,000(4)(5)(6) 8.77
1500 Hempstead Turnpike
East Meadow, New York 11554

Dr. Alan Cohen ..................................... 1,250,000(4)(5)(7) 8.77
1500 Hempstead Turnpike
East Meadow, New York 11554

Guardian Angel Management, Ltd. .................... 1,250,000(4)(5)(8) 8.77
147 Redpoll Circle
North Hills, New York 11577

Jonathan Pratt ..................................... 1,250,000(4)(5)(9) 8.77
147 Redpoll Circle
North Hills, New York 11577

Pershing Sun ....................................... 1,299,449(10) 9.98
c/o Salex Holding Corporation
50 Laser Court
Hauppauge, New York 11788

Salvatore Crimi .................................... 1,091,483(11) 8.38
c/o Salex Holding Corporation
50 Laser Court
Hauppauge, New York 11788

Franklin Pinter .................................... 125,000(12) *

Francis Fitzpatrick ................................ 54,516(13) *

Angelo Crimi ....................................... -- --

Syd Mandelbaum ..................................... -- --

All directors, and executive officers as a group (6
persons) .......................................... 2,570,448 15.93
</TABLE>

- ------------
* Less than one percent (1%)

(1) These tables are based upon information supplied by Schedules 13D and 13G,
if any, filed with the Securities and Exchange Commission (the "SEC").
Unless otherwise indicated in the footnotes to the table and subject to
the community property laws where applicable, each of the shareholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned by him. Applicable percentage of
ownership is based on 13,004,770 shares of Common Stock, which were
outstanding on December 4, 1998.

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of Common Stock subject to
options or preferred stock held by that person that are currently
exercisable or convertible

III-5
<PAGE>

within 60 days of December 4, 1998 are deemed outstanding. To the Company's
knowledge, except as set forth in the footnotes to this table and subject
to applicable community property laws, each person named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name.

(3) In calculating the percent of the outstanding shares of Common Stock, all
shares issuable on exercise of stock options or conversion of preferred
stock held by the particular beneficial owner that are included in the
column to the left of this column are deemed to be outstanding.

(4) Represents shares of Common Stock to be acquired upon the conversion of
12,500 shares of Series C Preferred Stock.

(5) At the annual meeting of shareholders, Meadows Management, LLC ("Meadows"),
of which Dr. Robert Cohen and Dr. Alan Cohen are managing members, and
Guardian Angel Management, LTD ("Guardian Angel"), of which Jonathan Pratt
is the sole shareholder, intend to vote together on all matters presented
as such meeting. In the aggregate this group beneficially owns 2,500,000
shares.

(6) This amount includes all of the shares beneficially owned by Meadows. Dr.
Robert Cohen, a managing member of Meadows, has shared voting power and
shared investment power. Dr. Robert Cohen disclaims beneficial ownership of
such shares.

(7) This amount includes all of the shares beneficially owned by Meadows. Dr.
Alan Cohen, a managing member of Meadows, has shared voting power and
shared investment power. Dr. Alan Cohen disclaims beneficial ownership of
such shares.

(8) The Company intends to challenge the validity of the transfer of 12,500
shares of Series C Preferred Stock from Meadows to Guardian Angel of which
Jonathan Pratt is the sole shareholder

(9) This amount includes all of the shares beneficially owned by Guardian
Angel. Jonathan Pratt disclaims beneficial ownership of such shares.

(10) Includes 15,190 shares which may be acquired upon the exercise options
which will be exercisable within 60 days. Does not include 22,706 shares
underlying options with are not exercisable within 60 days.

(11) Includes 31,844 shares which may be acquired upon exercise of options
which will be exercisable within 60 days. Does not include 47,766 shares
underlying option with are not exercisable within 60 days

(12) Includes warrants to purchase 25,000 shares of Common Stock.

(13) Includes 956 shares which may be acquired upon the exercise of options
which will be exercisable within 60 days. Does not include 1,435 shares
underlying options which are not exercisable within 60 days.

III-6
<PAGE>

Item 13. Certain Relationships and Related Transactions

On November 12, 1998, the Registrant and Betty Sun agreed to enter into a
new consulting agreement whereby Betty Sun shall serve as a consultant to the
Registrant for a term of one year (which term is deemed to have commenced on
June 20, 1998). Ms. Sun shall be compensated for her services at the annual
rate of $75,000, payable in biweekly installments, except that the portion of
Ms. Sun's compensation which relates to the services rendered by Ms. Sun from
June 20, 1998 to the date of the Cancellation Agreement is payable to Ms. Sun
in a single cash payment.

On September 18, 1996, the Company retired 1,453,600 shares of Common
Stock purchased by the Company from Mr. Crimi for a purchase price of
$2,000,000. As payment for this obligation, the Company and Mr. Crimi agreed to
offset the amount owed Mr. Crimi against certain loans made by the Company to
Mr. Crimi totaling $1,004,212. In addition, the Company assumed a note payable
(the "Note") by Mr. Crimi to a former shareholder of the Company in the amount
of $995,788. The Note bears interest at the rate of 10.5% per annum. Payments
of $55,086 (representing principal plus accured interest) are payable on a
quarterly basis. Mr. Crimi is the Chairman of the Board of Directors and Chief
Executive Officer of the Company. As of January 4, 1999, the outstanding amount
owed under the Note is $561,591.

Sale of Registrant's Executive Offices

On December 23, 1998, the Registrant entered into a real estate purchase
agreement ("Purchase Agreement") by and among the Registrant, Salvatore Crimi
and Sun Associates, LLC ("Sun Associates"), a limited liability company
controlled by Betty Sun, (as record title holder) who is the wife of Perishing
Sun a director of the Registrant. Pursuant to the terms of the Purchase
Agreement, the Registrant and Salvatore Crimi agreed to sell to Sun Associates
certain property located in Hauppauge New York which is improved with the
Registrant's executive offices containing approximately 12,000 square feet of
space and a surface parking lot (the "Property"). The purchase price for the
Property was $1,100,000. Mr. Crimi was not personally entitled to any portion
of the proceeds for the sale of the Property and was only involved in the
transaction to the extent that certain title issues required his involvement.
Of the proceeds received by the Registrant $782,325.74 was used to pay the
mortgage securing the Property. The balance of the proceeds was used for
working capital by the Registrant. Simultaneously with the sale of the
Property, the Registrant and Sun Associates entered into a lease agreement (the
"Lease Agreement") pursuant to which Sun Associates leased the property to the
Registrant. Under the lease agreement, the annual basic rent for the Property
during the period commencing December 31, 1998 and ending on December 31, 1999
is $168,000. Such annual basic rent increases, by an amount not greater than
$8,985 during each year of the term of the Lease Agreement. As part of the
Lease Agreement, the Registrant and Sun Associates entered into a repurchase
option agreement (the "Option Agreement") which provides that the Registrant
may repurchase the property at any time prior to June 23, 1999 at a purchase
price of $1,155,000, net of Sun Associates' transaction costs, provided that
the Registrant is not in default under the Lease Agreement. The Lease Agreement
further provides that if Sun Associates sells the Property prior to the
December 31, 1999 then 50% of the profits resulting from the sale will be paid
to the Registrant provided that the Registrant is not in default under the
Lease Agreement.

Item 14. Exhibits and Reports on Form 8-K

<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
Exhibit 3.1 Registrant's Certificate of Incorporation as amended to date -- incorporated by
reference to Exhibit 3 (a) to the Registrant's Registration Statement on Form
SB-2, File No. 33-75162.

Exhibit 3.2* Amendment to Registrant Certificate of Incorporation -- increasing the total
number of shares of authorized capital stock of the Registrant.

Exhibit 3.3* Amendment to Registrant's Certificate of Incorporation changing the name of
Registrant to Salex Holding Corporation.

Exhibit 3.4 Certificate and Agreement and Plan of Merger -- incorporated by reference to
Exhibit 3 (b) to Registrant's Registration Statement on Form SB-2, File No.
33-75162.
</TABLE>

III-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit 3.5 Registrant's Bylaws -- incorporated by reference to Exhibit 3 (c) to the Registrant's
Registration Statement on Form SB-2, File No. 33-75162.

Exhibit 4.1 Specimen of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
the Registrant's Form 10-K filed on November 26, 1997.

Exhibit 4.2 Certificate of Designation of the Registrant's Series A Preferred Stock. Incorporated
by reference to Exhibit 4.2 to the Registrant's Form 10-K filed on November 26,
1997.

Exhibit 4.3 Certificate of Designation of the Registrant's Series B Preferred Stock. Incorporated
by reference to Exhibit 4.3 to the Registrant's Form 10-K filed on November 26,
1997.

Exhibit 4.4 Certificate of Designation of the Registrant's Series C Preferred Stock --
Incorporated by reference to Exhibit 4 to the Registrant's 8-K filed on June 17,
1997.

Exhibit 10.1 Amended and Restated Merger Agreement, dated as of September l9, 1996, by and
among the company, the Subsidiary, Salex, the Salex Subsidiaries, the Salex
Stockholders, Thomas M. Swartwood and T. Marshall Swartwood, Incorporated by
reference to Exhibit 10.1 to the Registrant's report on Form 8-K filed on September
19, 1996.

Exhibit 10.2 List of Omitted Schedules/Exhibits to Merger Agreement. Incorporated by reference
to Exhibit 10.2 to the Registrant's report from Form 8-K filed on September 19,
1996.

Exhibit 10.3 Promissory note issued by the Company to Crimi for $1,055,562.19 dated
September 18, 1996. Incorporated by reference to Exhibit 10.3 to the Registrant's
report on Form 8-K filed on September 19, 1996.

Exhibit 10.4 Promissory Note issued by the Company to Crimi for $944,437.81 dated September
18, 1996. Incorporated by reference to Exhibit 10.4 to the Registrant's report on
Form 8-K filed on September 19, 1996.

Exhibit 10.5 Amendment to Promissory Notes dated September 18, 1996. Incorporated by
reference to Exhibit 10.5 to the Registrant's report on Form 8-K filed on September
19, 1996.

Exhibit 10.6 Stock and Asset Purchase Agreement between the Company and Dickinson dated
September 18, 1996. Incorporated by reference to Exhibit 10.6 to the Registrant's
report on Form 8-K filed on September 19, 1996.

Exhibit 10.7 Indemnification Agreement between the Company and Dickinson dated September
18, 1996. Incorporated by reference to Exhibit 10.7 to the Registrant's report on
Form 8-K filed on September 19, 1996.

Exhibit 10.8 Tax Indemnity Agreement among the Company, Dickinson, and Dickinson & Co.,
Inc. dated September 18, 1996. Incorporated by reference to Exhibit 10.8 to the
Registrant's report on form 8-K filed on September 19, 1996.

Exhibit 10.9 The Divestiture Promissory Note issued by Dickinson to the Company dated
September 18, 1996. Incorporated by reference to Exhibit 10.9 to the Registrant's
report on Form 8-K filed on September 19, 1996.

Exhibit 10.10 Stock Pledge and Security Agreement between the Company and Dickinson dated
September 18, 1996. Incorporated by reference to Exhibit 10.10 to the Registrant's
report on Form 8-K filed on September 19, 1996.
</TABLE>

III-8
<PAGE>

<TABLE>
<CAPTION>
<S> <C>
Exhibit 10.11 Stock Option Agreement between Crimi and the Company dated September 18,
1996. Incorporated by reference to Exhibit 10.11 to the Registrant's report on Form
8-K filed on September 19, 1996.

Exhibit 10.12 Stock Option Agreement among Salex Stockholders and the Company dated
September 18, 1996. Incorporated by reference to Exhibit 10.12 to the Registrant's
report on Form 8-K filed on September 19, 1996.

Exhibit 10.13 Form of Registration Rights Agreement among each of the Salex Stockholders and
the Company dated September 18, 1996. Incorporated by reference to Exhibit 10.13
to the Registrant's report on Form 8-K filed on September 19, 1996.

Exhibit 10.14 Assumption by the Company of Salex's Mortgage dated September 18, 1996.
Incorporated by reference to Exhibit 10.14 to the Registrant's report on Form 8-K
filed on September 19, 1996.

Exhibit 10.15 Assumption of the Company of Salex's Employment Agreement with Crimi.
Incorporated by reference to Exhibit 10.15 to the Registrant's report on Form 8-K
filed on September 19, 1996.

Exhibit 10.16 Assumption of the Company of Salex's Employment Agreement with Pershing Sun.
Incorporated by reference to Exhibit 10.16 to the Registrant's report on Form 8-K
filed on September 19, 1996.

Exhibit 10.17 Form of Subscription Agreement dated as of June 2, 1997, between Registrant and
Meadows Management LLC. Incorporated by reference to Exhibit 2 to the
Registrant's report on Form 8-K filed on June 17, 1997.

Exhibit 10.18 Form of Registration Rights Agreement between Registrant and Meadows
Management LLC dated as of June 2, 1997. Incorporated by Reference to Exhibit 3
to the Registrant's Form 8-K filed on June 17, 1997.

Exhibit 10.19* Cancellation Agreement dated as of October 26, 1998 by and among Pershing Sun,
Betty Sun, Hillcrest Holdings, LLC, Salvatore Crimi and Angelo Crimi.
Incorporated by Reference to Exhibit 99.1 to the Registrant's Form 8-K filed on
November 18, 1998.

Exhibit 10.20* Real Estate Purchase Agreement dated as of December 23, 1998 by and among the
Registrant, Salvatore Crimi, and Sun Associates, LLC.

Exhibit 10.21* Lease Agreement dated as of December 23, 1998 by and among the Registrant and
Sun Associates, LLC.

Exhibit 11 Statement re computation of per share earnings.

Exhibit 27* Financial data schedule.
</TABLE>

- ------------
*Filed herewith

(b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the
fourth quarter of fiscal year ended April 30, 1998.

III-9
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf of the undersigned thereunto duly authorized.

SALEX HOLDING CORPORATION

/s/ Salvatore Crimi
---------------------------------------
Salvatore Crimi
Chairman of the Board of Directors
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Salvatore Crimi Chairman of the Board of Directors and Chief January 7, 1999
----------------------- Executive Officer
Salvatore Crimi

/s/ Pershing Sun President and Director January 7, 1999
-----------------------
Pershing Sun

/s/Angelo Crimi Secretary and Director January 7, 1999
-----------------------
Angelo Crimi

/s/ Franklin Pinter Director January 7, 1999
-----------------------
Franklin Pinter

/s/ Francis Fitzpatrick Director January 7, 1999
-----------------------
Francis Fitzpatrick

/s/ Syd Mandelbaum Director January 7, 1999
-----------------------
Syd Mandelbaum

</TABLE>

III-10

<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ------------ ----------- ----
<S> <C> <C>
Exhibit 3.1 Registrant's Certificate of Incorporation as amended to date -- incorporated by
reference to Exhibit 3 (a) to the Registrant's Registration Statement on Form
SB-2, File No. 33-75162.

Exhibit 3.2* Amendment to Registrant Certificate of Incorporation -- increasing the total
number of shares of authorized capital stock of the Registrant.

Exhibit 3.3* Amendment to Registrant's Certificate of Incorporation changing the name of
Registrant to Salex Holding Corporation.

