<PAGE>

                                                                   EXHIBIT 10.17

  Confidential Materials omitted and filed separately with the Securities and
               Exchange Commission.  Asterisks denote omissions.

                      LICENSE AGREEMENT NUMBER 4999RL0930
                                               ----------


This agreement and its attachments, which are hereby incorporated by this
reference, ("Agreement") is entered into by and between Network Engines, Inc.,
with a place of business at 61 Pleasant Street, Randolph, Massachusetts ("NEI")
and International Business Machines Corporation, a New York Corporation with a
place of business at 3039 Cornwallis Road, Research Triangle Park, North
Carolina ("IBM") and is made effective as of July 19, 1999. Now therefore, in
consideration of the mutual provisions contained herein, NEI and IBM (the
"Parties") agree to the following terms and conditions.

The purpose of this Agreement is to set forth the terms and conditions pursuant
to which NEI shall license the "Manufacturing Package".

The term of this Agreement  ("Term") shall be from July 1, 1999 to January 31,
2002, unless terminated earlier as set forth herein.

The provisions of this Agreement, including Attachments 1 and 2 that have been
incorporated herein by reference, constitute the entire agreement between the
Parties and supersede all prior intentions, proposals, understandings,
communications and agreements, oral or written, relating to the subject matter
of this Agreement. This Agreement will not be binding upon the Parties until it
has been signed by each party's authorized representative.

This Agreement may be signed by each party's respective duly authorized
representative in one or more counterparts, each of which shall be deemed to be
an original and all of which when taken together shall constitute one single
agreement between the Parties hereto. Once signed, any reproduction of this
Agreement made by reliable means (for example, photocopy or facsimile) is
considered an original, unless prohibited by local law.

The Parties hereto have caused this Agreement to be signed by their respective
duly authorized representatives.


ACCEPTED AND AGREED TO:              ACCEPTED AND AGREED TO:

INTERNATIONAL BUSINESS               NETWORK ENGINES, INCORPORATED
MACHINES CORPORATION



/s/ Stephen R. Villanuez        7/07/99    /s/ Lawrence A. Genovesi      7/19/99
---------------------------------------    -------------------------------------
Authorized Signature             Date      Authorized Signature           Date

    Stephen R. Villanuez                       Lawrence A. Genovesi
---------------------------------------    -------------------------------------
Printed Name                               Printed Name

    Director, OEM Procurements                 President
---------------------------------------    -------------------------------------
Title                                      Title

                                 Page 1 of 14
<PAGE>

1.0 DEFINITIONS
---------------

The singular and plural uses of the capitalized terms listed below will have the
following meanings in this Agreement.

1.1  "Corrections" shall mean any modification or revision, other than
     "Enhancements," to the Manufacturing Package that correct Errors contained
     therein.

1.2  "Derivative Work" shall mean a work that is based upon one or more
     preexisting copyrighted works, such as a revision, Enhancement,
     modification, translation, abridgement, condensation, expansion,
     compilation or any other form in which such preexisting work may be recast,
     transformed or adapted.

1.3  "Designee" shall mean a manufacturer authorized in writing by IBM to
     manufacture the Product using the Manufacturing Package.

1.4  "Enhancements" shall mean changes or additions to the Manufacturing Package
     that improve function, add new function, improve performance, or that are
     otherwise included in any revisions, releases, updates, new versions, or
     other changes to the Manufacturing Package. Enhancements to the
     Manufacturing Package do not include separate software modules or programs
     developed by NEI that are not essential to the basic operation of the
     Product as defined in Attachment 1, nor do they include add-in hardware
     components developed by NEI such as plug-in daughter boards or PCI adapter
     cards or external hardware attachments, other than any that are defined in
     Attachment 1.

1.5  "Error" shall mean any patent or latent (a) mistake, problem or defect in
     the Manufacturing Package that causes the Product, when manufactured in
     compliance with the Manufacturing Package as delivered by NEI, to fail to
     perform in accordance with the Product specifications and requirements
     defined in this Agreement or (b) incorrect or incomplete statement or
     diagram in documentation included in or with the Manufacturing Package that
     may cause the Product, when manufactured in compliance with the
     Manufacturing Package as delivered by NEI, to fail to perform in accordance
     with the Product specifications and requirements defined in this Agreement.

1.6  "Manufacturing Package" shall mean those documentation, materials, items,
     Corrections, Enhancements, education, and other know-how relating to the
     Product that NEI prepares for or delivers to IBM or its assigns or
     Designees, including but not limited to all things described in Attachment
     1.

1.7  "Product" shall mean a server computer which performs in accordance with
     the Product specifications and requirements defined in this Agreement when
     produced using the Manufacturing Package, or Derivative Works of the
     Manufacturing Package. The Product also includes object code and
     documentation, owned or licensable by NEI, which NEI includes with or is
     required for the proper functioning of the Product.

