Document:

SEPARATION AND FOREBEARANCE AGREEMENT, made as of this 5th day
of October, 2000 (as the same may be supplemented,  modified,  amended, restated
or replaced from time to time in the manner provided herein,  this "Agreement"),
between Stephen B. Gray, an individual currently having an address at 9 Pavilica
Road,  Stockton,  New Jersey 08559  ("Gray"),  Kathleen D. Gray,  to the limited
extent as provided  herein,  and an individual  currently having an address at 9
Pavilica Road,  Stockton,  New Jersey 08559 ("Kathleen Gray"), and ION Networks,
Inc. a Delaware corporation currently having an address at 1551 South Washington
Avenue,  Piscataway,  New Jersey 08854 (the "Company").  The parties referred to
above  are  sometimes   referred  to  herein   individually  as  a  "Party"  and
collectively as the "Parties."

         WHEREAS, Gray has resigned as the Chief Executive Officer and President
of the Company, and as a director of the Company; and

         WHEREAS,  the parties wish to provide for their  respective  rights and
obligations with respect to Gray's resignation from the Company and an extension
of the due date for certain amounts owed by Gray to the Company.

         NOW  THEREFORE,  for and in  consideration  of the mutual  promises and
covenants hereinafter contained, and other good and valuable consideration,  the
receipt and legal sufficiency of which is hereby acknowledged by each Party, the
Parties hereby agree as follows:

         1. $200,000  Payment.  Gray hereby  acknowledges that he currently owes
the Company an  aggregate  amount of Two Hundred  Thousand  ($200,000)  Dollars,
which would otherwise be due and payable now, and that in  consideration  of the
execution and delivery of this Agreement, the Mortgage and the Guaranty (both as
hereinafter  defined),  the Company hereby agrees to  temporarily  forebear such
amounts due to it, and Gray hereby  agrees to pay the Company such  amounts,  as
follows:

         (a) Fifteen Thousand  ($15,000)  Dollars shall be paid by Gray in cash,
in readily available funds, upon the execution of this Agreement;

         (b) Twenty Two Thousand  ($22,000)  Dollars  shall be credited  against
payment for all of Gray's accrued and unused  vacation time,  such payment to be
credited against such $200,000 upon the execution of this Agreement; and

         (c) One Hundred and Sixty Three Thousand ($163,000) Dollars which shall
be paid by Gray in installment  payments as specified  hereinafter,  of at least
Twenty Thousand ($20,000) Dollars,  with the first such installment  payment due
on the last to occur of (i)  November 1, 2000,  or (ii) the tenth  business  day
following the date of the earnings  press release by the Company for the quarter
ended  September 30, 2000; the second such  installment  payment due on December
11, 2000; the third such installment payment due on January 11, 2001; the fourth
such  installment  payment due on February 9, 2001;  the fifth such  installment
payment due on March 9, 2001; and the entire remaining  balance due on or before
March 31, 2001. This obligation shall be evidenced by a promissory note dated as
of the  date  hereof  in the  form of  Exhibit  A  hereto  (as the  same  may be
supplemented,  modified,  amended, restated or replaced from time to time in the
manner provided therein,  the "$163,000 Note"),  which shall be executed by Gray
and delivered to the Company upon the execution of this Agreement .

         2.  Repayment of Loan.  (a) Gray has  previously  issued to the Company
that  certain  promissory  note dated as of June 27, 2000 in the amount of Seven
Hundred and Fifty Thousand ($750,000) Dollars, plus any interest accrued thereon
(the "Existing Note").
<PAGE>

         (b) Gray  acknowledges  and agrees that the full  $750,000 in principal
and accrued  interest is outstanding  under the Existing Note, that the Existing
Note was due in full  thirty  (30) days  after  Gray  leaves  the  employ of the
Company,  and  that in  consideration  of the  execution  and  delivery  of this
Agreement,  the Mortgage and the Guaranty, the Company has agreed to temporarily
forebear payment,  and Gray agrees to repay the $750,000 Note (as defined below)
in full,  together with interest accrued thereon through  September 29, 2000, on
April 30, 2001, in accordance  with the Existing Note and First Amendment to the
Existing Note (as the same may be supplemented,  modified,  amended, restated or
replaced from time to time in the manner provided for therein),  dated as of the
date hereof,  which  Existing  Note and Form of First  Amendment to the Existing
Note are both  attached as Exhibit B hereto,  and which First  Amendment  to the
Existing  Note shall be executed by Gray and  delivered  to the Company upon the
execution of this Agreement. The Existing Note together with the First Amendment
thereto are referred to herein as the "$750,000  Note",  and,  together with the
$163,000 Note, the "Notes."