Exhibit 3.4 Certificate and Agreement and Plan of Merger -- incorporated by reference to
Exhibit 3 (b) to Registrant's Registration Statement on Form SB-2, File No.
33-75162.

Exhibit 3.5 Registrant's Bylaws -- incorporated by reference to Exhibit 3 (c) to the Registrant's
Registration Statement on Form SB-2, File No. 33-75162.

Exhibit 4.1 Specimen of Common Stock Certificate. Incorporated by reference to Exhibit 4.1 to
the Registrant's Form 10-K filed on November 26, 1997.

Exhibit 4.2 Certificate of Designation of the Registrant's Series A Preferred Stock. Incorporated
by reference to Exhibit 4.2 to the Registrant's Form 10-K filed on November 26,
1997.

Exhibit 4.3 Certificate of Designation of the Registrant's Series B Preferred Stock. Incorporated
by reference to Exhibit 4.3 to the Registrant's Form 10-K filed on November 26,
1997.

Exhibit 4.4 Certificate of Designation of the Registrant's Series C Preferred Stock --
Incorporated by reference to Exhibit 4 to the Registrant's 8-K filed on June 17,
1997.

Exhibit 10.2 List of Omitted Schedules/Exhibits to Merger Agreement. Incorporated by reference
to Exhibit 10.2 to the Registrant's report from Form 8-K filed on September 19,
1996.

Exhibit 10.5 Amendment to Promissory Notes dated September 18, 1996. Incorporated by
reference to Exhibit 10.5 to the Registrant's report on Form 8-K filed on September
19, 1996.

Exhibit 10.11 Stock Option Agreement between Crimi and the Company dated September 18,
1996. Incorporated by reference to Exhibit 10.11 to the Registrant's report on Form
8-K filed on September 19, 1996.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ------------ ----------- ----
<S> <C> <C>

Exhibit 10.14 Assumption by the Company of Salex's Mortgage dated September 18, 1996.
Incorporated by reference to Exhibit 10.14 to the Registrant's report on Form 8-K
filed on September 19, 1996.

Exhibit 10.15 Assumption of the Company of Salex's Employment Agreement with Crimi.
Incorporated by reference to Exhibit 10.15 to the Registrant's report on Form 8-K
filed on September 19, 1996.

Exhibit 10.20* Real Estate Purchase Agreement dated as of December 23, 1998 by and among the
Registrant, Salvatore Crimi, and Sun Associates, LLC.

Exhibit 10.21* Lease Agreement dated as of December 23, 1998 by and among the Registrant and
Sun Associates, LLC.

Exhibit 11 Statement re computation of per share earnings.

Exhibit 27* Financial data schedule.
</TABLE>

- ------------
*Filed herewith

<PAGE>

EXHIBIT 3.2

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

OF SYNERGISTIC HOLDINGS CORP.

Synergistic Holdings Corp., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:

FIRST: That the Board of Directors of the Corporation, by a
unanimous vote, filed in the minutes of a meeting of the Board, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of the Corporation:

RESOLVED, that subject to the approval of the
stockholders of the Corporation, the first paragraph
of Article Fourth of the Certificate of Incorporation
be amended to read in its entirety as follows:

"FOURTH: The total number of shares of
capital stock which the Corporation shall have
authority to issue is forty million (40,000,000)
shares, of which thirty-nine million (39,000,000)
shares shall be Common Stock, par value $.01 per
share and one million (1,000,000) shares shall be
Preferred Stock, par vale $.01 per share.

THIRD: That thereafter, pursuant to a resolution of the
Corporation's Board of Directors, an annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
foregoing amendment.

FOURTH: That said amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Pershing Sun, its Senior Vice President and Chief
Information Officer, this 7th day of January 1998.

SYNERGISTIC HOLDINGS CORP.

By: /s/ Pershing Sun
---------------------------------------
Name: Pershing Sun
Title: Senior Vice President and
Chief Information Officer

<PAGE>

EXHIBIT 3.3

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

SYNERGISTIC HOLDINGS CORP.

Synergistic Holdings Corp., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:

RESOLVED, that subject to the approval of the stockholders of
the Corporation, Article First of the Certificate of
Incorporation of the Corporation be amended to read in its
entirety as follows:

"Article First: The name of the Corporation is Salex
Holding Corporation."

SECOND: That thereafter, pursuant to a resolution of the
Corporation's Board of Directors, an annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of the
foregoing amendment.

THIRD: That said amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Salvatore Crimi, its Chief Executive Officer, this
26th day of January 1998.

Synergistic Holdings Corp.

By: /s/ Salvatore Crimi
------------------------------------
Name: Salvatore Crimi
Title: Chief Executive Officer

<PAGE>

AGREEMENT

This Agreement dated as of October 26, 1998 by and among SALEX HOLDING
CORPORATION (the "Company"), a Delaware corporation having offices at 50 Laser
Court, Hauppauge, New York 11788, BETTY SUN and PERSHING SUN, each having an
address at 765 Hillcrest Place, North Woodmere, New York 11581, HILLCREST
HOLDINGS, L.L.C., a Delaware limited liability company ("Hillcrest"), having an
address at c/o Shanley & Fisher, P.C., 131 Madison Avenue, Morristown, NJ 07962-
1979, SALVATORE CRIMI, having an address at 37 Kristian Lane, Hauppauge, New
York 11788 and ANGELO CRIMI, having an address at 6 Borrell Court, St. James,
New York 11780.

W I T N E S S E T H:

WHEREAS, pursuant to a Stock Purchase Agreement dated July 24, 1998,
between Betty Sun and the Company (the "Stock Purchase Agreement"), the Company
sold and issued to Betty Sun 125,000 shares (the "Shares") of Series D
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"Series D Preferred Stock") and, in consideration thereof, Betty Sun issued and
delivered to the Company her Promissory Note dated July 24, 1998 in the
principal amount of $125,000 (the "Sun Note") and paid to the Company $1,250 in
cash.

WHEREAS, the Company and Betty Sun have entered into a Stock Pledge
Agreement dated as of July 24, 1998 (the "Stock Pledge Agreement") pursuant to
which Betty Sun has pledged the Shares to the Company as security for her
obligations under the Sun Note.

<PAGE>

WHEREAS, pursuant to the Stock Purchase Agreement, the Company and
Betty Sun have entered into a Registration Rights Agreement dated as of July 24,
1998 (the "Registration Rights Agreement").

WHEREAS, Betty Sun and the Company have entered into an Agreement dated
as of July 24, 1998 (the "Consulting Agreement") concerning certain consulting
services recited therein, pursuant to which the Company issued and delivered to
Betty Sun the Company's Promissory Note dated July 24, 1998 in the principal
amount of $126,000 (the "Company Note").

WHEREAS, the Company and Hillcrest entered into a letter agreement
dated July 24, 1998 concerning the sale by the Company to Hillcrest of the
operating businesses and substantially all of the assets of the Company (the
"Hillcrest Letter Agreement").

WHEREAS, the parties hereto wish to provide for the cancellation or
termination of the various arrangements referred to above and for other matters
set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, the parties hereto hereby agree as follows:

1. Cancellation of Series D Preferred Stock. Simultaneously herewith
the Board of Directors of the Company shall adopt resolutions cancelling the
Series D Preferred Stock. The Company agrees that the Sun Note is hereby
cancelled and the Company shall return the original thereof to Betty Sun marked
"Cancelled" together with a check in the amount of $1,250. Betty

-2-

<PAGE>

Sun hereby agrees that the Shares are cancelled effective immediately. The
Company and Betty Sun agree that the Stock Pledge Agreement is hereby terminated
and Betty Sun hereby directs that any certificates evidencing the Shares pledged
pursuant to the Stock Pledge Agreement be released to the Company and that the
Company shall cancel and retire the Shares. Betty Sun hereby represents and
warrants to the Company that the Shares are released to the Company hereby free
and clear of any pledge, security interest or other lien or claim whatsoever.
The Registration Rights Agreement is hereby terminated and has no further force
or effect.

2. Cancellation of Consulting Agreement. The Company and Betty Sun
agree that the Consulting Agreement is hereby terminated and has no further
force or effect and the Company Note is hereby cancelled. Betty Sun shall return
the original of the Company Note to the Company marked "Cancelled".

3. Termination of Hillcrest Letter Agreement. Hillcrest hereby
withdraws the proposal set forth in the Hillcrest Letter Agreement and the
Company accepts such withdrawal and the parties agree that the Hillcrest Letter
Agreement is hereby terminated and has no further force or effect.

4. New Consulting Agreement between the Company and Betty Sun. (A) In
accordance with this Agreement, the Company and Betty Sun (as "Consultant"
thereunder) shall promptly after the execution of this Agreement enter into a
new Consulting Agreement (the "Contract") having the terms and provisions set
forth in Section

-3-

<PAGE>

4(B) hereof. If the Contract has not been entered into within 21 days after the
date of this Agreement, the provisions of Section 4(B) hereof shall constitute
the Consulting Agreement between the Company and the Consultant, superseding all
prior consulting agreements between them, until such time as the Contract is
entered into, at which point the Contract shall supersede such provisions.

(B) The Contract shall provide for the following:

(a) A term of one year commencing June 20, 1998 (the "Commencement
Date"). The Contract shall automatically renew for subsequent
one year terms unless terminated by either party prior to the
end of any term. The Contract shall be terminable by either
party at any time by written notice to the other, provided that
if the Contract is terminated by the Company the compensation
provided for in Section 4(B)(b) shall be paid at the times it
would otherwise be payable until the expiration of the then
current term of the Contract.

(b) Compensation of $75,000 for the term of the Contract, payable
in biweekly installments except that the portion of such
compensation that relates to the services rendered by
Consultant from the Commencement Date to the date of this
Agreement shall be payable to the Consultant in a single lump
sum upon the signing of this Agreement.

-4-

<PAGE>

(c) A provision that the Consultant shall be permitted to attend
only those portions of any meeting of the Board of Directors of
the Company or committee thereof at which her presence is
required to make any report or recommendation to the Board or
any such committee resulting from her services under the
Contract, provided that her presence at such meeting has been
consented to in writing by both the President and the Chief
Executive Officer of the Company which consent shall not be
unreasonably withheld or delayed and further provided that any
dispute as to whether the Consultant's presence at the meeting
was properly consented to shall be resolved by the Board of
Directors.

(d) A provision that the Consultant shall be present at the offices
of the Company on no more than 12 days in any 28-day period,
provided that in the event the Consultant is engaged in any
special project that is approved in writing by the Chief
Executive Officer of the Company (which approval shall not be
unreasonably withheld or delayed), the Consultant may be
present at the offices of the Company more frequently if
required for completion of such special project and consistent
with any time requirements set forth in the original approval
of such special project.

-5-

<PAGE>

(e) Duties shall consist of analysis and advice to the Company, as
follows:

(i) Strategic Relations and Alliances. Review and analysis of
and recommendations to the Company, consisting solely of
internal consultation and advice unless otherwise
authorized by the Board of Directors of the Company, with
respect to proposals related to joint ventures, buyouts,
mergers, corporate affiliations and joint marketing
arrangements. The Contract shall expressly provide that
the Consultant shall not have or participate in any
discussions or negotiations with third parties with
respect to any such proposals (which shall be the sole
purview of the senior management of the Company), but
shall confine her activities solely to reporting to
senior management (in the manner described below) unless
otherwise authorized by the Board of Directors of the
Company.

(ii) Customer and Supplier Relations. Consultation and advice
to the Company with respect to corporate policy

-6-

<PAGE>

concerning how employees of the Company should relate to
and deal with customers and suppliers of the Company. The
Contract shall expressly provide that the Consultant
shall not perform analyses or evaluations of the
performance of senior management, including but not
limited to Angelo Crimi, but shall confine her activities
to rendering advice to the Company and not to
implementing any of her recommendations. The Consultant
shall be authorized to communicate with third parties in
the course of her duties under this subsection (ii) as
may be reasonably necessary in the performance of those
duties, subject to the provisions of Section 4(B)(g)
hereof.

(iii) Corporate Development and Sales. Review, analysis and
recommendations to senior management with respect to
marketing and advertising plans and other matters that
effect the growth and development of business activity.
The Consultant shall be authorized to communicate with
third parties in the course of her duties under this
subsection (iii) as may be

-7-

<PAGE>

reasonably necessary in the performance of those duties,
subject to the provisions of Section 4(B)(g) hereof.

(f) The Contract shall provide that all substantive reports,
recommendations and analyses made by the Consultant shall be in
writing and shall be sent simultaneously to both the President
and the Chief Executive Officer of the Company and that the
Consultant shall take direction from the President or the Board
of Directors of the Company only.

(g) The Contract shall provide that the Consultant is an
independent contractor and not an employee or agent of the
Company and is not authorized to bind or make any commitment on
behalf of the Company in any way.

5. Miscellaneous.

(a) All notices and other communications given with respect to this
Agreement shall be in writing and shall be given to the parties at the addresses
set forth on the first page hereof, or such other address as any party hereto
shall give to the other parties by notice hereunder. Notices shall be deemed
given when delivered by hand or courier or 3 days after deposit thereof in the
United States mail postage paid, certified mail, return receipt requested, and
addressed as provided above.

(b) This Agreement (i) constitutes the entire agreement of the parties
with respect to the subject matter hereof, (ii)

-8-

<PAGE>

shall inure to the benefit of and shall be binding upon the parties hereto and
their successors and assigns, (iii) may not be amended except by a writing
signed by all the parties hereto, (iv) may not be assigned by any party hereto
without the prior written consent of the other parties hereto, (v) shall be
governed by the internal law of the State of Delaware and (vi) may be executed
in more than one counterpart each of which shall be an original. No waiver by
any party to this Agreement of such party's right to enforce any provision of
this Agreement shall constitute a waiver of such party's right to enforce such
provision thereafter or to enforce any other provision of this Agreement.

[Remainder of this page intentionally left blank.]

-9-

<PAGE>

IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.

SALEX HOLDING CORPORATION

By: /s/ Salvatore Crimi
-----------------------
Name: Salvatore Crimi
Title: Chief Executive Officer

HILLCREST HOLDINGS, L.L.C.

By: /s/ Betty Sun
------------------------
Name: Betty Sun
Title:

/s/ Betty Sun
------------------------
Betty Sun

/s/ Pershing Sun
-------------------------
Pershing Sun

/s/ Salvatore Crimi
-------------------------
Salvatore Crimi

/s/ Angelo Crimi
-------------------------
Angelo Crimi

-10-

<PAGE>

EXHIBIT 2

Statement

The undersigned hereby agree that the Amendment to Schedule 13-D, to
which this Statement is an exhibit, is filed on behalf of each of us.

/s/ Pershing Sun
---------------------------------------
Pershing Sun

/s/ Betty Sun
---------------------------------------
Betty Sun

Dated: December 2, 1998

<PAGE>

REAL ESTATE PURCHASE AGREEMENT

THIS REAL ESTATE PURCHASE AGREEMENT (this "Agreement") is made as of
the 23rd day of December, 1998 by and among SALEX HOLDING CORP. ("Salex") and
SALVATORE CRIMI ("Crimi"), jointly (collectively, "Seller"); and SUN ASSOCIATES,
LLC ("Buyer").