2.0  GRANT OF RIGHTS AND LICENSES
---------------------------------

NEI grants to IBM, IBM subsidiaries, its and their successors, Designees and
permitted assigns, a worldwide, nonexclusive, non-transferable, right and
license to:

(a)     under all copyrights and mask work rights in or related to the
     Manufacturing Package and Product, to use, execute, preload, reproduce,
     distribute copies of (internally and/or externally), prepare Derivative
     Works, display and/or perform all, and/or any portion of the Manufacturing
     Package, the Product and/or said Derivative Works in connection with the
     development, manufacture, distribution and sale of Products and/or
     Derivative Works in accordance with the terms of this Agreement;

(b)     under any trade secret, patent application and/or patent owned and/or
     licensable by NEI to make, have made, use, have used, lease, sell, offer to
     sell, import and/or otherwise transfer each Product either alone and/or in
     combination with equipment or software or both, and/or to practice and/or
     have practiced any process and/or method;

(c)     sublicense users and distributors to use, execute, distribute, display,
     perform, have used, lease, sell, offer to sell, import and/or otherwise
     transfer each Product either alone and/or in combination with equipment or
     software or both, and/or to practice and/or have practiced any process
     and/or method associated therewith.

                                 Page 2 of 14
<PAGE>

  Confidential Materials omitted and filed separately with the Securities and
               Exchange Commission.  Asterisks denote omissions.

(d)     to use, execute, make, have made, have used, perform, reproduce and
     prepare Derivative Works, of source code and Derivative Works of source
     code either alone or in combination with equipment or software or both,
     and/or to practice and/or have practiced any process and/or method
     associated therewith.

Any license to use the Product name(s), logos, trade names, service names,
trademarks, and/or service marks used by NEI to identify and/or promote the
Product, including any portions thereof shall be negotiated under a separate
agreement. Notwithstanding any other provisions of this Agreement, NEI shall
have no right to use the trademarks, trade names, or product names of IBM or its
subsidiaries directly or indirectly in connection with any product, promotion or
publication without the prior written approval of IBM.


3.0 NEI'S RESPONSIBILITIES AND DELIVERABLES
-------------------------------------------

3.1  Manufacturing Package. NEI shall deliver to IBM and/or its Designees the
     Manufacturing Package.

     IBM shall have the right to review the Manufacturing Package, however, such
     review shall be at IBM's sole discretion. Notwithstanding anything
     contained herein to the contrary, IBM and/or Designees shall be solely
     responsible for reviewing and accepting the Manufacturing Package and
     determining the acceptability of the Manufacturing Package and its
     compliance with any specifications reasonably related thereto set forth on
     Attachment 1.

3.2  Manufacturing Authorization. NEI shall deliver the Manufacturing Package
     to, and authorize use of the Manufacturing Package by, Designees per the
     terms of the Letter Authorization included as Attachment 2.

3.3  Compatibility. NEI shall use reasonable commercial efforts such that the
     Products produced using the Manufacturing Package shall be compatible with
     the IBM related product offerings set forth on Attachment 1, and NEI agrees
     to comply with all reasonable testing requirements suggested by IBM to
     ensure such compatibility, and NEI shall perform all commercially
     reasonable Corrections and Enhancements and do all other commercially
     reasonable things necessary to ensure such compatibility in a timely
     manner.

NEI agrees to use commercially reasonable efforts to provide the Enhancements
set forth on Attachment 1 in order to keep the Product compatible with the most
current Intel processor. The activities, deliverables and schedules related to
an Intel processor change and the time at which no further Enhancements will be
made to the Product defined under this license shall be determined by mutual
agreement of both parties and included in this Agreement by duly executed
amendment.

3.4  Certificate of Originality. Upon IBM request, NEI shall promptly provide
     IBM with a signed certificate of originality (in the form attached hereto
     as Attachment 3) in support of the Manufacturing Package.

3.5  Support. NEI shall provide to IBM or a Designee (a) Corrections to the
     Manufacturing Package such that the Product produced from the Manufacturing
     Package shall comply with all requirements set forth in this Agreement. NEI
     shall provide these Corrections as soon as practicable after the
     Corrections are available and in accordance with the parameters set forth
     below in this subsection, but in no event later than the general
     availability of such Corrections, and NEI shall reimburse IBM, upon IBM's
     request, for the reasonable, actual cost to replace defective Products of
     IBM's end users, Designee and in IBM, IBM subsidiaries' and distributors'
     inventories if it is determined that an Error in the Manufacturing Package
     caused such defective Products, provided, however, in no event shall such
     reimbursement exceed the greater of either the royalty amount paid by IBM
     to NEI in connection with such Products or $[**] Million dollars,
     and (b) NEI's normal complete service support of the Product that it makes
     available to its other licensees of the Manufacturing Package, and shall
     also provide the following minimum service support:

     (1)  support IBM regarding the determination of whether there is or is not
          an Error in the Manufacturing Package; and
     (2)  use commercially reasonable efforts to isolate all Errors in the
          Manufacturing Package, and promptly provide Corrections to IBM and
          IBM's Designee in accordance with the parameters set forth below:

                                 Page 3 of 14
<PAGE>

          (a)  for Errors that result in an emergency condition that causes
               critical impact to IBM schedule or that makes performance or
               continued performance of any feature or function impossible or
               impracticable ("Severity Level 1 Error" or "SL1 Error"), NEI
               shall use reasonable efforts to provide Corrections within 24
               hours of the earlier of NEI discovering the SL1 Error or being
               informed of the SL1 Error by IBM, a Designee or any IBM
               subsidiary.
          (b)  for Errors that significantly affects an IBM schedule or which
               makes the performance or continued performance of any feature or
               function difficult that cannot be circumvented or avoided on a
               temporary basis by the end user ("Severity Level 2 Error" or "SL2
               Error"), NEI shall use reasonable efforts to provide Corrections
               within 5 calendar days ("Days") of the earlier of NEI discovering
               the SL2 Error or being informed of the SL2 Error by IBM, a
               Designee or any IBM subsidiary.
          (c)  for Errors that are not critical in that performance can be
               continued without difficulty or loss of data by easy
               circumvention or avoidance by the end user ("Severity Level 3
               Error" or "SL3 Error"), NEI shall use commercially reasonable
               efforts to provide correction within 15 Days of the earlier of
               NEI discovering the SL3 Error or being informed of the SL3 Error
               by IBM, a Designee or any IBM subsidiary.
          (d)  for Errors that are minor which can be easily avoided or
               circumvented by the end user ("Severity Level 4 Error" or "SL4
               Error"), NEI shall use commercially reasonable efforts to provide
               corrections within 45 Days of the earlier of NEI discovering the
               SL4 Error or being informed of the SL4 Error by IBM, a Designee
               or any IBM subsidiary.

     NEI shall use commercially reasonable efforts to prepare Corrections in a
     manner that will be technically practical for IBM to distribute such
     Corrections either separate from the Product or as a replacement for the
     entire Product. Notwithstanding anything contained herein to the contrary,
     NEI shall not be required to provide any service or support to any IBM
     distributors or end users.

3.6  Enhancements. If NEI develops Enhancements to the Manufacturing Package,
     NEI shall provide said Enhancements to IBM and Designees as soon as they
     are available, but in no event later than their general availability.

3.7  Schedules. NEI shall use commercially reasonable efforts to meet all
     schedules set forth herein and as may otherwise be mutually agreed upon in
     writing between the Parties.


4.0 IBM RESPONSIBILITIES
------------------------

4.1  Royalty. If IBM or any IBM subsidiary announces, markets, and distributes a
     product offering that includes the Product, IBM agrees to pay NEI a royalty
     as set forth in Attachment 1. Except as expressly set forth in Attachment
     1, IBM shall not be responsible for any royalties or other payments. Any
     amount not paid when due shall bear a late payment charge, until paid, at
     the rate of 1.5% per month or, if lesser, the maximum amount permitted by
     law. NEI shall be solely responsible for all other costs and expenses
     associated with its performance and other obligations hereunder.

4.2  Royalty Reductions. IBM may request a lower royalty for the Product when a
     product offering requires a substantial discount. If NEI agrees, in its
     sole and absolute discretion, both Parties will sign a letter specifying
     the product offering and its lower royalty payments.

4.3  Currency & Taxes. All prices are expressed and all payments shall be made
     in United States currency, and NEI shall not include sales or other taxes
     that are imposed on IBM or any IBM subsidiary in connection with the use of
     the Manufacturing Package or the sale and distribution of Products, which
     taxes shall be the sole responsibility of IBM. Except for such applicable
     taxes, NEI shall have sole responsibility for the payment of all taxes and
     duties imposed by all governmental entities (other than any taxes based
     upon the income of IBM or its subsidiaries) on the transactions
     contemplated hereby.

4.4  Payment Logistics. The contract coordinators set forth in subsection 9.7
     shall coordinate and communicate any additional logistics required in
     support of royalty administration.

4.5  Recordkeeping and Audit Rights. Each Party will maintain (and provide to
     the other Party upon request) relevant royalty records to support invoices
     under this Agreement and proof of required permits and

                                 Page 4 of 14
<PAGE>

     professional licenses, as applicable, for a period of time as required by
     local law, but not for less than two (2) years following the date any
     royalties are due under this Agreement. All accounting records relevant to
     obligations under sections 4.1 and 5.0(k) of this Agreement will be
     maintained in accordance with generally accepted accounting principles.

     Each Party may, no more often than one (1) time per year, at its own
     expense and with reasonable written prior notice (not to be less than 60
     days), cause an audit of the other Party's records as described in this
     subsection to be performed by an independent auditor reasonably acceptable
     to both Parties. The independent auditor fees charged for such services
     will be mutually agreed upon in advance of the audit. The audit shall be
     for the purpose of confirming the accuracy of the payment of royalties in
     accordance with this Agreement.

     The auditor will execute the appropriate standard confidentiality agreement
     with the Party being audited and will report to the Party causing the audit
     only such information obtained during the course of such audit as is
     necessary to determine whether the payments made by IBM or royalties
     charged by NEI hereunder were correct. To facilitate the audit, the Party
     being audited will give the independent auditor reasonable access, during
     normal business hours, to such records and documentation as described in
     this subsection.

     Any such audit caused by NEI shall be at the expense of NEI, unless such
     audit discloses an underpayment by IBM in excess of ten percent (10%) of
     all payments due, in which case IBM shall reimburse NEI for such expenses
     and NEI shall be entitled to audit IBM again during the same year. If the
     audit discloses any underpayment by IBM, IBM shall promptly make payment to
     NEI of such underpayment together with the interest provided in Section
     4.1.