         3.  Collateralization and Guaranty of Obligations.  (a) For the purpose
of securing the payment obligations pursuant to the Notes and Guaranty, Gray and
Kathleen  Gray shall  execute and deliver to the Company  upon the  execution of
this  Agreement a mortgage in the amount of Nine Hundred and  Thirteen  Thousand
($913,000) Dollars, in favor of the Company,  with respect to the property known
as 9 Pavilica Road, Stockton, New Jersey 08559 (as the same may be supplemented,
modified, amended, restated or replaced from time to time in the manner provided
therein,  the  "Mortgage"),  such  Mortgage  attached  hereto as  Exhibit C. The
Mortgage  shall  thereafter  be reduced by the amount of any payment made to the
Company pursuant to the Notes,  until all amounts due thereunder are fully paid.
Gray and  Kathleen  Gray hereby  represent  and warrant that they own all right,
title and interest in such property,  free and clear of claims,  liens, security
interests and encumbrances (other than the Mortgage).

         (b) In addition, Kathleen Gray shall execute and deliver to the Company
a Guaranty Agreement  containing a continuing guaranty of the Notes (as the same
may be supplemented,  modified,  amended, restated or replaced from time to time
in the manner  provided  therein,  the  "Guaranty")  upon the  execution of this
Agreement, such Guarantee attached hereto as Exhibit D.

         4.  Stock  Options.  (a) The  Parties  understand  and agree that it is
anticipated  that the primary  source for  repayment of the Notes to the Company
shall be the stock options  described below. For the purpose of facilitating the
payments due hereunder,  the Company accepts and consents to Gray's  resignation
as an employee,  officer and director of the Company, and acknowledges that Gray
will  exercise  and sell any stock  options of the Company that he owns and that
currently are exercisable,  as listed in Exhibit F hereto, and Gray agrees to so
exercise and sell such options in the following manner:

         (i)      all  exercises  and  sales  shall  be made by Gray  through  a
                  brokerage  firm  designated  by the  Company  (the  "Broker"),
                  provided  such Broker  allows the options to be exercised  and
                  sold through an irrevocable  payment  instruction from Gray to
                  the  Broker,  pursuant  to  which  the  exercise  price of any
                  options exercised and sold will be paid with proceeds received
                  by the  Broker  from the sale of the  shares  underlying  such
                  options;  Gray  further  agrees that he will not  exercise and
                  sell any of the foregoing stock options other than through the
                  Broker;

         (ii)     all  proceeds  from  such  sales,  not  to  exceed  the  total
                  aggregate  amount  due  to  the  Company  hereunder  plus  the
                  aggregate exercise price of any options sold, will be remitted
                  by the Broker to the Company, and such proceeds (not including
                  proceeds  so remitted  in  connection  with the payment of the
                  aggregate  exercise  price) will be applied by the Company (i)
                  first,  towards  payment of the exercise  price of any options
                  exercised;  (ii) second, payment of withholding required under
                  any federal, state and local tax laws or regulation (including
                  FICA) (it being understood that Gray shall pay such amounts to
                  the  Company  irrespective  whether  any resale  proceeds  are

                                      -2-
<PAGE>

                  received  by Gray or the  Company  as a result  of sale of the
                  shares  underlying  such  options);  (iii) third,  against the
                  amounts due under $163,000 Note, and (iv) fourth,  against the
                  amounts  due under the  $750,000  Note,  until all amounts due
                  under the Notes  have been paid in full.  Any  funds,  if any,
                  remaining  after the payment of all such amounts shall be paid
                  to Gray or as Gray may otherwise direct;

         (iii)    Gray  shall  execute  and  deliver  a  directional  agreement,
                  attached hereto as Exhibit E, to the Broker to the same effect
                  as specified in subparagraph (a)(ii) above.

         (b) In  connection  with the  exercise  and sale by Gray of  options as
specified  above,  the Company  shall use its best  efforts to register for sale
under the Securities Act of 1933, as amended,  the shares underlying any options
owned by Gray which are currently  exercisable and are not registered,  within 4
days  after  the  filing of its  Report on Form  10-QSB  for the  quarter  ended
September  30, 2000.  If the Company fails to or is unable to so register all of
Gray's option  shares  (other than those  pertaining to shares that have already
been so  registered)  by December 31, 2000,  then the final maturity and payment
dates for the $750,000  Note shall be extended to December 31, 2001,  instead of
April 30, 2001.