RECITALS:

Seller represents that Crimi is the holder of record title to the
Property, but Salex owns the Property pursuant to an unrecorded deed. Seller
desires to sell, and Buyer desires to purchase, all of Seller's interest in
certain real property (the "Land") located in the Town of Smithtown (Village of
Hauppauge), County of Suffolk and State of New York, on the terms and conditions
set forth herein. The Land, together with all improvements located thereon, is
referred to as the "Property." A description of the Property according to its
outer boundaries is set forth in Exhibit A annexed hereto. Simultaneously, at
the closing, Buyer has agreed to lease the Property to Seller, and Seller has
agreed to lease the Property from Buyer, on the terms and conditions of the
lease annexed hereto as Exhibit B (the "Lease")

WITNESSETH:

NOW, THEREFORE, in consideration of the foregoing premises and the
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto hereby agree as follows:

1. Purchase and Sale. Seller agrees to sell the Property to Buyer, and
Buyer agrees to purchase the Property from Seller, upon all of the terms,
covenants and conditions set forth in this Agreement. The purchase price for the
Property (the "Purchase Price") shall be equal to ONE MILLION ONE HUNDRED
THOUSAND DOLLARS ($1,100,000.00). On the Closing Date, Buyer shall pay the
Purchase Price to Salex by certified check, bank check or, at Seller's option,
by wire transfer of immediately available funds into an account designated by
Salex. Salex acknowledges that the Purchase Price represents a fair price for
the Property in any event, and particularly in light of the current
circumstances, including, without limitation, the savings of any brokerage
commissions, the favorable rent set forth in the Lease, and the preservation of
the Property against foreclosure, which would cause irreparable harm to Salex's
business, and that this transaction is in the best interests of Salex.

2. Closing Date. The closing date will be on or before December 30,
1998, after Buyer's approval of the title search and inspection of the Property.

3. Buyer's Review. (a) From the date hereof until the closing date,
Buyer shall be permitted to make a physical inspection of the Property, and a
review of available records relating to the Property, applicable laws, and other

<PAGE>

matters and conditions affecting the Property. If Buyer determines, in its sole
and absolute discretion, that the Property is unsuitable for Buyer's needs, then
Buyer may terminate this Agreement by written notice to Seller given before the
closing date.

(b) The Property is being sold and shall be conveyed and taken subject
to the following additional provisions:

a. SUBJECT TO any state of facts that an accurate survey and/or personal
inspection may show, provided such facts do not render title unmarketable.

b. SUBJECT TO covenants, restrictions, utility easements and consents, provided
that they are not violated by the existing structures and do not prohibit the
present use of such structures.

(c) Seller has not made and does not make any representations as to the
physical condition (including but not limited to environmental matters) income,
expenses, operation or other matters or things on, affecting or relating to the
aforesaid premises, except as herein specifically set forth, and the Buyer
expressly acknowledges that no such representations have been made and the Buyer
further acknowledges that it has inspected the entire premises and agrees to
take the Property and each and every part thereof "as is", except as otherwise
specifically provided for herein.

(d) Prior to the execution of the within contract, Purchasers represent
and warrant that they have been afforded full opportunity and access, to
conduct, a complete engineering, environmental and other inspections in, around,
and of the entire premises by engineers and/or contractors of their choice to
whatever extent they deemed necessary or desirable.

4. Title. Title to the Property shall be fee simple, and conveyed by
bargain and sale deed with covenant against grantor's acts. If Buyer objects to
any condition of title, Seller shall use good faith efforts to cure such title
objection prior to the closing date. If Seller is unable to cure such title
objection, then Buyer may, by notice delivered to Seller prior to the closing
date, either (i) terminate this Agreement, in which case the parties shall have
no further liability to each other, or (ii) to waive any title objection which
is not so cured. Seller must pay off and discharge of records all liens
encumbering the Property at or prior to the closing, and Seller may use the
Purchase Price proceeds to pay same, provided that discharges of any liens, or
other evidence of satisfaction of same, satisfactory to Buyer's attorneys, are
delivered to Buyer at the closing.

5. Seller's Representations and Warranties. Seller represents and
warrants to Buyer as follows:

(a) Salex is a corporation duly organized and validly existing under
the laws of the State of Delaware, is in good standing, and has the power and
authority to enter into this Agreement and to consummate the transactions herein
contemplated, and the execution and delivery hereof and the performance by
<PAGE>

Seller of its obligations hereunder will not violate or constitute an event of
default under the terms and provisions of any agreement, document or other
instrument to which Seller is a party or by which it is bound.

(b) The execution, delivery and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereby in the manner
contemplated herein will not violate any provisions of any applicable law to
which Seller is subject, or violate any judgment, order, writ, injunction or
decree of any court applicable to Seller.

(c) This Agreement is the legal, valid and binding obligation of Seller
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally.

(d) No consent, authorization, license, permit, registration or
approval of, or exemption or other action by any governmental or public body,
commission or authority is required in connection with the execution and
delivery by Seller of this Agreement.

(e) Seller has not (i) made a general assignment for the benefit of
creditors; (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by its creditors; (iii) suffered the
appointment of a receiver to take possession of all or substantially all of its
assets; or (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets.

(f) Seller is not a "foreign person" as defined in Internal Revenue
Code Section 1445 and any related regulations. At the closing Buyer will have no
duty to collect withholding taxes for Seller pursuant to the Foreign Investors
Real Property Tax Act of 1980, as amended.

(g) To the best of Seller's knowledge, there are no proceedings at law
or in equity before any court, grand jury, administrative agency or other
investigative body, or governmental department, commission, board, agency,
bureau or instrumentality of any kind pending or against or affecting Seller or
the Property, and to the best of Seller's knowledge, there is no basis for any
of the foregoing, that (i) involve the validity or enforceability of this
Agreement or any other instrument or document to be delivered by Seller pursuant
hereto, (ii) enjoin or prevent or threaten to enjoin or prevent the proposed
Project or the performance of Seller's obligations hereunder, or (iii) relate
specifically to the Property or the title thereto, except for the foreclosure
proceedings brought by Fleet Bank, N.A. to foreclose its mortgage, which
proceedings are being discharged by the closing of title hereunder.

(h) There are no existing or pending contracts of sale, options to
purchase or rights of first refusal or first offer with respect to the Property,
or any part thereof, recorded or unrecorded, and there are no tenancies relating
to the Property or occupants of the Property, other than Salex and its
affiliates and subsidiaries.
<PAGE>

(i) Seller has not received any notice of any pending condemnation of
the Property or any portion thereof and Seller has no actual knowledge of same.

(j) Crimi is the holder of record title to the Property, but Salex owns
the Property pursuant to an unrecorded deed. Buyer is hereby directed to pay the
Purchase Price to Salex, or as directed by Salex, subject to the provisions of
this Agreement, and Crimi has no right to any portion of the Purchase Price.

6. Buyer's Representations and Warranties. Buyer represents and
warrants to Seller as follows:

(a) Buyer is a limited liability company, duly organized and validly
existing under the laws of the State of New York, is in good standing, and has
the power and authority to enter into this Agreement and to consummate the
transactions herein contemplated, and the execution and delivery hereof and the
performance by Buyer of its obligations hereunder will not violate or constitute
an event of default under the terms or provisions of any agreement, document or
other instrument to which Buyer is a party or by which it is bound.

(b) The execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby in the manner
contemplated herein will not violate any provisions of any applicable law to
which Buyer is subject, or violate any judgment, order, writ, injunction or
decree of any court applicable to Buyer.

(c) This Agreement is the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally.

7. Closing Deliveries.

(a) Crimi shall execute and deliver to Buyer on the closing date a
bargain and sale deed with covenant against grantor's acts in the customary
form, an Affidavit of Non-Foreign Status, any affidavits or other documents
reasonably required by Buyer's title insurance company to omit any exceptions to
title, and all other documents required to be executed and delivered by Crimi
pursuant to this Agreement.

(b) Salex shall execute and deliver to Buyer on the closing date an
assignment of all of its interest in the Property, including the unrecorded
deed, an Affidavit of Non-Foreign Status, a corporate resolution, any affidavits
or other documents reasonably required by Buyer's title insurance company to
omit any exceptions to title, the Lease, any consents or waivers from third
<PAGE>

parties required to approve this transaction, and all other documents required
to be executed and delivered by Salex pursuant to this Agreement.

(c) Buyer shall, on the closing date, (i) deliver to Seller funds
sufficient to pay the Purchase Price in accordance with Section 2.2(b), as same
may be adjusted, and (ii) execute and deliver to Seller the Lease and all
documents required to be executed and delivered by Buyer pursuant to this
Agreement.

(d) Notwithstanding the provisions of subsections (a) and (b) above, if
required by Buyer's title insurance company, the unrecorded deed from Crimi to
Salex will be recorded immediately prior to the recording of the closing
documents, and Salex will execute and deliver a new bargain and sale deed with
covenant against grantor's acts to Buyer at the closing, and pay all recording
costs and realty transfer fees in connection therewith.

8. Prorations and Costs.

(a) Because, under the Lease, all expenses relating to the Property
shall be paid by Salex as Tenant, there shall be no prorations of any expenses
under the Lease, including real estate taxes and assessments.

(b) At the closing, Buyer shall receive a credit against the Purchase
Price in the amount of the prorated Basic Rent due under the Lease for the Month
of December, 1998, and the amount of the Security Deposit due under the Lease.

(c) Buyer shall pay for the Title Commitment and the title policy when
issued. Buyer shall pay its own legal costs and Seller shall pay its own legal
costs. Seller shall pay all recording charges and realty transfer taxes. Buyer
shall pay all charges in connection with obtaining a mortgage for the Property.

9. Casualty or Condemnation. If any casualty, taking, or threatened
taking occurs to the Property prior to the closing date, Buyer may terminate
this Agreement by delivery of notice thereof to Seller.

10. Notices. All written notices required to be given pursuant to the
terms hereof shall be mailed by certified mail, return receipt requested,
personally delivered (including overnight delivery service) or by facsimile
transmission, and addressed as follows:

To Seller: Mr. Salvatore Crimi
Salex Holding Corp.
50 Laser Court
Hauppauge, New York 11788-3912
Fax: (516) 436-5020
<PAGE>

To Buyer: Sun Associates, LLC
c/o Betty Sun
765 Hillcrest Place
North Woodmere, New York 11581
Fax: (516) 791-2803

and a copy to: Shanley & Fisher, P.C.
131 Madison Avenue
Morristown, New Jersey 07962
Attn: Michael E. Helmer, Esq.
Fax (973) 285-1625

The foregoing address may be changed from time to time by written notice.
Notices shall be deemed received upon personal delivery thereof (or refusal of
the addressee to accept personal delivery), on the next business day if
delivered by overnight delivery service, or on the date of receipt (or date of
refused delivery) if mailed as aforesaid or sent by facsimile transmission.

11. Construction. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that no rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall be employed in the interpretation of this Agreement or any
amendments or exhibits hereto. The waiver or failure of a party to enforce any
provision of this Agreement shall not be construed or operate as a waiver or any
further breach of such provision or any other provisions of this Agreement.

12. Governing Law. This Agreement shall be construed and interpreted in
accordance with and shall be governed and enforced in all respects according to
the laws of the State of New York.

13. Amendment. Except as otherwise specifically provided herein, no
revision of or amendment to this Agreement shall be valid unless in writing and
signed by both Seller and Buyer.

14. Paragraph Headings. The headings used in this Agreement are for
identification purposes only and shall not be considered in the interpretation
of any provision hereof.

15. Separability of Provisions. If any provision of this Agreement
shall be held to be invalid, the other provisions shall remain enforceable
unless deletion of the invalid matter will defeat the essential purposes of the
parties as expressed in this Agreement.

16. No Joint Venture. The parties hereby disclaim any intention to
enter into a partnership or joint venture, and no provision of this Agreement
shall be construed as creating or giving rise to a partnership or joint venture.
<PAGE>

17. Counterparts. This Agreement may be executed in one or more
counterparts. All counterparts so executed shall constitute one contract,
binding on all parties, even though all parties are not signatory to the same
counterpart.

18. Entire Agreement. This Agreement and the exhibits which are
attached hereto and by this reference incorporated herein and all documents in
the nature of such exhibits which are existing at the time of execution and
identified with specificity in this Agreement when executed, contain the entire
understanding of the parties and supersede any and all other written or oral
understanding.

19. Assignment. This Agreement may not be assigned by Seller or Buyer
without the express written consent of the other party. Buyer may assign the
agreement to any company or entity that is controlled by the current owners of
Buyer and/or Pershing Sun. This Agreement is binding upon, and shall inure to
the benefit of, the parties hereto and their successors and permitted assigns.

20. Survival. This Agreement is a single, indivisible contract, and the
delivery and acceptance of the Deed shall be considered full compliance with all
the terms of this contract by the Seller and Buyer, and a discharge of any and
all agreements and/or obligations of Seller and Buyer hereunder. None of the
terms shall survive the delivery and acceptance of the Deed except those
provisions which this Agreement expressly states shall survive such delivery.

IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of
the day and year first above written.

SALEX HOLDING CORP.

By: /s Salvatore Crimi C.E.O
-----------------------------
Name: Salvatore Crimi
Title: C.E.O

/s/ Salvatore Crimi
---------------------------------
SALVATORE CRIMI

SUN ASSOCIATES, LLC

By: /s/ Betty Sun
-----------------------------
Name: Betty Sun
Title: Member

<PAGE>

LEASE AGREEMENT

BETWEEN

SUN ASSOCIATES, LLC,

LESSOR,

-AND-

SALEX HOLDING CORP.,

LESSEE.

--------------------------------------

DATED: December 23, 1998

-------------------------------------

Prepared by:
Stephen A. Urban, Esquire
Shanley & Fisher, P.C.
131 Madison Avenue
Morristown, New Jersey 07962

<PAGE>

TABLE OF CONTENTS
Page

PRELIMINARY STATEMENT................................................ 1

ARTICLE 1 DEFINITIONS.............................................. 1

ARTICLE 2 DEMISE; TERM; CONDITION.................................. 4

ARTICLE 3 BASIC RENT; ADDITIONAL RENT; NET LEASE................... 5

ARTICLE 4 PAYMENT OF IMPOSITIONS; SERVICES......................... 6

ARTICLE 5 MAINTENANCE; ALTERATIONS; ADDITIONS; REMOVAL
OF TRADE FIXTURE......................................... 6

ARTICLE 6 USE OF DEMISED PREMISES.................................. 8

ARTICLE 7 INDEMNIFICATION; LIABILITY OF LESSOR..................... 9

ARTICLE 8 COMPLIANCE WITH REQUIREMENTS............................. 10

ARTICLE 9 DISCHARGE OF LIENS; PERMITTED CONTESTS................... 12

ARTICLE 10 INSURANCE................................................ 13

ARTICLE 11 ESTOPPEL CERTIFICATES.................................... 14

ARTICLE 12 ASSIGNMENT AND SUBLETTING................................ 15

ARTICLE 13 CASUALTY................................................. 20

ARTICLE 14 CONDEMNATION............................................. 21

ARTICLE 15 EVENTS OF DEFAULT........................................ 23

ARTICLE 16 CONDITIONAL LIMITATIONS; REMEDIES........................ 25

ARTICLE 17 SUBORDINATION............................................ 29

ARTICLE 18 LESSEE'S REMOVAL......................................... 30

ARTICLE 19 MISCELLANEOUS............................................ 31

ARTICLE 20 LESSEE'S ADDITIONAL RIGHTS............................... 34

EXHIBIT A - DESCRIPTION OF LAND
EXHIBIT B - BASIC RENT

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<PAGE>

LEASE AGREEMENT

LEASE AGREEMENT (this "Lease"), made as of December _23__,
1998, between SUN ASSOCIATES, LLC (the "LESSOR"), a New York limited liability
company, having offices at 765 Hillcrest Place, North Woodmere, New York 11581,
Attention: Betty Sun, and SALEX HOLDING CORP. (the "LESSEE"), a Delaware
corporation, having an office at 50 Laser Court, Hauppauge, New York 11788-3912,
Attention: Mr. Salvatore Crimi.