     Any such audit caused by IBM shall be at the expense of IBM, unless such
     audit reveals that a more favorable effective royalty rate has been or is
     being offered by NEI to any third party who licenses the Manufacturing
     Package on substantially similar terms and conditions, in which case NEI
     shall reimburse IBM for such expenses and repay IBM for the amount in
     overpaid royalties and IBM shall be entitled to audit NEI again during the
     same year.

4.6  IBM agrees that, subject to existing applicable supplier agreements and
     approval from such suppliers, it will use commercially reasonable efforts
     to extend to NEI IBM component, commodity and manufacturing costs for
     Products labeled with the NEI logo to be manufactured in the same location
     as Products manufactured for IBM.

4.7  Both parties agree that they will work together to qualify NEI's software
     to be listed on IBM's "Server Proven" supplier list as soon as reasonably
     practicable. The responsibilities of each party shall be later defined in a
     separate agreement.

5.0 WARRANTIES
--------------

NEI represents and warrants that at all times:

(a)  The Manufacturing Package shall, as delivered by NEI: (1) conform to all
     descriptions, specifications and requirements set forth in this Agreement
     related to the Manufacturing Package; and (2) be free of all Errors. IBM's
     sole remedy, and NEI's sole obligation, with respect to a breach of this
     warranty shall be that those Products that fail to perform in accordance
     with the Product specifications defined in this Agreement shall, at IBM's
     sole discretion, be repaired or replaced (under a return merchandise
     authorization, RMA, which shall be issued by NEI) by NEI, which repair or
     replacement shall be commenced within 5 Days of IBM's written notification
     to NEI, and NEI agrees to reimburse IBM for all reasonable costs and
     expenses associated with the replacement of Products, including, without
     limitation, all costs and expenses associated with problem diagnosis and
     the replacement of Products at IBM, its subsidiaries, Designees, and its
     and their distributors and customers; provided, however, that in no event
     shall NEI's liability for such costs and expenses exceed the greater of
     either the royalty amount paid by IBM to NEI in connection with such
     Products or

                                 Page 5 of 14
<PAGE>

  Confidential Materials omitted and filed separately with the Securities and
               Exchange Commission.  Asterisks denote omissions.

     $[**] dollars.

(b)  NEI shall not deliver any item or process (including, without limitation,
     the Manufacturing Package) to IBM that infringes any US patents that have
     been issued prior to the date hereof, utility models, design registrations,
     copyrights, mask work rights, trade secrets, or moral rights. If NEI knows
     or becomes aware of any such actual or threatened infringement, NEI agrees
     to promptly notify IBM in writing of such actual or threatened infringement
     per Section 9.8 of this Agreement.

     In the event NEI notifies IBM or IBM reasonably determines that the
     Manufacturing Package and/or Product infringe a valid and enforceable US or
     foreign patent, utility model, design registration, copyright, mask work
     right, trade secret, or any other intellectual property right, IBM will
     have the right to terminate this Agreement for material breach, without any
     cost or liability to IBM, unless NEI is able to, within 30 Days of IBM's
     termination notice to NEI, (a) secure the needed rights and licenses
     regarding such infringed intellectual property or (b) modify the
     Manufacturing Package and/or Product to be noninfringing. If NEI modifies
     the Manufacturing Package and/or Product to be noninfringing, such modified
     Manufacturing Package and/or Product must meet all specifications and
     requirements in this Agreement to IBM's reasonable satisfaction, and such
     modifications must be approved by IBM in writing.

(c)  NEI is the owner of the Manufacturing Package or has all sufficient rights
     to grant the rights and licenses granted in this Agreement., NEI maintains
     records to substantiate such ownership and/or rights and licenses. NEI is
     solely responsible for  any  royalties or for any other payments to any
     third party due to IBM's exercise of IBM's rights and licenses granted in
     this Agreement.

(d)  NEI has obtained all necessary consents of individuals or entities required
     for the use of names, likenesses, voices, and the like in the Manufacturing
     Package.

(e)  NEI has entered into written agreements with its employees, contractors,
     licensees or other applicable third parties, as necessary for it to comply
     with all of its material obligations under this Agreement.

(f)  NEI has no obligation or restriction, nor will it assume any such
     obligation or restriction, that would in any way interfere or be
     inconsistent with or present a conflict of interest concerning its
     performance under this Agreement.

(g)  NEI and the Manufacturing Package are: (1) in compliance with all
     applicable governmental laws, statutes, ordinances, administrative orders,
     certifications, rules and regulations (including, but not limited to all
     those related to health, safety, environmental and all importing and
     exporting) to allow IBM, its subsidiaries and its and their distributors to
     use the Manufacturing Package and distribute the Product world-wide; and
     (2) not subject to any import or export restrictions.

(h)  The Manufacturing Package and any supporting deliverables do not contain
     any harmful code (including but not limited to viruses, worms or other
     self-replicating or self-propagating programming) that can damage,
     interfere with or otherwise adversely affect computers, programs or files
     without the consent or intent of the computer user, and that NEI shall
     enforce procedures to prevent any such harmful code from being incorporated
     into the Manufacturing Package and shall promptly notify IBM of any
     knowledge or suspicion of NEI of any incorporation of such harmful code
     into the Manufacturing Package.