         (c) Gray and  Kathleen  Gray  each  acknowledges  and  agrees  with the
Company that (i) any  fluctuation  in the value of the options or option  shares
are the sole risk of Gray  (whether  resulting  from any delay or failure in the
registration  of the shares or otherwise),  and (ii) Gray will be liable for the
full amount due under the Notes,  and will pay and satisfy all of his  remaining
obligations  under the Notes in full after the  application  of any net proceeds
from the exercise of the options and the sale of the option shares, in each case
irrespective  of the then  fair  market  value of the  option  shares or the net
amounts  (if any)  raised and so applied in any  exercise of options and sale of
option shares. To the extent that Kathleen Gray has any right, title or interest
in the  foregoing  options or the shares  underlying  such  options,  she hereby
authorizes and agrees to the foregoing  exercises and sales of options,  and the
foregoing application of the proceeds from such exercises and sales.

         (d) The Company and Gray acknowledge  that the stock options  specified
in Exhibit F are currently  exercisable  and that Gray has no claim with respect
to any options other than those listed in Exhibit F.

         5. Release by Gray. (a) For and in  consideration  of good and valuable
consideration,  receipt of which is hereby acknowledged, Gray, and Kathleen Gray
(individually  and/or in her capacity as Gray's  wife),  on behalf of himself or
herself and their respective heirs, family members,  executors,  administrators,
successors  and assigns,  hereby fully and forever  releases and  discharges the
Company,  its  present  and  former  officers,  directors,   employees,  agents,
investors, shareholders, administrators, representatives, affiliates, divisions,
subsidiaries,  parent corporations,  predecessor and successor  corporations and
assigns from any and all  liability  for any claim,  duty,  covenant,  warranty,
promise,  undertaking,  obligation,  actions,  suit,  cause  of  action,  debts,
accounts,  judgments, losses, liabilities or damages (collectively "Claims"), of
whatsoever  kind or nature,  at law, in equity or otherwise,  whether  presently
known or unknown,  suspected or unsuspected,  that Gray may possess arising from
any omission, act or fact that has occurred from the beginning of time up to and
including the date of this Agreement.  Such released claims include, but are not
limited to:

         (i)      any Claims for wages,  separation pay, severance pay, bonuses,
                  accrued  vacation,  personal  days,  holidays,  stock  options
                  (other  than  those  set  forth in  Exhibit  F) which  are not
                  currently exercisable,  other benefits,  attorneys fees, costs
                  or expenses,  including,  without limitation,  any such Claims
                  arising out of any written or oral  employment  agreement with
                  or any policy, plan or procedure of the Company;
                                      -3-
<PAGE>

         (ii)     any other  Claims  arising out of Gray's  employment  with the
                  Company or his resignation from the Company;

         (iii)    any Claims  arising under the common law,  including,  without
                  limitation, all claims pursuant to public policy or tort law;

         (iv)     all Claims  arising under any  employment or other  agreement,
                  contract, arrangement,  understanding or promise (in each case
                  whether  oral or  written  and  whether  express  or  implied)
                  between Gray and the Company;

         (v)      all  Claims   arising  under  any  federal,   state  or  local
                  constitution,  statute,  regulation or ordinance to the extent
                  such  claims  may  be  validly  waived,   including,   without
                  limitation,  Title VII of the  Civil  Rights  Act of 1964,  as
                  amended,  the Civil Rights Act of 1991, the Age Discrimination
                  in  Employment  Act of 1967, as amended,  the  Americans  with
                  Disabilities  Act of 1990, the Equal Pay Act, as amended,  the
                  Fair Labor  Standards Act of 1938, as amended,  the Family and
                  Medical  Leave  Act  of  1993,  as  amended;  the  New  Jersey
                  Constitution;  the New Jersey Law Against Discrimination;  the
                  New Jersey Conscientious Employee Protection Act; and

         (vi)     all Claims for any other expense, loss or damage.

                  (b) Gray acknowledges  that the consideration  provided to him
under this Agreement exceeds any payment, benefit and/or other thing of value to
which he might otherwise be entitled  pursuant to any policy,  plan or procedure
of the Company or pursuant to any prior  agreement or contract with the Company.
Gray understand that he is not waiving any rights or Claims that arise after the
effective  date of this  Agreement and that he is not releasing the Company with
respect to any rights he may have under any employee benefit plans as defined in
Section 3(3) of ERISA.