PRELIMINARY STATEMENT

LESSOR is the owner of certain real property situate, lying
and being in the Town of Smithtown (Village of Hauppauge), County of Suffolk,
State of New York, described on Exhibit A annexed hereto (the "Land"), which is
improved with a building containing approximately 12,000 square feet of space
(the "Building"), a surface parking lot and related improvements (collectively
the "Improvements") (the Land and the Improvements being herein collectively
called the "Demised Premises").

LESSOR desires to lease to LESSEE, and LESSEE desires to rent
and hire from LESSOR, the Demised Premises on the terms and conditions contained
herein.

NOW, THEREFORE, LESSOR and LESSEE agree as follows:

ARTICLE 1

DEFINITIONS

1.1. As used in this Lease, the following terms have the
following respective meanings:

(a) Additional Rent: defined in Section 3.2.

(b) Basic Rent: defined in Section 3.1.

(d) Commencement Date: the date of this Lease.

(e) Demised Premises: defined in the Preliminary Statement.

(f) Environmental Laws: all statutes, regulations, codes,
orders and ordinances of any governmental entity, authority, agency and/or
department relating to (i) air emissions, (ii) water discharges, (iii) noise
<PAGE>

emissions, (iv) air, water or ground pollution or (v) any other environmental or
health matter, including, but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq. and the
regulations promulgated thereunder.

(g) Events of Default: defined in Article 15.

(h) Full Insurable Value: 100% of the replacement cost of the
Improvements and all other improvements on the Demised Premises, excluding
improvements below grade which are not insurable, as determined from time to
time.

(i) Impositions: all taxes, assessments, water, sewer or other
rents, rates and charges, excises, levies, license fees, permit fees, inspection
fees, and other authorization fees and charges, whether general or special,
ordinary or extraordinary, foreseen or unforeseen, of every character and
description (including all penalties and interest thereon) which at any time
during or in respect of the term hereof may be assessed, levied, confirmed or
imposed on or in respect of or be a Lien upon (a) the Demised Premises or any
interest therein, or any Basic Rent or Additional Rent or other sum reserved or
payable hereunder, or this Lease, or any estate, right, or interest hereunder,
(b) LESSOR and which relate to LESSOR'S ownership of the Demised Premises, the
use or occupancy of the Demised Premises or the transactions contemplated by
this Lease, and (c) any occupancy, use or possession of the Demised Premises or
any activity conducted thereon. Nothing herein shall require LESSEE to pay any
franchise, estate, inheritance, income, excess profits or other such taxes
levied against LESSOR determined on the basis of LESSOR'S net income or revenue,
unless such tax is in lieu of or a substitute for any other tax or assessment
upon or with respect to the Demised Premises, which, if such other tax or
assessment were in effect, would be payable by LESSEE.

(j) Improvements: defined in the Preliminary Statement.

(k) Insurance Requirements: all terms of any insurance
policy maintained by LESSOR or LESSEE with respect to the Demised Premises.

(l) Land: defined in the Preliminary Statement.

(m) Legal Requirements: all statutes, regulations, codes and
ordinances of any governmental entity, authority, agency and/or department,

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<PAGE>

which now or at any time hereafter may be applicable to the Demised Premises or
any part thereof, including, but not limited to, all Environmental Laws.

(n) LESSEE: the party defined as such in the first paragraph
of this Lease.

(o) LESSEE'S Visitors: LESSEE'S agents, servants, employees,
subtenants, contractors, invitees, licensees and all other persons invited by
LESSEE onto the Demised Premises as guests or doing lawful business with LESSEE.

(p) LESSOR: the party defined as such in the first paragraph
of this Lease, including at any time after the date hereof, the then owner of
LESSOR'S interest in the Demised Premises.

(q) Lien: any mortgage, pledge, lien, charge, encumbrance or
security interest of any kind, including any inchoate mechanic's or
materialmen's lien.

(r) Net Award: any insurance proceeds or condemnation award
payable in connection with any damage, destruction or Taking, less any expenses
incurred by LESSOR in recovering such amount.

(s) Net Rental Proceeds: in the case of a sublease, the amount
by which the aggregate of all rents, additional charges or other consideration
payable under a sublease to LESSEE by the subtenant (excluding reasonable sums
paid for the sale of LESSEE'S fixtures, leasehold improvements, equipment,
furniture or other personal property) exceeds the sum of (i) the Basic Rent plus
all amounts payable by LESSEE pursuant to the provisions hereof during the term
of the sublease in respect of the subleased space, (ii) brokerage commissions at
prevailing rates due and owing to a real estate brokerage firm, and (iii) other
customary and reasonable costs incurred by LESSEE in connection with the
subleasing; and in the case of an assignment, the amount by which all sums and
other considerations paid to LESSEE by the assignee of this Lease for or by
reason of such assignment (excluding reasonable sums paid for the sale of
LESSEE'S fixtures, leasehold improvements, equipment, furniture or other
personal property) exceeds the sum of (i) brokerage commissions at prevailing
rates due and owing to a real estate brokerage firm, and (ii) other customary
and reasonable costs incurred by LESSEE in connection with the assignment.

(t) Recapture Notice: defined in Section 12.5.

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<PAGE>

(u) Recapture Space: defined in Section 12.5.

(v) Restoration: the restoration, replacement or rebuilding of
the Improvements (excluding any alterations, additions and improvements
installed by LESSEE and any trade fixtures and personal property owned by
LESSEE) or any portion thereof as nearly as practicable to its value, condition
and character immediately prior to any damage, destruction or Taking.

(w) Taking: a taking of all or any part of the Demised
Premises, or any interest therein or right accruing thereto, as the result of,
or in lieu of, or in anticipation of, the exercise of the right of condemnation
or eminent domain pursuant to any law, general or special, or by reason of the
temporary requisition of the use or occupancy of the Demised Premises or any
part thereof, by any governmental authority, civil or military.

(x) Term: defined in Section 2.2.

(y) Underlying Encumbrance: defined in Section 17.1.

ARTICLE 2

DEMISE; TERM; CONDITION

2.1. Demise. LESSOR, for and in consideration of the covenants
hereinafter contained and made on the part of the LESSEE, does hereby demise and
lease to LESSEE, and LESSEE does hereby hire from LESSOR, the Demised Premises,
subject to the terms and conditions of this Lease. LESSOR and LESSEE agree, that
for all purposes of this Lease, the Demised Premises shall be deemed to consist
of 12,000 square feet.

2.2. Term. The term (the "Term") of this Lease shall commence
on the Commencement Date and shall, unless earlier terminated in accordance with
the provisions of this Lease, end on December 31, 2008.

2.3. Condition. LESSEE agrees to accept possession of the
Demised Premises in its "AS IS" condition as of the date of this Lease. LESSEE
agrees further that neither LESSOR nor any agent or representative of LESSOR has
made any representations or warranties with respect to the physical condition of

-4-
<PAGE>

the Demised Premises, and LESSEE acknowledges that it is not relying upon any
such representation in entering into this Lease.

2.4. Delivery of Possession. LESSEE is in possession of the
Demised Premises.

ARTICLE 3

BASIC RENT; ADDITIONAL RENT; NET LEASE

3.1. Basic Rent. LESSEE shall pay to LESSOR, during the Term
of this Lease, basic rent ("Basic Rent") in the amounts and at the times
provided in Exhibit B in lawful money of the United States of America. In the
event the Commencement Date shall be other than the first day of a calendar
month, the Basic Rent for said month shall be prorated. Basic Rent will be
deemed to have been paid to LESSOR when it is received by LESSOR.

3.2. Additional Rent. LESSEE will also pay and discharge when
due, as additional rent ("Additional Rent"), to the persons entitled to receive
same, all other amounts, liabilities and obligations which LESSEE herein agrees
to pay or discharge, together with all interest, penalties and costs which may
be added thereto. LESSOR shall have all the rights, powers and remedies provided
for in this Lease or at law or in equity or otherwise for failure to pay
Additional Rent as are available for nonpayment of Basic Rent. Additional Rent
shall commence on the Commencement Date.

3.3. Late Charge. If any installment of Basic Rent or any
Additional Rent is not paid within ten (10) days after the date that such
installment was due, LESSEE shall pay to LESSOR a late charge based on the
amount unpaid, at the same rate that LESSOR's lender could charge LESSOR if
LESSOR were to make a late payment under the first mortgage encumbering the
Demised Premises.

3.4. Triple Net Lease. This is a triple net lease, and except
as herein provided, LESSEE hereby covenants and agrees to pay to LESSOR during
the Term, at LESSOR'S address for notices hereunder, or such other place as
LESSOR may from time to time designate, without any offset, set-off,
counterclaim, deduction, defense, abatement, suspension, deferment or diminution
of any kind, the Basic Rent and Additional Rent. Except as otherwise expressly
provided herein, this Lease shall not terminate, nor shall LESSEE have any right
to terminate or avoid this Lease or be entitled to the abatement of any Basic

-5-
<PAGE>

Rent or Additional Rent, nor shall the obligations and liabilities of LESSEE
hereunder be in any way affected for any reason. The obligations of LESSEE
hereunder shall be separate and independent covenants and agreements.

ARTICLE 4

PAYMENT OF IMPOSITIONS; SERVICES

4.1. Payment of Impositions, etc. LESSEE will pay all
Impositions and all charges for utility, communications and other services at
any time rendered or used on or about the Demised Premises, before any interest
or penalty may be added thereto, and such charges shall be deemed Additional
Rent hereunder. LESSOR agrees to request the tax assessor to forward the tax
bill for the Demised Premises directly to LESSEE. If the tax assessor refuses to
forward tax bills directly to LESSEE, LESSOR shall forward the tax bills to
LESSEE upon receipt of same. LESSEE shall, promptly upon payment of Impositions,
forward to LESSOR satisfactory proof evidencing payment of same. If the holder
of any mortgage encumbering the Demised Premises requires LESSOR to pay to such
holder escrows for any Impositions or other charges (i.e. insurance), provided
that LESSEE has received prior notice of same, LESSEE shall pay the required
amount of any such escrows, including reserves, to LESSOR together at least
three (3) business days in advance of the date that LESSOR must pay same to such
mortgage holder. LESSOR shall provide LESSEE promptly with such holder's
accounting of such escrows. Any Impositions paid by LESSEE, and any escrows and
reserves paid to the holder of any mortgage, shall be pro-rated at the
expiration of this Lease.

4.2. Services. LESSEE hereby acknowledges and agrees that
LESSOR is not obligated to provide any services to LESSEE and that LESSEE shall
provide or contract in its name for all services required in connection with its
use and occupancy of the Demised Premises and the maintenance and repair of the
Demised Premises (including, without limitation, landscaping, snow removal,
garbage collection, window cleaning, extermination and janitorial services).

ARTICLE 5

MAINTENANCE; ALTERATIONS;
ADDITIONS; REMOVAL OF TRADE FIXTURES

5.1. Maintenance Obligations. LESSEE acknowledges that LESSOR
has purchased the Demised Premises from LESSEE on this date in reliance on
LESSEE'S maintenance obligations contained in this Section 5.1, and that the

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<PAGE>

Basic Rent set forth herein is calculated assuming that LESSEE will perform its
obligations under this Section 5.1. LESSEE shall, at its sole cost and expense,
(i) keep and maintain the Demised Premises in substantially the same condition
as exists on the Commencement Date (except for ordinary wear and tear), (ii)
make all repairs, alterations, renewals and replacements, ordinary and
extraordinary, structural or non-structural, foreseen or unforeseen (including,
without limitation, roof repairs and repair of termite damage), and (iii) take
such other action as may be necessary or appropriate to keep and maintain the
Demised Premises in such condition. LESSOR shall not be obligated in any way to
maintain, alter or repair the Demised Premises. Notice is hereby given that
LESSOR will not be liable for any labor, services or materials furnished or to
be furnished to LESSEE, or to anyone holding the Demised Premises or any part
thereof through or under LESSEE, and that no mechanics' or other liens for any
such labor or materials shall attach to or affect the interest of LESSOR in and
to the Demised Premises.

5.2. Standards. All maintenance and repair, and each addition,
improvement or alteration (a) must not, individually or in the aggregate,
materially adversely affect the usefulness of the Demised Premises for its use
as of the date of this Lease, or materially adversely affect the operation of
the electrical or mechanical systems of the Building, (b) shall be completed in
a good and workmanlike manner, and in compliance with all applicable Legal and
Insurance Requirements, and (c) shall be completed free and clear of all Liens.

5.3. Interior Non-Structural Alterations and Improve-ments. If
there is no then existing Event of Default by LESSEE under this Lease beyond any
applicable cure period, LESSEE may, at its sole cost and expense, make interior
non-structural additions, improvements or alterations to the Demised Premises,
provided the same do not interfere with or disrupt any electrical, mechanical,
plumbing or other system of the Building, do not affect the outside appearance
of the Building, do not affect the roof of the Building or any structural
element of the Building, do not reduce the value of the Building, and do not
cost, in the aggregate, more than $50,000.00 per year. LESSEE may not perform
any other alterations to the Building, without LESSOR'S prior written consent,
which shall not be unreasonably withheld or delayed. In order to obtain LESSOR'S
consent, LESSEE shall first submit to LESSOR plans and specifications detailing
the scope and nature of any work, and any other information as may be reasonably

-7-
<PAGE>

requested by LESSOR. LESSEE shall obtain any required governmental permits and
approvals, and deliver copies of same to LESSOR, prior to performing any
alterations.

5.5. Service Contracts. LESSEE shall, at its sole cost and
expense, procure and maintain in full force, effect and good standing, a
contract for the service, maintenance and replacement of all heating,
ventilating and air conditioning equipment (HVAC) from time to time installed in
the Demised Premises, which service contract shall be between LESSEE and a HVAC
service and maintenance contracting firm of proven and established reputation.
5.6. Title to Alterations etc. (a) All additions, improvements and alterations
to the Demised Premises shall, upon installation, become the property of LESSOR
and shall be deemed part of, and shall be surrendered with, the Demised
Premises, except as follows. Only in the case alterations, additions or
improvements with respect which LESSOR'S consent is required pursuant to Section
5.3 above, LESSOR, by notice given to LESSEE at the time LESSOR approves such
additions, improvements or alterations may elect to relinquish LESSOR'S right
thereto. If LESSOR so elects to relinquish LESSOR'S right to any addition,
improvement or alteration as aforesaid, then, prior to the expiration or
termination of the Term, LESSEE shall remove said addition, improvement or
alteration, shall promptly repair any damage to the Demised Premises caused by
said removal and shall restore the Demised Premises to the condition existing
prior to the installation of said addition, improvement or alteration. LESSEE
shall have no obligation to remove any addition, improvement or alteration, or
restore the Demised Premises to the condition existing prior to the installation
of said addition, improvement or alteration, if LESSOR was not required to
approve such addition, improvement or alteration pursuant to Section 5.3 above,
and such addition, improvement or alteration was performed in a first class,
workmanlike manner.