(i)  In the event that a more favorable effective royalty rate is granted by NEI
     during the Term to any third party who licenses the Manufacturing Package
     on substantially similar terms and conditions, NEI shall immediately offer
     such royalty rates, terms and conditions to IBM. Such changes will be
     effective as of the date the royalty decrease or improved terms are granted
     and will apply to all royalties due from IBM after that date.

(j)  NEI shall maintain comprehensive general liability insurance for all
     reasonable claims that might arise from NEI's activities under this
     Agreement.

(k)  The Manufacturing Package is Year 2000 ready such that it, and the
     resulting Product, are capable of correctly processing, providing,
     receiving and displaying date data, as well as exchanging accurate date
     data with all products which are also Year 2000 ready with which the
     Product is intended to be used within and between the twentieth and twenty-
     first centuries;

(l)  NEI shall promptly comply with all obligations, duties and responsibilities
     set forth in this Agreement.

(m)  The Manufacturing Package is euro-ready such that the Product will
     correctly process, send, receive, present, store, and convert monetary data
     in the euro denomination, respecting the euro currency formatting
     conventions (including the euro symbol, as applicable);

NEI shall provide IBM prompt written notice of any change that may affect its
representations and warranties.

                                 Page 6 of 14
<PAGE>

EXCEPT AS EXPRESSLY PROVIDED ABOVE IN THIS SECTION 5, THE MANUFACTURING PACKAGE
IS BEING PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND AND NEI HEREBY DISCLAIMS
ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT
TO THE MANUFACTURING PACKAGE INCLUDING, WITHOUT LIMITATION, ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.

                                 Page 7 of 14
<PAGE>

6.0 INDEMNIFICATION
-------------------

NEI agrees to protect, defend, hold harmless and indemnify IBM, IBM subsidiaries
and its and their successors, permitted assigns, distributors, end users and
other customers from and against any and all claims, damages, actions,
liabilities, losses, costs and expenses arising out of any third party claim of
actual or alleged:

(a)  infringement by the Manufacturing Package or Product, of any patent,
     copyright, mask work right, trademark, trade name, trade secret, or other
     intellectual property or similar rights;

(b)  unlawful or unfair trade practices or competition attributable to NEI;

(c)  violation by NEI, or Manufacturing Package provided by NEI, of any
     administrative order, rule or regulation of any country where the Product
     is distributed; or

(d)  damage to any property, personal injury, death, or any other damage or loss
     by whomever suffered, resulting from any actual or alleged defect or from
     an Error in the Manufacturing Package.

Notwithstanding the foregoing, NEI shall have no indemnification obligation or
liability under this Section 6 to the extent that any such claim is based upon
(i) the manufacture, use, distribution or sale of a Product that is not
manufactured in  accordance with the Manufacturing Package and specifications
provided by NEI (or in accordance with changes to the Manufacturing Package for
which NEI's contract administrator (as defined by this Agreement) has provided
documented approval), if such claim could have been avoided by such compliance,
(ii)  use of the Manufacturing Package or Products in combination with other
devices or products in a manner for which they were not designed or intended by
NEI, or (iii) use of the Products in a manner for which they were not designed
or intended by NEI.

IBM agrees to defend, hold harmless and indemnify NEI from and against any and
all costs, damages and expenses arising out of any third party claim for IBM's
breach of an IBM warranty provided with a Product to such third party, excluding
those claims which would be covered under NEI's indemnification to IBM or which
are caused by a breach of this Agreement by NEI.

The indemnifying party shall pay all damages, expenses, costs, including but not
limited to reasonable attorneys' fees resulting from all such claims or
proceedings regardless of who the claims are filed against, provided that such
payment shall be contingent on: (i) notice by the indemnified party to the
indemnifying party in writing of such claim to enable the indemnifying party to
defend or mitigate the same; (ii) cooperation by the indemnified party with the
indemnifying party in the defense thereof, of which the indemnifying party shall
have control at  the indemnifying party's expense; and (iii) the indemnified
party obtaining the indemnifying party's prior written approval of any
settlement by the indemnified party of such matters (which approval shall not be
unreasonably withheld).  Notwithstanding the above, the indemnified party shall
have the right, but not the obligation, at its sole discretion, to participate
in any such defense at its own expense.

In addition to NEI's indemnification obligations, if an infringement claim
appears likely or is made for which NEI has indemnification obligations
hereunder, NEI will use commercially reasonable efforts to immediately obtain
the necessary rights and licenses for IBM, IBM subsidiaries and its and their
successors, permitted assigns, distributors, end users and other customers to
continue to distribute, license and exercise all other rights and licenses
described in this Agreement on an uninterrupted basis. If after using
commercially reasonable efforts, NEI cannot obtain such rights and licenses,
then, at IBM's option, NEI shall use commercially reasonable efforts to modify
or replace the Manufacturing Package with a non-infringing version, subject to
IBM's technical approval of such modified or replaced Manufacturing Package and
subject to such Manufacturing Package complying with all specifications and
requirements described in this Agreement. If obtaining such rights and such
modification or replacement are not reasonably available to NEI, then NEI may
terminate IBM's license hereunder to the allegedly infringing item unless IBM
agrees to waive NEI's indemnification obligation with respect to the actual or
alleged claim. NEI agrees to reimburse IBM for all reasonable costs and expenses
associated with the replacement of infringing Products, including, without
limitation, all reasonable costs and expenses associated with problem diagnosis
and the replacement of Products at IBM, its subsidiaries, and its and their
distributors and customers. Said actions in this paragraph and any IBM approvals
shall not relieve NEI of its indemnification or other obligations. IBM shall
also have all other remedies available at law, in equity and in this Agreement.

Regarding claims that, in IBM's sole reasonable opinion, cannot be defended
separately, NEI agrees to participate with IBM and IBM's other licensors and
suppliers in the defense of such claims that may be affected by or which may
relate to a potential claim for which NEI is obligated to indemnify IBM, and NEI
will share, on a pro rata basis, in all damages, expenses, costs, and/or
judgments.

                                 Page 8 of 14
<PAGE>

7.0 LIMITATION OF LIABILITY
---------------------------

EXCEPT AS MAY ARISE UNDER SECTION 6 AND EXCEPT AS MAY ARISE DUE TO A BREACH OF
CONFIDENTIALITY BY EITHER PARTY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR ANY LOST PROFITS, OR CONSEQUENTIAL, INDIRECT, INCIDENTAL, SPECIAL OR
PUNITIVE DAMAGES EVEN IF ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
EXCEPT AS MAY ARISE UNDER SECTION 6 AND EXCEPT AS MAY ARISE DUE TO A BREACH OF
CONFIDENTIALITY BY EITHER PARTY, IN NO EVENT SHALL EITHER PARTIES TOTAL
AGGREGATE LIABILITY HEREUNDER EXCEED THE GREATER OF EITHER THE AMOUNT PAID AND
OWING BY IBM TO NEI HEREUNDER OR $[**] DOLLARS.

8.0 TERMINATION
---------------

Either party may terminate this Agreement, without liability for such
termination, for material breach by the other party or in the event that the
other party becomes insolvent, files or has filed against it a petition in
bankruptcy or undergoes a reorganization pursuant to a petition in bankruptcy
("Cause"). Such termination shall become effective 30 Days after receipt of
written termination notice, unless the party receiving such notice remedies the
cause cited in such notice within such 30 Day period. In the event IBM
terminates this Agreement for Cause (except for a termination pursuant to
Section 5(b)), in addition to all other remedies IBM has at law, in equity or
this Agreement, all rights and licenses granted to IBM hereunder shall
immediately become royalty-free and fully-paid-up for the Term.

IBM may terminate this Agreement, without liability, for convenience, at any
time, by providing NEI written termination notice, and such notice shall be
effective immediately upon NEI's receipt of such notice, unless the notice
provides for a longer period.

9.0 GENERAL
-----------

9.1  Confidential Information. Neither party has an obligation of
     confidentiality for information exchanged under this Agreement. Should the
     Parties desire to exchange confidential information, it shall be addressed
     under the separately signed written agreement for exchange of confidential
     information, Confidential Disclosure Agreement (CDA) #4999RL0613, which is
     incorporated herein by reference.

9.2  Public Disclosure. Each party agrees not to disclose to any third party the
     terms or the existence of this Agreement, without the express written
     consent of the other party (any such written consent shall require, at a
     minimum, a prior written confidential obligation by such third parties),
     which consent shall not be unreasonably withheld, except as may be required
     by law or government rule or regulation, or to establish the disclosing
     party's rights under this Agreement, or to any potential investor or
     acquirer of the disclosing party or its affiliates; provided, however that
     if a party is seeking to disclose such information for any reason, then
     such party shall limit the disclosure to the extent required, shall allow
     the other party to review the information to be disclosed prior to such
     disclosure, and shall apply, where available, for confidentiality,
     protective orders, and the like. Such review by the other party shall not
     be construed to make such party responsible for the contents of the
     disclosure and the disclosing party shall remain solely responsible for
     such contents.

     Notwithstanding the foregoing, IBM acknowledges the desire of NEI to make a
     public announcement of the existence of a relationship between NEI and IBM
     and agrees to allow NEI to make such public announcement, in a form to be
     reasonably mutually agreed upon by both parties, no later than thirty (30)
     days after the date of execution of this Agreement.

9.3  Freedom of Action. Nothing in this Agreement shall be construed as: (1)
     prohibiting or restricting either party or their subsidiaries from
     independently developing, having developed independently, acquiring,
     licensing, distributing or marketing products, services and other materials
     which are competitive in any form with the Product, (2) guaranteeing that
     either party or their subsidiaries shall announce, or otherwise offer for
     sale or lease, any product or service, including but not limited to the
     Product; or (3) affecting either party's pricing of products or services,
     including but not limited to the Product. Nothing in this Agreement
     obligates IBM, IBM subsidiaries or distributors to announce or market
     Products that incorporate the Manufacturing Package in any quantity or in
     any particular manner of resale. Resale or marketing activities may be
     commenced or

                                 Page 9 of 14
<PAGE>

     discontinued at the sole discretion of IBM, without notice to NEI. Each
     party is free to enter into similar agreements with other parties.