(b) LESSEE may install or place or reinstall or replace and
remove from the Demised Premises any trade equipment, machinery and personal
property belonging to LESSEE, provided, that LESSEE shall repair all damage
caused by such removal. Such trade equipment, machinery and personal property
shall not become the property of LESSOR and shall remain the property of LESSEE.

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ARTICLE 6

USE OF DEMISED PREMISES

6.1. Permitted Uses. LESSEE shall not, except with the prior
consent of LESSOR, use or suffer or permit the use of the Demised Premises to be
used for any purpose other than general office and business use.

6.2. Limitations on Use. LESSEE shall not use, or suffer or
permit the use of, the Demised Premises or any part thereof in any manner or for
any purpose or do, bring or keep anything, or suffer or permit anything to be
done, brought or kept, therein (including, but not limited to, the installation
or operation of any electrical, electronic or other equipment) (a) which would
violate any covenant, agreement, term, provision or condition of this Lease or
would be unlawful or in contravention of the certificate of occupancy for the
Building, or in contravention of any Legal or Insurance Requirement to which the
Demised Premises is subject, or (b) which would overload the electrical or
mechanical systems of the Building, or (c) which would exceed the floor load per
square foot which the floor was designed to carry and which is allowed by law,
or (d) suffer or permit the Building or any component thereof to be used in any
manner or anything to be done therein or anything to be brought into or kept
thereon which would in any way impair or exceed the design criteria, the
structural integrity, character or appearance of the Building, or result in the
use of the Building or any component thereof in a manner or for a purpose not
intended.

6.3. Permits and Approvals. LESSEE shall obtain, at its sole
cost and expense, all permits, licenses or authorizations of any nature required
in connection with the operation of LESSEE'S business at the Demised Premises.

ARTICLE 7

INDEMNIFICATION; LIABILITY OF LESSOR

7.1. Indemnification by LESSEE. LESSEE hereby indemnifies, and
shall pay, protect and hold LESSOR harmless from and against all liabilities,
losses, claims, demands, costs, expenses (including reasonable attorneys' fees
and expenses) and judgments of any nature, arising, or alleged to arise, from or
in connection with, (a) any injury to, or the death of, any person or loss or
damage to property on or about the Demised Premises, except when arising from

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the negligence or the recklessness or willful misconduct of LESSOR, its agents,
servants, employees or contractors, (b) any violation of this Lease or of any
Legal or Insurance Requirement by LESSEE, or (c) performance of any labor or
services or the furnishing of any materials or other property in respect of the
Demised Premises or any part thereof by LESSEE or by any third party for LESSEE.
LESSEE will resist and defend any action, suit or proceeding brought against
LESSOR by reason of any such occurrence by independent counsel selected by
LESSEE and approved by LESSOR. The obligations of LESSEE under this Section 7.1
shall survive any termination of this Lease.

7.2. No Claims Against LESSOR. LESSEE agrees to make no claim
against LESSOR for any damage to or loss of any goods, fixtures, equipment,
machinery, personal property or other property installed, stored, or placed by
LESSEE or others at the Demised Premises, including any claims for business
interruption or consequential damages, it being understood that LESSEE assumes
all risk in connection therewith.

ARTICLE 8

COMPLIANCE WITH REQUIREMENTS

8.1. Compliance. LESSEE shall, during the Term, at its sole
cost and expense, (a) comply with all Legal and Insurance Requirements
applicable to the Demised Premises and LESSEE'S use thereof and (b) maintain and
comply with all permits, licenses and other authorizations required by any
governmental authority for its use of the Demised Premises and for the proper
operation, maintenance and repair of the Demised Premises or any part thereof.
LESSOR will join in the application for any permit or authorization with respect
to Legal Requirements if such joinder is necessary, and cooperate with LESSEE in
connection therewith, at no cost to LESSOR.

8.2. Negative Covenants. LESSEE shall not do, or permit to be
done, anything in or to the Demised Premises, or bring or keep anything therein
which will, in any way, invalidate or conflict with the fire insurance or public
liability insurance policies covering the Demised Premises or any personal
property kept therein, or obstruct or interfere with the rights of LESSOR, or
subject LESSOR to any liability for injury to persons or damage to property, or
violate any Legal Requirements.

8.3. Reporting. LESSEE shall deliver promptly to LESSOR a true
and complete photocopy of any correspondence, notice, report, sampling, test,
submission, order, complaint, citation or any other instrument, document,

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agreement and/or information submitted to, or received from, any governmental
entity, department or agency in connection with any Legal Requirements or
Insurance Requirements relating to or affecting LESSEE'S use and occupancy of
the Demised Premises.

8.4. No Hazardous Substances. LESSEE shall not cause or permit
any "hazardous substance", "hazardous waste" or terms of similar import, as such
terms are defined in applicable Environmental Laws, to be brought, kept or
stored on or about the Demised Premises, and LESSEE shall not engage in, or
permit any other person or entity to engage in, any activity, operation or
business on or about the Demised Premises which involves the generation,
manufacture, refining, transportation, treatment, storage, handling or disposal
of hazardous substances and/or hazardous wastes, except substances normally used
in connection with office operations which are kept in accordance with
applicable Environmental Laws.

8.5. Spills and Discharges. (a) If a spill or discharge of a
hazardous substance or a hazardous waste occurs on the Demised Premises during
the Term, LESSEE shall, promptly upon obtaining knowledge thereof, give LESSOR
immediate oral and written notice of such spill and/or discharge, setting forth
in reasonable detail all relevant facts. LESSEE shall pay all costs and expenses
relating to compliance with the applicable Environmental Law (including, without
limitation, the costs and expenses of the site investigations and of the removal
and remediation of such hazardous substance or hazardous wastes) arising out of
or in connection with any such spill or discharge, except any spill or discharge
caused by the negligence or willful misconduct of LESSOR, its agents, servants
or contractors, which such spill or discharge shall be remediated by LESSOR
after giving notice thereof to LESSEE.

(b) Without relieving LESSEE of its obligations under this
Lease and without waiving any default by LESSEE under this Lease, in the event
LESSEE fails after notice from the governmental authority having jurisdiction to
take action to respond to a spill or discharge for which LESSEE is responsible
under this Lease, LESSOR shall have the right, but not the obligation, to take
such action as LESSOR deems necessary or advisable to cleanup, remove, resolve
or minimize the impact of or otherwise deal with any spill or discharge of any
hazardous substance or hazardous waste for which LESSEE is responsible under
this Lease. In such event, LESSEE shall pay to LESSOR within thirty (30) days

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after demand, as Additional Rent, all reasonable costs and expenses incurred by
LESSOR in connection with any action taken by LESSOR.

8.6. Testing. (a) LESSOR shall have the right, but not the
obligation, upon notice to LESSEE, to enter onto the Demised Premises from time
to time during the Term for the purpose of conducting such tests and
investigations as LESSOR deems reasonably necessary to determine whether LESSEE
is complying with the provisions of this Article 8 and all applicable
Environmental Laws. LESSEE shall have the right to accompany LESSOR and to
obtain splits of any samples collected. In the event LESSOR determines that
LESSEE is not in compliance with this Article 8 or any Environmental Law, LESSOR
shall notify LESSEE of such fact, setting forth in such notice the basis for
LESSOR'S determination and shall provide to LESSEE copies of any reports, data
and/or other information relating to LESSOR'S determination. LESSEE shall
promptly perform any actions required under this Lease to comply with this
Article 8 or any Environmental Laws.

(b) In the event LESSEE is not in compliance with the
provisions of this Article 8 or any applicable Environmental Law, LESSEE shall
pay to LESSOR, as Additional Rent, within thirty (30) days after demand, an
amount equal to all reasonable costs and expenses incurred by LESSOR in
connection with the tests and investigations conducted by or on behalf of
LESSOR.

8.7. Environmental Indemnification. LESSEE hereby agrees to
defend, indemnify and hold LESSOR harmless from and against any and all claims,
losses, liability, damages and expenses (including, without limitation, site
investigation costs, removal and remediation costs and reasonable attorneys'
fees and disbursements) arising out of or in connection with (a) LESSEE'S use
and occupancy of the Demised Premises under this Lease, (b) any spill or
discharge of a hazardous substance or hazardous waste unless caused by the
negligence or willful misconduct of LESSOR, its agents, servants, employees or
contractors, and/or (c) LESSEE'S failure to comply with the provisions of this
Article 8.

8.9. Survival. The provisions of this Article 8 shall
survive the expiration or earlier termination of this Lease.

ARTICLE 9

DISCHARGE OF LIENS; PERMITTED CONTESTS

9.1. Discharge of Liens. LESSEE will discharge by bond or
otherwise, within thirty (30) days after receipt of notice thereof, any Lien on

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the Demised Premises or the Basic Rent, Additional Rent or any other sums
payable under this Lease, caused by or arising out of LESSEE'S acts or LESSEE'S
failure to perform any obligation hereunder.

9.2. Permitted Contests. LESSEE may contest by appropriate
proceedings, the amount, validity or application of any Legal Requirement which
LESSEE is obligated to comply with or any Lien which LESSEE is obligated to
discharge, provided that (a) such proceedings shall suspend or stay the
collection thereof, (b) no part of the Demised Premises or of any Basic Rent or
Additional Rent or other sum payable hereunder would be subject to loss, sale or
forfeiture during such proceedings, (c) LESSOR would not be subject to any civil
or criminal liability for failure to pay or perform, as the case may be, (d)
LESSEE shall have furnished such security as may be required in the proceedings,
(e) such proceedings shall not affect the payment of Basic Rent, Additional Rent
or any other sum payable to LESSOR hereunder or prevent LESSEE from using the
Demised Premises for its intended purposes, and (f) LESSEE shall notify LESSOR
of any such proceedings prior to the commencement thereof, and shall describe
such proceedings in reasonable detail. LESSEE will conduct all such contests in
good faith and with due diligence and will, promptly after the determination of
such contest, pay and discharge all amounts which shall be finally determined to
be payable therein.

9.3. Tax Certiorari. Subject to the provisions of any mortgage
encumbering the Demised Premises, LESSEE may bring proceedings in the
appropriate jurisdiction to reduce the amount of any Impositions, and any
reduction in the amount of such Impositions due with respect to the term of this
Lease shall inure to the benefit of LESSEE. LESSEE shall give prior notice of
any such proceedings to LESSOR.

ARTICLE 10

INSURANCE

10.1. LESSEE'S Insurance. LESSEE will maintain with insurers
authorized to do business in the State of New York and which are rated A-Plus in
Best's Key Rating Guide (LESSOR accepts LESSEE'S insurance provided on this
date, and LESSEE shall have a reasonable period of time to obtain any additional
insurance required hereunder.):

(a) comprehensive general liability insurance (including,
during any period when LESSEE is making alterations or improvements to the

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Demised Premises, coverage for any construction on or about the Demised
Premises), against claims for bodily injury, personal injury, death or property
damage occurring on, in or about the Demised Premises, or as a result of
ownership of facilities located on the Demised Premises, in a combined single
limit of not less than $5,000,000.00 for each claim with respect to any bodily
injury, personal injury or death or property damage;

(b) workers' compensation insurance coverage for the full
statutory liability of LESSEE;

(c) fire insurance and insurance with respect to risks from
time to time included under standard extended coverage endorsement, including
but not limited to water leakage, boiler, vandalism and malicious mischief, in
an amount equal to the Full Insurable Value of the Demised Premises, as
determined from time to time;

(d) rental value insurance against loss by reason of the risks
described in clause (c) above in an amount sufficient to pay all Basic Rent and
Additional Rent for a period of twelve (12) months after the occurrence of any
loss.

10.2. Policy Provisions. The policies of insurance required to
be maintained by LESSEE pursuant to clauses (c) and (d) of Section 10.1 shall
name LESSOR and any mortgagee designated by LESSOR as the insured parties, and
the policies of insurance required to be maintained by LESSEE pursuant to clause
(a) of Section 10.1 shall name LESSOR, LESSEE and any mortgagee designated by
LESSOR as the insured parties; all such policies shall be on standard forms. In
addition, (i) the policies of insurance required to be maintained by LESSEE
pursuant to clauses (a), (c) and (d) of Section 10.1 shall provide that at least
thirty (30) days' prior written notice of suspension, cancellation, termination,
modification, non-renewal or lapse or material change of coverage shall be given
and that such insurance shall not be invalidated by any change in the title or
ownership of the Demised Premises, and (ii) the policy of insurance required to
be maintained by LESSEE pursuant to clause (a) of Section 10.1 shall also
include a contractual liability endorsement evidencing coverage of LESSEE'S
obligation to indemnify LESSOR pursuant to Section 7.1 hereof.

10.3. Evidence of Insurance. On the Commencement Date, LESSEE
shall deliver to LESSOR original certificates of the insurers evidencing all the
insurance which is required to be maintained hereunder by LESSEE, and, at least

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ten (10) days prior to the expiration of any such insurance, other original
certificates evidencing the renewal of such insurance.

10.4. Waivers. LESSOR hereby waives and releases LESSEE, and
LESSEE hereby waives and releases LESSOR, from any and all liabilities, claims
and losses for which the released party is or may be held liable, to the extent
of any insurance proceeds received by said party. Each party agrees to have
included in each casualty and liability insurance policy maintained in
connection with the Demised Premises or any property belonging to it or others
in the Demised Premises a waiver of the insurer's right of subrogation against
the other.

ARTICLE 11

ESTOPPEL CERTIFICATES

11.1. Estoppel Certificates. At any time and from time to
time, upon not less than fifteen (15) days' prior notice, each party shall
execute, acknowledge and deliver to the other a statement, certifying the
following: (a) the Commencement Date, (b) the termination date, (c) the date(s)
of any amendment(s) and/or modification(s) to this Lease, (d) that this Lease
was properly executed and that this Lease is in full force and effect without
amendment or modification, or, alternatively, that this Lease and all amendments
and/or modifications thereto have been properly executed and are in full force
and effect, (e) the current annual Basic Rent and the current monthly
installments of Basic Rent, (f) the date to which Basic Rent and Additional Rent
have been paid, (g) that, to the best of such party's knowledge, neither party
to this Lease is in default in the keeping, observance or performance of any
covenant, agreement, provision or condition contained in this Lease and no event
has occurred which, with the giving of notice or the passage of time, or both,
would result in a default by either party, except as specifically provided in
this Lease or in the estoppel certificate, (h) that, in the case of LESSEE,
LESSEE has no existing defenses, offsets, liens, claims or credits against the
Basic Rent or Additional Rent or against enforcement of this Lease by LESSOR,
except as specifically provided in this Lease or in the estoppel certificate,
(i) that LESSEE has not been granted any options or rights of first refusal to
extend the Term or to terminate this Lease before the expiration date or to
purchase the Demised Premises, except as specifically provided in this Lease or
the estoppel certificate, (j) that, in the case of LESSEE, LESSEE has not
received any notice of violation of Legal Requirements or Insurance Requirements

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relating to the Demised Premises, except as specifically provided in the
estoppel certificate, (k) that, in the case of LESSEE, LESSEE has not assigned
this Lease or sublet all or any portion of the Demised Premises, except as
specifically provided in the estoppel certificate, (l) that, in the case of
LESSEE, no "hazardous substances" or "hazardous wastes" have been generated,
manufactured, refined, transported, treated, stored, handled, disposed or
spilled on or about the Demised Premises, except as specifically provided in the
estoppel certificate, and (m) such other reasonable matters as the person or
entity requesting the certificate may request. LESSEE hereby acknowledges and
agrees that such statement may be relied upon by any mortgagee, or any
prospective purchaser, mortgagee or assignee of any mortgage, of the Demised
Premises or any part thereof.

ARTICLE 12

ASSIGNMENT AND SUBLETTING

12.1. Consent Required. LESSEE shall not sell, assign,
transfer, hypothecate, mortgage, encumber, grant concessions or licenses,
sublet, or otherwise dispose of any interest in this Lease or the Demised
Premises, by operation of law or otherwise, without the prior written consent of
LESSOR, which such consent LESSOR agrees not to unreasonably withhold or delay.
Any consent granted by LESSOR in any instance shall not be construed to
constitute a consent with respect to any other instance or request. No
assignment or sublease shall be permitted if, at the effective date of such
assignment or sublease, LESSEE is then in default under this Lease beyond any
applicable notice and cure period.

12.2. Required Submissions. If LESSEE shall desire to sublet
the Demised Premises or to assign this Lease, it shall first submit to LESSOR a
written notice ("LESSEE'S Notice") setting forth in reasonable detail:

(a) the name and address of the proposed sublessee or
assignee;

(b) the terms and conditions of the proposed subletting or
assignment (including the proposed commencement date of the sublease or the
effective date of the assignment, which shall be at least ten (10) days after
LESSEE'S Notice is given);

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(d) banking, financial, and other credit information relating
to the proposed sublessee or assignee, in reasonably sufficient detail, to
enable LESSOR to determine the proposed sublessee's or assignee's financial
responsibility; and

(e) in the case of a subletting, complete plans and
specifications for any and all work to be done in the Demised Premises to be
sublet.

12.3. LESSOR'S Consent. Within ten (10) days after LESSOR'S
receipt of LESSEE'S Notice, LESSOR agrees that it shall notify LESSEE whether
LESSOR (i) consents to the proposed sublet or assignment, (ii) does not consent
to the proposed sublet or assignment, or (iii) elects to exercise its recapture
right, as described in Section 12.4.

12.4. Right of Recapture. (a) LESSOR shall have the right, to
be exercised by giving written notice (the "Recapture Notice") to LESSEE within
ten (10) days after receipt of LESSEE'S Notice, to recapture the space described
in LESSEE'S Notice (the "Recapture Space"). The Recapture Notice shall cancel
and terminate this Lease with respect to the Recapture Space as of the date
stated in LESSEE'S Notice for the commencement of the proposed assignment or
sublease as fully and completely as if that date had been herein definitively
fixed as the Termination Date, and LESSEE shall surrender possession of the
Recapture Space as of such date. Thereafter, the Basic Rent and Additional Rent
(including Impositions) shall be equitably adjusted based upon the square
footage of the Demised Premises then remaining, after deducting the square
footage attributable to the Recapture Space. LESSOR shall not, in any event, be
entitled to exercise its right of recapture hereunder in connection with any
assignment to the successor of LESSEE by way of merger, consolidation, sale of
all or substantially all of LESSEE'S assets or business, or a sale of all or a
controlling interest in LESSEE.

(b) In the event LESSOR elects to exercise its
recapture right and the Recaptured Space is less than the entire
Demised Premises, then LESSOR, at its sole expense, shall have the right to make
any alterations to the Demised Premises required, in LESSOR'S reasonable
judgment, to make such Recaptured Space a self-contained rental unit. LESSOR
agrees to perform all such work, if any, with as little inconvenience to or
disturbance of LESSEE'S business as is reasonably possible; provided, however,
LESSOR shall not be required to perform such work after LESSEE'S business hours
or on weekends; and provided further, LESSOR shall not be deemed guilty of an

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eviction, partial eviction, constructive eviction or disturbance of LESSEE'S use
or possession of the Demised Premises, and shall not be liable to LESSEE for
same, provided that LESSOR uses reasonable efforts to minimize any such
inconvenience or disturbance.

12.5. Assumption of Lease. It is a further condition to the
effectiveness of any assignment otherwise complying with this Article 12 that
the assignee execute, acknowledge, and deliver to LESSOR an agreement in form
and substance reasonably satisfactory to LESSOR whereby the assignee assumes all
of the obligations of LESSEE under this Lease and agrees that the provisions of
this Article 12 shall continue to be binding upon it with respect to all future
assignments and deemed assignments of this Lease.

12.6. Sublease Requirements. In addition to the foregoing
requirements, any sublease must contain the following provisions:

(a) the sublease shall be subject and subordinate to all of
the terms and conditions of this Lease;

(b) at LESSOR'S option, in the event of cancellation or
termination of this Lease for any reason or the surrender of this Lease, whether
voluntarily, involuntarily, or by operation of law, prior to the expiration of
such sublease, including extensions and renewals of such sublease, the subtenant
shall make full and complete attornment to LESSOR for the balance of the term of
the sublease. The attornment shall be evidenced by an agreement in form and
substance satisfactory to LESSOR which the subtenant shall execute and deliver
at any time within five (5) days after request by LESSOR or its successors and
assigns;

(d) no subtenant shall be permitted to further sublet all or
any portion of the subleased space or to assign its sublease without LESSOR'S
prior written consent; and

(e) the subtenant shall waive the provisions of any law now or
subsequently in effect which may give the subtenant any right of election to
terminate the sublease or to surrender possession of the space subleased in the
event that any proceeding is brought by LESSOR to terminate this Lease.

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12.7. Nature of Assignment. Each of the following events shall
be deemed to constitute an assignment of this Lease and each shall require the
prior written consent of LESSOR:

(a) any assignment or transfer of this Lease by operation of
law; or

(b) any hypothecation, pledge, or collateral assignment of
this Lease; or

(c) any involuntary assignment or transfer of this Lease in
connection with bankruptcy, insolvency, receivership, or similar proceeding; or

(d) any assignment, transfer, disposition, sale or acquisition
of a controlling interest in LESSEE to or by any person, entity, or group of
related persons or affiliated entities, whether in a single transaction or in a
series of related or unrelated transactions; or

(e) any issuance of an interest or interests in LESSEE
(whether stock, partnership interests, or otherwise) to any person, entity, or
group of related persons or affiliated entities, whether in a single transaction
or in a series of related or unrelated transactions, which results in such
person, entity, or group holding a controlling interest in LESSEE. For purposes
of the immediately foregoing, a "controlling interest" of LESSEE shall mean 50%
or more of the aggregate issued and outstanding equitable interests (whether
stock, partnership interests, or otherwise) of LESSEE.

12.8. Payment of Net Proceeds to LESSOR. If LESSEE assigns
this Lease or subleases the Demised Premises to any entity other than an
affiliate of LESSEE or an entity acquiring, by merger, sale of assets or sale of
stock, a majority interest in LESSEE, then LESSEE agrees to pay to LESSOR,
immediately upon receipt thereof, 50% of all Net Rental Proceeds, of whatever
nature, payable by the prospective assignee or sublessee to LESSEE pursuant to
such assignment or sublease.

12.9. No Release. No assignment of this Lease nor any sublease
of all or any portion of the Demised Premises shall release or discharge LESSEE
from any liability, whether past, present, or future, under this Lease and
LESSEE shall continue to remain primarily liable under this Lease.

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12.10. Permits and Approvals. LESSEE shall be responsible for
obtaining all permits and approvals required by any governmental or
quasi-governmental agency in connection with any assignment of this Lease or any
subletting of the Demised Premises.

12.11. Bankruptcy Provisions. (a) Notwithstanding anything to
the contrary contained in this Lease, in the event that this Lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, any
and all monies or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to LESSOR, shall be
and remain the exclusive property of LESSOR and shall not constitute property of
LESSEE or of the estate of LESSEE within the meaning of the Bankruptcy Code. Any
and all monies or other consideration constituting LESSOR'S property under the
preceding sentence not paid or delivered to LESSOR shall be held in trust for
the benefit of LESSOR and be promptly paid to or turned over to LESSOR.

(b) If LESSEE proposes to assign this Lease pursuant to the
provisions of the Bankruptcy Code to any person or entity who shall have made a
bona fide offer to accept an assignment of this Lease on terms acceptable to
LESSEE, then notice of such proposed assignment setting forth (i) the name and
address of such person or entity, (ii) all of the terms and conditions of such
offer, and (iii) the adequate assurance to be provided by LESSEE to assure such
person's or entity's future performance under this Lease, including, without
limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy
Code, or any such successor or substitute legislation or rule thereto, shall be
given to LESSOR by LESSEE no later than twenty (20) days after receipt by
LESSEE, but in any event no later than ten (10) days prior to the date that
LESSEE shall make application to a court of competent jurisdiction for authority
and approval to enter into such assignment and assumption. LESSOR shall
thereupon have the prior right and option, to be exercised by notice to LESSEE
given at any time prior to the effective date of such proposed assignment, to
accept an assignment of this Lease upon the same terms and conditions and for
the same consideration, if any, as the bona fide offer made by such person for
the assignment of this Lease. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising under
this Lease on or after the date of such assignment. Any such assignee shall,
upon demand, execute and deliver to LESSOR an instrument confirming such
assumption.

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ARTICLE 13

CASUALTY

13.1. Notice of Casualty. If there is any damage to or
destruction of the Demised Premises, LESSEE shall, upon obtaining knowledge
thereof, promptly give notice thereof to LESSOR, describing the nature and
extent thereof. Within thirty (30) days after receipt of such notice, LESSOR
shall advise LESSEE whether the Demised Premises has been so substantially
damaged such that Restoration cannot be completed within three hundred
sixty-five (365) days of the date of the damage or destruction (the "Restoration
Period"), which determination shall be made by a reputable architect selected by
LESSOR.

13.2. Partial Damage Not Affecting Occupancy. If the Demised
Premises are damaged or partially destroyed but the area damaged is not thereby
rendered untenantable, LESSOR shall, at its own expense, cause Restoration to be
completed as soon as reasonably practicable, and the Basic Rent and Additional
Rent shall not abate.

13.3. Damage Affecting Occupancy. If the Demised Premises are
damaged or destroyed and rendered partially or wholly untenantable, and this
Lease is not terminated pursuant to Sections 13.4 and 13.5 hereof, LESSOR shall,
at its own expense, subject to the conditions stated in Sections 13.4 and 13.5,
cause Restoration to be completed as soon as reasonably practicable and the
Basic Rent and Additional Rent shall be equitably abated during Restoration.

13.4. Termination Rights of LESSOR. If the Demised Premises
are damaged or destroyed and such damage shall amount to 40% or more of the Full
Insurable Value of the Demised Premises, or if the period required for
Restoration is estimated to exceed the Restoration Period, LESSOR, in lieu of
Restoration, may elect to terminate this Lease, provided that notice of such
termination shall be sent to LESSEE within sixty (60) days after LESSOR'S
receipt of notice of the occurrence. Upon such termination, this Lease shall
cease, terminate and expire upon the giving of such termination notice, and all
Basic Rent and Additional Rent shall be adjusted as of the date of such damage
or destruction.

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13.5. Limitation on Restoration Obligation. LESSOR shall not
be required to expend for Restoration an amount in excess of the Net Award
received by it. In the event the Net Award is not adequate, or the holder of the
first mortgage lien elects to retain the Net Award, then, in either case, LESSOR
shall have the right to terminate this Lease within thirty (30) days after the
amount of such Award is ascertained, or after said holder has notified LESSOR of
its election to retain the Net Award, whichever the case may be. If LESSOR
exercises its right to terminate this Lease pursuant to this Section, then this
Lease shall cease, terminate and expire upon the giving of such termination
notice, and all Basic Rent and Additional Rent shall be adjusted as of the date
of such damage or destruction.

13.6. Termination Rights of LESSEE. In the event the period
estimated for Restoration is greater than the Restoration Period, then LESSEE
may elect, upon notice to LESSOR given within fifteen (15) days of receipt of
the notice from LESSOR given as required by Section 13.1 advising of the
estimated Restoration Period, to terminate this Lease, unless the damage or
destruction was caused by the gross negligence or willful misconduct of LESSEE
or LESSEE'S Visitors. Upon such termination, this Lease shall cease, terminate
and expire upon the giving of such termination notice, and all Basic Rent and
Additional Rent shall be adjusted as of the date of such damage or destruction.

ARTICLE 14

CONDEMNATION

14.1. Assignment of Award. LESSEE hereby irrevocably assigns
to LESSOR any award or payment to which LESSEE becomes entitled by reason of any
Taking of all or any part of the Demised Premises, whether the same shall be
paid or payable in respect of LESSEE'S leasehold interest hereunder or
otherwise, except that LESSEE shall be entitled to any award or payment for the
Taking of LESSEE'S trade fixtures or personal property or any separate award for
loss of business or moving expenses provided the amount of the Net Award payable
with respect to the fee interest is not diminished thereby. All amounts payable
pursuant to any agreement with any condemning authority which have been made in
settlement of or under threat of any condemnation or other eminent domain
proceeding shall be deemed to be an award made in such proceeding. LESSEE agrees
that this Lease shall control the rights of LESSOR and LESSEE in any such award
and any contrary provision of any present or future law is hereby waived.

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14.2. Total Taking. In the event of a Taking of the whole of
the Demised Premises, then the term of this Lease shall cease and terminate as
of the date when possession is taken by the condemning authority and all Basic
Rent and Additional Rent shall be paid up to that date.

14.3. Partial Taking. In the event of a Taking of twenty (20%)
percent or more of the Land or Building, then, if LESSEE shall determine in good
faith and certify to LESSOR that because of such Taking, continuance of its
business on the Demised Premises would be uneconomical, LESSEE may at any time
either prior to or within a period of sixty (60) days after the date when
possession of such premises shall be acquired by the condemning authority, elect
to terminate this Lease. In the event that LESSEE shall fail to so elect to
terminate this Lease, or in the event of a Taking of the Demised Premises under
circumstances under which LESSEE will have no such option, then, and in either
of such events, LESSOR, subject to the provisions of Section 14.4., shall cause
Restoration to be completed as soon as reasonably practicable, and the Basic
Rent and Additional Rent payable during the Term shall be equitably prorated
based upon the square foot area of the Demised Premises actually taken.