9.4  Relationship of the Parties. Each party is acting solely as an independent
     company. This Agreement shall not be construed to establish any form of
     partnership, agency, franchise or joint venture of any kind between NEI and
     IBM, nor to constitute either party as the agent, employee, legal
     representative, or any other form of representative of the other. This
     Agreement shall not be construed to provide for any sharing of profits or
     losses between the Parties. Each party acknowledges that it has not relied
     on any promises, inducements, representations or other statements made by
     the other party regarding the commercial viability, profitability or
     success in the market place of any Products or services, and that each
     party's decision to enter into this Agreement is made independently from
     the other party.

9.5  Governing Law and No Jury Trial. This Agreement shall be governed by, and
     the legal relations between the Parties hereto shall be determined in
     accordance with, the substantive laws of the State of New York, without
     regard to any conflict of laws principles, as if this Agreement was
     executed in and fully performed within the State of New York. The United
     Nations' Convention on International Sale of Goods shall not apply to this
     Agreement. Each party hereby waives any right to a trial by jury in any
     dispute arising under or in connection with this Agreement, and agrees that
     any dispute hereunder shall be tried by a judge without a jury. For
     litigation between the parties pertaining to this Agreement, the prevailing
     party shall be entitled to recover its attorneys fees.

9.6  Assignment. No right, interest, privilege or obligation of this Agreement
     shall be assigned or delegated by either party, without the other party's
     prior written permission. Notwithstanding the foregoing, no such consent
     shall be required for the assignment and delegation of this Agreement by a
     party to another entity pursuant to any merger or consolidation of such
     party with or into such entity if the holders of stock of such party
     continue to hold immediately following such merger or consolidation at
     least a majority of the voting power of the stock of the surviving entity.
     Any act in derogation of the foregoing will be null and void.

9.7  Force Majeure. If because of act of God, accidents, fire, lockout, strike
     or other labor dispute, riot or civil commotion, act of public enemy,
     enactment, rule, order or act of any government or governmental authority,
     failure of technical facilities, failure or delay of transportation
     facilities, or other cause not reasonably within its control, either party
     to this Agreement is materially hampered in the performance in the
     performance of its obligations hereunder, then, for the duration of such
     contingency or, if shorter, for a period not exceeding 3 (three) months,
     such party may suspend its obligations hereunder by notice to the other
     party to such effect. If any such contingency shall have continued in
     effect for 3 (three) months or more from the date of notice thereof as
     aforesaid, the party receiving notice may at any time thereafter terminate
     this Agreement forthwith by serving notice to such effect.

9.8  Communications and Notice. All communications between the Parties under
     this Agreement shall be carried out through or under the supervision of the
     following contract coordinators:

--------------------------------------------------------------------------------
              IBM Contact Information               NEI Contact Information
              -----------------------               -----------------------
--------------------------------------------------------------------------------
Contact Name        Brett Lawrence                     William Elliott
--------------------------------------------------------------------------------
     Address      3039 Cornwallis Rd                 61 Pleasant Street
--------------------------------------------------------------------------------
     Address        RTP, NC 27709                    Randolph, MA 02368
--------------------------------------------------------------------------------
   Mail Stop         B002 / GG221                            n/a
--------------------------------------------------------------------------------
   Telephone         919-543-1551                        781-961-4400
--------------------------------------------------------------------------------
         Fax         919-254-2167                        781-961-4508
--------------------------------------------------------------------------------

     Each party may change the aforesaid contract coordinators or addresses at
     any time by written notice to the other party's contract coordinator.

9.9  Headings Not Binding. Headings used in this Agreement are for convenience
     of reference only and are not intended to be part of, or to affect the
     meaning or interpretation of, this Agreement.

9.10 Order of Precedence. In the event of an inconsistency, the order of
     precedence shall be: (a) this Agreement, and then (b) any applicable
     confidential agreement that may cover the subject matter of this Agreement.
     Any terms contained in any invoices, acknowledgments, shipping instructions
     or other forms issued under or in

                                 Page 10 of 14
<PAGE>

     connection with this Agreement that are inconsistent with, different from
     or additional to the terms of this Agreement shall be void and of no
     effect.

9.11 Survival. The rights and obligations in this Agreement of sections and
     subsections 4.6, 5.0, 6.0, 7.0, 8.0, and 9.0, as well as section B of
     Attachment 1 shall survive and continue after termination or expiration of
     this Agreement and shall remain in full force and effect, and shall bind
     the Parties and their legal representatives, successors, heirs and assigns.
     In addition;

     (a)  The rights and licenses granted in Section 2.0 shall survive and
          continue in full force and effect after any termination of this
          Agreement for Cause by IBM as specified in Section 8, for the
          remainder of the Term;

     (b)  The rights and licenses granted in Section 2.0 shall survive and
          continue in full force and effect after any termination of this
          Agreement for Cause by NEI for the remainder of the Term, subject to
          the payment of royalties to NEI as specified in Attachment 1 of this
          Agreement;

     (c)  The rights and licenses granted in Sections 2.0(a) and 2.0(b) and
          2.0(d) shall survive and continue in full force and effect upon any
          termination or expiration of this Agreement for the limited purposes
          of the repair, replacement and servicing of Products manufactured
          prior to such termination or expiration;

     (d)  The rights and licenses granted in Section 2.0(c) shall survive and
          continue in full force and effect after the termination or expiration
          of this Agreement.