14.4. Limitation on Restoration. (a) In the event (i) of a
Taking of twenty percent (20%) or more of the Demised Premises or Building, or
(ii) the Net Award is inadequate to complete Restoration of the Demised
Premises, then LESSOR may elect either to complete such Restoration or terminate
this Lease by giving notice to LESSEE within thirty (30) days after the amount
of the Net Award is ascertained. If LESSOR elects to complete Restoration, then
the Basic Rent and Additional Rent payable during the Term shall be equitably
prorated based upon the square foot area of the Demised Premises actually taken;
and if LESSOR elects to terminate this Lease pursuant to this Section, then this
Lease shall cease, terminate and expire upon the giving of such termination
notice, and all Basic Rent and Additional Rent shall be adjusted as of the
earlier to occur of the termination of this Lease or the date of such Taking.

(b) In the event the Net Award is insufficient to complete the
Restoration, or the holder of a mortgage elects to retain the Net Award, then
LESSOR shall have the right to terminate this Lease by giving notice to LESSEE
within thirty (30) days after said determination or such holder has notified
LESSOR of its election to retain the Net Award. If LESSOR exercises its right to
terminate this Lease pursuant to this Section, then this Lease shall cease,

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terminate and expire upon the giving of such termination notice, and all Basic
Rent and Additional Rent shall be adjusted as of the earlier to occur of the
termination of this Lease or the date of such Taking.

ARTICLE 15

EVENTS OF DEFAULT

15.1. Events of Default. Any of the following occurrences,
conditions or acts shall constitute an "Event of Default" under this Lease:

(a) If LESSEE shall default in making payment when due of any
Basic Rent, Additional Rent or other amount payable by LESSEE hereunder and such
default shall continue for a period of ten (10) days after receipt of notice of
such default; or

(b) if LESSEE shall abandon the Demised Premises for a period
in excess of thirty (30) consecutive days; or

(c) if LESSEE shall file a petition in bankruptcy pursuant to
the Bankruptcy Code or under any similar federal or state law, or shall be
adjudicated a bankrupt or is declared insolvent under applicable state
insolvency laws, or shall commit any act of bankruptcy as defined in any such
law, or shall take any action in furtherance of any of the foregoing; or

(d) if a petition or answer shall be filed proposing the
adjudication of LESSEE as a bankrupt pursuant to the Bankruptcy Code or any
similar federal or state law, and (i) LESSEE shall consent to the filing
thereof, or (ii) such petition or answer shall not be discharged or denied
within sixty (60) days after the filing thereof; or

(e) if a receiver, trustee or liquidator (or other similar
official) of LESSEE or of all or substantially all of its business or assets or
of the estate or interest of LESSEE in the Demised Premises shall be appointed
and shall not be discharged within sixty (60) days thereafter or if LESSEE shall
consent to or acquiesce in such appointment; or

(f) if the estate or interest of LESSEE in the Demised
Premises shall be levied upon or attached in any proceeding and such process
shall not be vacated or discharged within sixty (60) days after such levy or
attachment; or

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(g) if LESSEE shall use or suffer or permit the use of the
Demised Premises or any part thereof for any purpose other than expressly
specified in Section 6.1 and such default shall continue for a period of five
(5) days after receipt of notice; or

(h) if LESSEE fails to discharge any Lien within the time
period set forth in Article 9; or

(i) if LESSEE fails to maintain the insurance required
pursuant to Article 10, or LESSEE fails to deliver to LESSOR the insurance
certificates required by Article 10 within the time periods set forth in Section
10.3; or

(j) if LESSEE fails to deliver to LESSOR the estoppel
certificate required by Article 11 within ten (10) days after receipt of notice
that such estoppel certificate was not delivered within the time period set
forth therein; or

(k) if LESSEE fails to deliver to LESSOR the subordination
agreement required by Section 17.l within ten (10) days after receipt of notice
that such subordination agreement was not delivered within the time period set
forth therein; or

(l) if LESSEE fails to comply with any Legal Requirement, and
such failure continues for a period of ten (10) days after receipt of notice
specifying such default and demanding that the same be cured; or

(m) if LESSEE shall default in the observance or performance
of any provision of this Lease, other than those specified in subsections (a)
through (l) above, and such default shall continue for thirty (30) days after
LESSOR shall have given notice to LESSEE specifying such default and demanding
that the same be cured (unless such default cannot be cured by the payment of
money and cannot with due diligence be wholly cured within such period of thirty
(30) days, in which case LESSEE shall have such longer period as shall be
necessary to cure the default, so long as LESSEE promptly commences to cure the
same within such thirty (30) day period, prosecutes the cure to completion with
due diligence and promptly advises LESSOR from time to time, upon LESSOR'S
request, of the actions which LESSEE is taking and the progress being made).

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ARTICLE 16

CONDITIONAL LIMITATIONS; REMEDIES

16.1. Conditional Limitations; Remedies. Upon the occurrence
of any Event of Default hereunder, LESSOR may, in addition to all other rights
and remedies provided herein or at Law or in equity, exercise any or all of the
following remedies:

(a) LESSOR may give a written notice of termination upon LESSEE
setting forth a date, no fewer than ten (10) days from the date of the giving of
such notice, terminating this Lease and/or LESSEE's right to use and occupy the
Demised Premises. Upon the expiration of such period, this Lease and the term
hereof, or the right of LESSEE or any sublessee to use and occupy the Demised
Premises, as the case may be, shall terminate and expire as fully and completely
as if the day on which said notice of cancellation is to be effective were the
expiration of the Term, and LESSEE shall then peaceably quit and surrender the
Demised Premises to LESSOR, but LESSEE shall remain liable as herein provided.
LESSOR may also, without further notice, re-enter the Demised Premises and
repossess same by summary proceedings or ejectment or otherwise and/or may
dispossess the LESSEE and remove the LESSEE and all other persons and property
from the Demised Premises and may have, hold, use and enjoy the Demised Premises
and the right to receive all rental income therefrom.

(b) LESSOR may (i) declare all Basic Rent, Additional Rent and
all other sums due and payable hereunder immediately due and payable;
(ii) re-let or sublet the Demised Premises or any part or parts thereof, in the
name of LESSEE, LESSOR or otherwise, for a term or terms, which may at LESSOR's
option be less than, equal to, or exceed the period which would otherwise have
constituted the balance of the term of this Lease, and LESSOR may grant
concessions or free rent, or charge such higher or lower rental as may be
reasonable under the circumstances; or (iii) collect rental payments directly
from any sublessee, upon written notice to such sublessee directing it to make
such payment to LESSOR.

(c) LESSOR may require LESSEE immediately to pay to LESSOR the
aggregate Basic Rent and Additional Rent payable hereunder which would have
become payable by LESSEE hereunder through the day previously set as the
expiration of the Term. Such accelerated rent shall be held by LESSOR and
applied by LESSOR on a monthly basis to any deficiency between the rent or any

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other monies hereby reserved and/or covenanted to be paid by LESSEE and the net
amount, if any, of the rents collected on account of any re-letting or
sub-letting of the Demised Premises for each month of the period which would
otherwise have constituted the balance of the Term of this Lease. Any excess
accelerated rent held by LESSOR at the expiration of the Term of this Lease
shall be refunded promptly to LESSEE. LESSOR shall use good faith efforts to
mitigate LESSEE'S damages hereunder, but, provided that LESSOR has used such
good faith efforts, the failure of LESSOR to re-let or sublet the Demised
Premises or any part or parts thereof shall not release or affect LESSEE's
obligations or liability hereunder. In computing any such deficiencies, there
shall be added thereto such expenses as LESSOR may reasonably incur in
connection with re-letting or subletting or attempting to relet or sublet the
Demised Premises, including but not limited to, legal expenses, attorney's fees,
brokerage fees, advertising expenses and expenses incurred in connection with
the marketing, showing, fix-up, cleaning, repair or maintenance of the Demised
Premises including those for preparation of the Demised Premises for re-letting
or subletting and the removal of LESSEE's property, fixtures or other
improvements therefrom. LESSOR shall in no event be liable in any way whatsoever
for failure to re-let or sublet the Demised Premises, or in the event that the
Demised Premises are re-let or sublet, for failure to collect the rent under
such re-letting or subletting, and in no event shall LESSEE be entitled to
receive any excess, if any, of such net rents collected over the sums payable by
LESSEE to LESSOR hereunder.

16.2. Remedies Upon Termination. In the event of any
termination of this Lease as in this Article 16 provided or as required or
permitted by law, LESSEE shall forthwith quit and surrender the Demised Premises
to LESSOR, and LESSOR may, without further notice, enter upon, re-enter, possess
and repossess the same by summary proceedings, and again have, repossess and
enjoy the same as if this Lease had not been made, and in any such event LESSEE
and no person claiming through or under LESSEE by virtue of any law or an order
of any court shall be entitled to possession or to remain in possession of the
Demised Premises but shall forthwith quit and surrender the Demised Premises,
and LESSOR at its option shall forthwith, notwithstanding any other provision of
this Lease, be entitled to recover from LESSEE, as and for liquidated damages,
the sum of:

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(a) all Basic Rent, Additional Rent and other amounts payable
by LESSEE hereunder then due or accrued and unpaid, and

(b) for loss of the bargain, an amount equal to the aggregate
of all unpaid Basic Rent and Additional Rent which would have been payable if
this Lease had not been terminated prior to the end of the Term then in effect,
discounted to its then present value in accordance with accepted financial
practice; and

(c) all other damages and expenses (including attorneys' fees
and expenses), if any, which LESSOR shall have sustained by reason of the breach
of any provision of this Lease;

less (i) the net proceeds of any reletting actually received by LESSOR.

16.3. No Limitation on Remedies in Bankruptcy. Nothing herein
contained shall limit or prejudice the right of LESSOR, in any bankruptcy or
insolvency proceeding, to prove for and obtain as liquidated damages by reason
of such termination an amount equal to the maximum allowed by any bankruptcy or
insolvency proceedings, or to prove for and obtain as liquidated damages by
reason of such termination, an amount equal to the maximum allowed by any
statute or rule of law whether such amount shall be greater or less than the
excess referred to above.

16.4. Additional Remedies on Abandonment. In the event that
LESSEE should abandon the Demised Premises for a period in excess of thirty (30)
days, LESSOR may, at its option and for so long as LESSOR does not terminate
LESSEE'S right to possession of the Demised Premises, enforce all of its rights
and remedies under this Lease, including the right to recover all Basic Rent,
Additional Rent and other payments as they become due hereunder. Additionally,
LESSOR shall be entitled to recover from LESSEE all reasonable and necessary
costs of maintenance and preservation of the Demised Premises, and all costs,
including reasonable attorneys' and receiver's fees, incurred in connection with
the appointment of or performance by a receiver to protect the Demised Premises
and LESSOR'S interest under this Lease.

16.5. No Waiver of Indemnification. Nothing in this
Article 16 shall be deemed to affect the right of LESSOR to indemnification
pursuant to this Lease.

16.6. Surrender. If LESSOR terminates this Lease upon the
occurrence of an Event of Default, LESSEE will quit and surrender the Demised

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Premises to LESSOR or its agents, and LESSOR may without further notice enter
upon, re-enter and repossess the Demised Premises by summary proceedings,
ejectment or otherwise. The words "enter", "re-enter", and "re-entry" are not
restricted to their technical legal meanings.

16.7. Costs and Expenses. If either party shall be in default
in the observance or performance of any provision of this Lease, and an action
shall be brought for the enforcement thereof in which it shall be determined
that such party was in default, the party in default shall pay to the other all
fees, costs and other expenses which may become payable as a result thereof or
in connection therewith, including attorneys' fees and expenses.

16.8. Additional Rights. If LESSEE shall default in the
keeping, observance or performance of any covenant, agreement, term, provision
or condition herein contained, LESSOR, without thereby waiving such default, may
perform the same for the account and at the expense of LESSEE (a) immediately or
at any time thereafter and without notice in the case of emergency or in case
such default will result in a violation of any Legal or Insurance Requirement,
or in the imposition of any Lien against all or any portion of the Demised
Premises, and (b) in any other case if such default continues after thirty (30)
days from the date of the giving by LESSOR to LESSEE of notice of LESSOR'S
intention so to perform the same. All reasonable costs and expenses incurred by
LESSOR in connection with any such performance by it for the account of LESSEE
and also all reasonable costs and expenses, including attorneys' fees and
disbursements incurred by LESSOR in any action or proceeding (including any
summary dispossess proceeding) brought by LESSOR to enforce any obligation of
LESSEE under this Lease and/or right of LESSOR in or to the Demised Premises,
shall be paid by LESSEE to LESSOR upon demand.

16.9. Non-Exclusive Remedies of LESSOR. Except as otherwise
provided in this Article 16, no right or remedy herein conferred upon or
reserved to LESSOR is intended to be exclusive of any other right or remedy, and
every right and remedy shall be cumulative and in addition to any other legal or
equitable right or remedy given hereunder, or now or hereafter existing. No
waiver of any provision of this Lease shall be deemed to have been made unless
expressly so made in writing. LESSOR shall be entitled, to the extent permitted
by law, to seek injunctive relief in case of the violation, or attempted or
threatened violation, of any provision of this Lease, or to seek a decree
compelling observance or performance of any provision of this Lease, or to seek
any other legal or equitable remedy.

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ARTICLE 17

SUBORDINATION

17.1. Subordination. Subject to the provisions of the final
sentence of this Section 17.1, this Lease and the term and estate hereby granted
are and shall be subject and subordinate to the lien of each mortgage which may
now or at any time hereafter affect all or any portion of the Demised Premises
or LESSOR'S interest therein and to all ground leases which may now or at any
time hereafter affect all or any portion of the Demised Premises (any such
mortgage or ground lease being herein called an "Underlying Encumbrance"). The
foregoing provisions for the subordination of this Lease and the term and estate
hereby granted to an Underlying Encumbrance shall be self-operative and no
further instrument shall be required to effect any such subordination; provided,
however, at any time and from time to time, upon not less than ten (10) days'
prior notice by LESSOR, LESSEE shall execute, acknowledge and deliver to LESSOR
any and all reasonable instruments that may be necessary or proper to effect
such subordination or to confirm or evidence the same. In connection with any
such subordination, LESSOR agrees to use reasonable efforts to obtain from the
holder of such Underlying Encumbrance a non-disturbance agreement in favor of
LESSEE, on terms mutually agreeable to the parties.

17.2. Effect of Transfers. If all or any portion of LESSOR'S
estate in the Demised Premises shall be sold or conveyed to any person, firm or
corporation upon the exercise of any remedy provided for in any mortgage or by
law or equity, such person, firm or corporation and each person, firm or
corporation thereafter succeeding to its interest in the Demised Premises (a)
shall not be liable for any act or omission of LESSOR under this Lease occurring
prior to such sale or conveyance, except for continuing defaults, (b) shall not
be subject to any offset, defense or counterclaim accruing prior to such sale or
conveyance, except to the extent that any successor shall seek to enforce an
obligation to pay rent which accrued prior to such sale or conveyance, (c) shall
not be bound by any payment prior to such sale or conveyance of Basic Rent,
Additional Rent or other payments for more than one month in advance (except to
the extent actually received and except prepayments in the nature of security
for the performance by LESSEE of its obligations hereunder), and (d) shall be
liable for the keeping, observance and performance of the other covenants,
agreements, terms, provisions and conditions to be kept, observed and performed
by LESSOR under this Lease only during the period such person, firm or
corporation shall hold such interest.