9.12 Severability. If any provision of this Agreement is held to be illegal,
     invalid or unenforceable, the legality, validity and enforceability of the
     remaining provisions shall not be affected or impaired.

9.13 Amendment/Waiver. No amendment, modification or waiver of any provision of
     this Agreement shall be effective, unless it is set forth in a writing
     which refers to the provisions so affected and is signed by an authorized
     representative of each party. No failure or delay by either party in
     exercising any right, power or remedy will operate as a waiver of any such
     right, power or remedy.

                                 Page 11 of 14
<PAGE>

  Confidential Materials omitted and filed separately with the Securities and
               Exchange Commission.  Asterisks denote omissions.

                                 Attachment 1

                       Manufacturing Package Description

A.   The Manufacturing Package for the Product shall include, but not be limited
     to the following:

A list of descriptions, requirements, know-how, code and Product specifications
which the Parties shall mutually agree upon and include in this Agreement by
duly executed amendment and which shall be sufficient in scope to enable IBM to
make or have made the Product.


B.   Royalty Description.

In accordance with subsection 4.1 of the Agreement, IBM agrees to pay NEI a
royalty for each Product externally distributed (or used internally for purposes
other than test or development) by IBM or any IBM subsidiary directly to an end
user or to a distributor, or purchased at cost from NEI by IBM or any IBM
subsidiary. There are no minimum royalties due. IBM and NEI agree to negotiate
in good faith the terms of payment and reporting of royalties to NEI, but in no
event shall any royalties for distribution be paid by IBM later than 45 days
after the conclusion of each calendar quarter for the Products so distributed in
such quarter, less adjustments for returns. Upon payment, IBM shall furnish NEI
with an accounting statement of the royalties earned together with payment for
any amount of royalty shown thereby to be due to NEI.

The per-unit-distributed, royalty cost of the license for units distributed by
IBM will be as follows;
$[**] dollars) per unit for the first [**] units.
$[**] dollars) per unit for the next [**] units (units [**] through [**]).
$[**] dollars) per unit for the next [**] units (units [**] through [**]).
$[**] dollars) per unit for the next [**] units (units [**] through [**]).
$[**] dollars) per unit for any units beyond [**] units.

The license to manufacture Product will continue for the life of this Agreement
at cost of $[**] per unit above [**] units. The time at which no further
Enhancements will be made to the Product defined under this license shall be
determined by mutual agreement of both parties and included in this Agreement by
duly executed amendment.

C.   Modifications to Product.

The following modifications to the Product will be made by NEI and included in
the Manufacturing Package delivered to IBM under this license;

a)   NEI agrees to modify the Product mechanicals such that the hard-drives can
     be removed in the field by IBM service personnel.

b)   NEI agrees to reasonably support IBM in its modification of the Product
     bezel to meet IBM Industrial Design (ID) requirements. IBM acknowledges
     that all costs and expenses associated with such modification shall be the
     sole responsibility of IBM.

c)   NEI will make appropriate code changes to the BIOS (Subject to AMI
     approval, as applicable), POST, CMbus, FOS and diagnostics to replace all
     references to NEI in such items to references to IBM in accordance with IBM
     requirements.

d)   NEI will provide all currently-existing Product publications and allow IBM
     to modify them to meet IBM specifications. Currently available publications
     are (1) Hardware Specifications and (2) Install/Administrator Guide. In
     addition, (3) Procedures for Hard File Removal will also be provided by
     NEI.

                                 Page 12 of 14
<PAGE>

e)   NEI will make any necessary changes to the Product design such that the
     Product meets worldwide agency certification requirements as specified in
     Attachment 1 Section E, below.

                                 Page 13 of 14
<PAGE>

D.   Intel Processor Enhancements.

NEI will agree to use commercially reasonable efforts to enhance the
Manufacturing Package by adding a 600/100MHz processor/bus to the current
implementation of the Product and adding a new motherboard (planar) for the
support of a 133MHz front-side bus in order to keep the Product compatible with
the most current Intel processor.  NEI will use commercially reasonable efforts
to deliver these Enhancements on a timely basis.

E.   Agency Certifications.

NEI will make any necessary changes to the Product design such that the Product
meets the following worldwide agency certification requirements;

Product Safety
--------------
UL1950, CSA C22.2 No.950, TUV/CDE IEC950, Nom

Environment
-----------
Operating Temp: 10-35Deg C, 2133M alt, 8-80% Rel. Humidity Power off:
10-43Deg C, 5-80% Rel. Humidity Shipping: -40-60Deg C, 5-100% Rel.
Humidity (exc. rain)

EMC
---
FCC Class A, CE Mark EMC r

                                 Page 14 of 14