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ARTICLE 18

LESSEE'S REMOVAL

18.1. Removal. Upon the expiration or earlier termination of
this Lease, LESSEE shall surrender the Demised Premises to LESSOR in the
condition same is required to be maintained under Article 5 of this Lease and
broom clean. Any personal property which shall remain in any part of the Demised
Premises after the expiration or earlier termination of this Lease shall be
deemed to have been abandoned, and either may be retained by LESSOR as its
property or may be disposed of in such manner as LESSOR may see fit; provided,
however, that, notwithstanding the foregoing, LESSEE will, upon request of
LESSOR made not later than ten (10) days after the expiration or earlier
termination of this Lease, promptly remove from the Demised Premises any such
personal property.

18.2. Entry by LESSOR. If, at any time during the last three
(3) months of the Term, LESSEE shall advise LESSOR that LESSEE will not occupy
the Demised Premises in connection with the conduct of its business, LESSOR may
elect, at its option, to enter the Demised Premises to alter and/or redecorate
such part of the Demised Premises.

18.3. Holding Over. If LESSEE holds over possession of the
Demised Premises beyond the expiration or earlier termination of this Lease,
such holding over shall not be deemed to extend the Term or renew this Lease but
such holding over shall be a tenancy at sufferance upon the terms, covenants and
conditions of this Lease except that LESSEE agrees that the charge for use and
occupancy of the Demised Premises for each calendar month or portion thereof
that LESSEE holds over (even if such part shall be one day) shall be a
liquidated sum equal to one-twelfth (1/12th) of (a)(i) one hundred fifty percent
(150%) of Basic Rent during the first six (6) months of any holdover, and (ii)
two hundred percent (200%) of the Basic Rent thereafter and (b) one hundred
percent (100%) of the Additional Rent required to be paid by LESSEE during the
calendar year preceding the termination date. The parties recognize and agree
that the damage to LESSOR resulting from any failure by LESSEE to timely

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surrender possession of the Demised Premises will be extremely substantial, will
exceed the amount of the monthly Basic Rent and Additional Rent payable
hereunder and will be impossible to accurately measure. Nothing contained in
this Lease shall be construed as a consent by LESSOR to the occupancy or
possession by LESSEE of the Demised Premises beyond the termination date, and
LESSOR, upon said termination date, shall be entitled to the benefit of all
legal remedies that now may be in force or may be hereafter enacted relating to
the immediate repossession of the Demised Premises. The provisions of this
Article 18 shall survive the expiration or sooner termination of this Lease.

ARTICLE 19

MISCELLANEOUS

19.1. Broker. Each party represents to the other that it has
not dealt with any real estate broker or sales representative in connection with
this transaction. Each party agrees to indemnify and hold harmless the other
from and against any threatened or asserted claims, liabilities, losses or
judgments (including reasonable attorneys' fees and disbursements) by any broker
or sales representative claiming to have dealt with it in connection with this
transaction. The provisions of this Section 19.1 shall survive the expiration or
sooner termination of this Lease.

19.2. Notices. All notices, demands, requests, consents,
approvals, offers, statements and other instruments or communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been given when delivered, one (1) business day after being deposited with
a reputable overnight delivery service, or five (5) days after being mailed by
first class registered or certified mail, postage prepaid, addressed to the
address for such party set forth above, or to such other address as either party
shall designate to the other in writing. Notwithstanding the foregoing, any
notice changing the address of a party shall not be deemed given until received
by the party to whom it was addressed.

19.3. Nature of LESSOR'S Obligations. Anything in the Lease to
the contrary notwithstanding, no recourse or relief shall be had under any rule
of law, statute or constitution or by any enforcement of any assessments or
penalties, or otherwise or based on or in respect of this Lease (whether by
breach of any obligation, monetary or non-monetary), against any member,
partner, joint venturer, shareholder or other person or entity having an
ownership interest in LESSOR, it being expressly understood that all obligations
of LESSOR under or relating to this Lease are solely obligations payable out of

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the Demised Premises and are compensable solely therefrom. It is expressly
understood that all such liability is and is being expressly waived and released
as a condition of and as a condition for the execution of this Lease, and LESSEE
expressly waives and releases all such liability as a condition of, and as a
consideration for, the execution of this Lease by LESSOR. LESSEE shall look
solely to LESSOR's equity in the Demised Premises to satisfy any liability of
LESSOR hereunder.

19.4. Right of Entry. LESSEE shall permit LESSOR, its agents,
servants, employees and contractors, any prospective purchaser, and any present
or prospective mortgagee and their representatives, upon reasonable advance
notice, to enter the Demised Premises from time to time upon reasonable advance
notice to LESSEE, and during the last eighteen (18) months of the Term shall
permit LESSOR to show the Demised Premises to prospective tenants.

19.5. Accord and Satisfaction. The receipt by LESSOR of any
installment of Basic Rent or of any Additional Rent with knowledge of a default
by LESSEE under the terms and conditions of this Lease shall not be deemed a
waiver of such default. No payment by LESSEE or receipt by LESSOR of a lesser
amount than the rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment of rent 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 pursue any
other remedy in this Lease provided.

19.6. Expenses of LESSOR. If LESSEE seeks any consent or
waiver with respect to this Lease, then, whether or not LESSOR grants such
consent or waiver, LESSEE shall pay to LESSOR, within ten (10) days after
demand, LESSOR'S reasonable costs and expenses, including attorneys' fees,
incurred in connection therewith.

19.7. Modifications; Amendments; Waivers. This Lease may not
be amended, modified or terminated, nor may any obligation hereunder be waived
orally, and no such amendment, modification, termination or waiver, shall be
effective unless in writing and signed by the party against whom enforcement
thereof is sought. No waiver by either party of any obligations hereunder shall
be deemed to constitute a waiver of the future performance of such obligation.

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19.8. Security Deposit. (a) Concurrently with the execution of
this Lease, LESSEE shall deposit with LESSOR the sum of $42,000.00, the same to
be held by LESSOR as security for the full and faithful performance by LESSEE of
the terms and conditions by it to be observed and performed hereunder. The
security deposit shall be deposited by LESSOR in an interest-bearing account
segregated from LESSOR'S other accounts. At the end of each calendar year,
interest on the security deposit shall be credited against any amounts required
to be paid by LESSEE pursuant to subsection (b) below, and any excess shall be
paid to LESSEE promptly, provided, however, that LESSOR shall be entitled to
retain for its own account an administrative fee equal to one percent (1%) of
the security deposit per annum. If any Basic Rent, Additional Rent or other sum
payable by LESSEE to LESSOR becomes overdue and remains unpaid, or should LESSOR
make any payments on behalf of LESSEE, or should LESSEE fail to perform any of
the terms and conditions of this Lease, then LESSOR, at its option, upon notice
to LESSEE, and without prejudice to any other remedy which LESSOR may have on
account thereof, shall appropriate and apply said deposit, or so much thereof as
may be required to compensate or reimburse LESSOR, as the case may be, toward
the payment of Basic Rent, Additional Rent or other such sum payable hereunder,
or loss or damage sustained by LESSOR due to the breach or failure to perform on
the part of LESSEE, and upon demand, LESSEE shall restore such security to the
original sum deposited. The Deposit shall not be considered as an advance
against Basic Rent or any other payments due under this Lease.

(b) LESSEE hereby agrees that the security deposit shall equal
three (3) months' Basic Rent at all times during the Term, and LESSEE
agrees to deposit with LESSOR such additional sum as may be required to satisfy
such requirement within thirty (30) days after any increase in the Basic Rent.

19.9. Severability. If any provision of this Lease or any
application thereof shall be invalid or unenforceable, the remainder of this
Lease and any other application of such provision shall not be affected thereby.

19.10. Successors and Assigns. This Lease shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, except as provided in Article 12.

19.11. Quiet Enjoyment. Upon due performance of the covenants
and agreements to be performed by LESSEE under this Lease, LESSOR covenants that

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LESSEE shall and may at all times peaceably and quietly have, hold and enjoy the
Demised Premises during the Term.

19.12. Interpretation. The table of contents and the article
headings are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. Exhibits A and B are incorporated into this Lease.

19.13. Counterparts. This Lease may be simultaneously executed
in several counterparts, each of which when so executed and delivered, shall
constitute an original, fully enforceable counterpart for all purposes.

19.14. Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of New York.

19.15. No Acceptance of Surrender. No act or thing done by
LESSOR or LESSOR'S agents during the Term shall be deemed an acceptance of a
surrender of the Demised Premises. No agreement to accept such surrender shall
be valid unless in writing and signed by LESSOR. No employee of LESSOR or
LESSOR'S agents shall have any authority to accept the keys to the Demised
Premises prior to the termination date and the delivery of keys to any employee
of LESSOR or LESSOR'S agents shall not operate as an acceptance of a termination
of this Lease or an acceptance of a surrender of the Demised Premises.

19.16. No Offer. The submission of this Lease to LESSEE for
examination does not constitute an offer to lease the Demised Premises on the
terms set forth herein, and this Lease shall become effective as a lease
agreement only upon the execution and delivery of the Lease by LESSOR and
LESSEE.

ARTICLE 20

LESSEE'S ADDITIONAL RIGHTS

20.1. Repurchase Option. Provided that there is no then
existing Event of Default under this Lease beyond any applicable notice and cure
period, and provided that LESSEE has not subleased all or any portion of the
Demised Premises or assigned this Lease, except as permitted below, then from
the Commencement Date through and including the date which is six (6) months
from and after the Commencement Date, LESSEE shall have the right to purchase
the Demised Premises (the "Repurchase Option"), on the following terms and
conditions:

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<PAGE>

(a) LESSEE may exercise the Repurchase Option by providing
written notice of such exercise (the "Exercise Notice") to LESSOR.

(b) The closing of title shall take place on the date that is
specified in the Exercise Notice, which date shall be no earlier than thirty
(30) days after the date that the Exercise Notice is delivered to LESSOR, and no
later than the last day of the six (6) month period set forth above in this
Section 20.1, provided, however, that such date shall not be a Saturday, Sunday
or legal holiday, in which event, the closing of title shall occur on the next
succeeding business day.

(c) LESSEE shall pay the amount of $1,155,000.00 (the
"Repurchase Price") to LESSOR for the purchase of the Demised Premises.

(d) Title to the Demised Premises shall be the same quality of
title subject to which LESSOR took title to the Demised Premises on the date
hereof.

(e) LESSEE shall pay to LESSOR all recording fees, transfer
taxes, reasonable legal fees, reasonable fees paid in connection with obtaining
and termination of LESSOR'S mortgage excluding prepayment penalties or premiums,
and other reasonable costs and expenses, incurred by LESSOR in connection with
the purchase of the Demised Premises from LESSEE, and the repurchase of the
Demised Premises by LESSEE, so that LESSOR receives a total net profit from both
transactions equal to $55,000.00.

This Repurchase Option is not assignable in connection with the assignment of
this Lease or otherwise, except that LESSEE may assign this Repurchase Option to
the successor of LESSEE by way of merger, consolidation, sale of all or
substantially all of LESSEE'S assets or business, or a sale of all or a
controlling interest in LESSEE.

20.2 Profit Sharing. (a) Provided that there is no then
existing Event of Default under this Lease beyond any applicable notice and cure
period, and provided that LESSEE has not subleased all or any portion of the
Demised Premises or assigned this Lease, except as is permitted herein, if
LESSOR sells the Demised Premises to a third party unaffiliated with Lessor
prior to the First Anniversary of the Commencement Date, then LESSOR shall pay
to LESSEE an amount equal to one-half (1/2) of the profit realized by LESSOR in
connection with such sale, which profit shall be calculated to be the proceeds

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<PAGE>

of such sale, net of (i) the purchase price paid by LESSOR for the Demised
Premises, (ii) all costs and expenses, including, without limitation, legal
fees, title charges, survey costs and due diligence costs, incurred by LESSOR in
connection with the purchase of the Demised Premises, (iii) all costs and
expenses, including without limitation, legal fees, recording charges, and
brokerage commissions, incurred by LESSOR in connection with the sale of the
Demised Premises to such third party, and (iv) all costs and expenses incurred
by LESSOR in improving the Demised Premises after the date hereof. This right is
not assignable by LESSEE in accordance with an assignment of this Lease or
otherwise, except that LESSEE may assign this right to the successor of LESSEE
by way of merger, consolidation, sale of all or substantially all of LESSEE'S
assets or business, or a sale of all or a controlling interest in LESSEE.

(a) If LESSEE exercises its Repurchase Option, and subsequently
sells the Demised Premises to a third party unaffiliated with LESSEE prior to
the First Anniversary of the closing date of such purchase, then LESSEE shall
pay to LESSOR an amount equal to one-half (1/2) of the profit realized by LESSOR
in connection with such sale, which profit shall be calculated to be the
proceeds of such sale, net of (i) the repurchase price paid by LESSEE for the
Demised Premises, (ii) all costs and expenses, including, without limitation,
legal fees, title charges, survey costs and due diligence costs, incurred by
LESSEE in connection with the repurchase of the Demised Premises, (iii) all
costs and expenses, including without limitation, legal fees, recording charges,
and brokerage commissions, incurred by LESSEE in connection with the sale of the
Demised Premises to such third party, and (iv) all costs and expenses incurred
by LESSEE in improving the Demised Premises after the closing date of such
repurchase. This right is not assignable by LESSOR in accordance with the sale
of the Demised Premises or otherwise, except that LESSOR may assign this right
to the successor of LESSOR by way of merger, consolidation, sale of all or
substantially all of LESSOR'S assets or business, or a sale of all or a
controlling interest in LESSOR. This right shall survive the termination of this
Lease, and shall be evidenced by the deed or another recorded document at the
closing of title with respect to the Repurchase Option.

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<PAGE>

IN WITNESS WHEREOF, the parties have executed this Lease as of
the date first above written.

LESSOR:
SUN ASSOCIATES, LLC

By: /S/ Betty Sun
----------------------------
Name: Betty Sun
Title: Member

LESSEE:
SALEX HOLDING CORP.

By: /S/ Salvatore Crimi, CEO
----------------------------
Name: Salvatore Crimi
Title: CEO

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<PAGE>

EXHIBIT A

DESCRIPTION OF LAND

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<PAGE>

EXHIBIT B

BASIC RENT

The Basic Rent payable by LESSEE to LESSOR during the term shall be as
follows:

(a) During the period from the Commencement Date to December 31, 1999,
inclusive, annual Basic Rent shall be $168,000.00, payable in equal monthly
installments of $14,000.00, on the first day of each consecutive month, except
that the first such installment shall be due and payable on the Commencement
Date and shall be prorated based upon the number of days remaining in the month
in which the Commencement Date occurs.

(b) On January 1, 2000, and on January 1 of each year thereafter
through January 1, 2003, Basic Rent shall be increased by the annual amount of
$6,000.00. Basic Rent shall be payable in equal monthly installments on the
first day of each consecutive month.

(c) On January 1 2004, and on January 1 of each year thereafter during
the term, Basic Rent shall be increased by the annual amount of four percent of
the annual Basic Rent for the previous year. Basic Rent shall be payable in
equal monthly installments on the first day of each consecutive month.

-40-

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