                  (c) Gray  further  agrees  that,  except  for the  purpose  of
seeking  enforcement  of the  terms  of  this  Agreement,  he will  not  file or
institute any civil actions, complaints, charges, claims or other proceedings of
any  nature  or   description   against   the  Company   before  any   judicial,
administrative  or other forum based upon or arising out of any claims,  whether
asserted  or  unasserted,  that he may  possess  against  the  Company.  If Gray
violates  this  Agreement  by  filing or  instituting  any such  civil  actions,
complaints,  charges, claims or other proceedings,  Gray agrees to pay all costs
and expenses of defending  against the suit  incurred by the Company,  including
its reasonable attorneys' fees, disbursements and costs.

         6. Release by the  Company.  (a) For and in  consideration  of good and
valuable consideration, receipt of which is hereby acknowledged, and except with
respect to any obligations under this Agreement, the Notes and the Mortgage, the
Company hereby fully and forever  releases and discharges  Gray from any and all
liability  for  any  claim,  duty,  covenant,  warranty,  promise,  undertaking,
obligation,  actions, suit, cause of action, debts, accounts, judgments, losses,
liabilities  or  damages,  of  whatsoever  kind or nature,  at law, in equity or
otherwise, whether presently known or unknown, suspected or unsuspected that the
Company may possess arising from any omission act or fact that has occurred from
the beginning of time up to any including the date of the  Agreement;  provided,
however,  Gray hereby  represents and warrants that Gray has no knowledge of any
issue,  fact  or  circumstance   constituting   fraud  against  the  Company  or
missapropriation of Company funds or property,  and Gray acknowledges and agrees
that the  Company's  release of Gray as to claims  unknown to the  Company  (not
imputing Gray's  knowledge to the Company) is contingent on the accuracy of such
representation  and  warranty.  Gray agrees to indemnify  and hold  harmless the
Company from and against any and all charges,  claims,  causes of action, losses
or other expenses,  including  attorney's  fees,  incurred by the Company to the
extent arising from the issues,  facts or circumstances  constituting such fraud
or misappropriation.

                                      -4-
<PAGE>

                  (b) The Company agrees that, except for the purpose of seeking
enforcement  of the terms of this  Agreement  and any claims for breach  thereof
(including but not limited to with respect to the Notes and  Mortgage),  it will
not file or institute any civil actions,  complaints,  charges,  claims or other
proceedings  of any nature or  description  against  Gray  before any  judicial,
administrative  or other forum based upon or arising out of any claims,  whether
asserted  or  unasserted,  that the Company may  possess  against  Gray.  If the
Company violates this Agreement by filing or instituting any such civil actions,
complaints,  charges, claims or other proceedings, the Company agrees to pay all
costs and expenses of defending against the suit incurred by Gray, including his
reasonable attorney's fees, disbursements and costs.

         7. Entire  Agreement.  This Agreement and the exhibits  thereto contain
the entire  understanding  between the Parties  with respect to, and contain all
terms and conditions  pertaining  to, the subject matter hereof.  This Agreement
and the  exhibits  thereto  supersede  any  prior  agreements,  arrangements  or
understandings  between the Parties,  whether  written or oral,  relating to the
subject matter hereof.

         8. Severability. If any provision of this Agreement shall be determined
to be invalid or  unenforceable  to any extent,  the  remainder of the terms and
provisions of and  obligations  in this  Agreement and the  application  of such
terms,  provisions and undertakings  shall not be affected and shall be enforced
to the greatest extent permitted by law.

         9. Legal Representation. The Parties represent and warrant to the other
that he, she or it has had full opportunity to obtain, and has in fact obtained,
the advice of his, her or its own legal counsel with respect to this Agreement.

         10. Notices.  Any notice or demand required or permitted to be given or
made  hereunder to or upon either Party hereto shall be deemed to have been duly
given or made for all purposes if (a) in writing and sent by (i) messenger or an
overnight courier service against receipt, or (ii) certified or registered mail,
postage  paid,  return  receipt  requested,  or (b) sent by telegram,  telecopy,
telex, e-mail or similar electronic means,  provided that a written copy thereof
is sent on the same day by postage paid  first-class  mail, to such party at the
following address:

          If to Gray or                      Stephen and Kathleen Gray
          Kathleen Gray:                     9 Pavilica Road
                                             Stockton, New Jersey  08559

          with a copy to:                    Vito A. Gagliardi, Jr.
                                             Porzio, Bromberg & Newman, P.C.
                                             163 Madison Avenue
                                             Morristown, New Jersey  07962-1997

          If to the Company:                 ION Networks, Inc.
                                             1551 South Washington Avenue
                                             Piscataway, New Jersey  08854
                                             Attn: Chairman of the Board of
                                             Directors

          with a copy to:                    James Alterbaum, Esq.
                                             Parker Chapin LLP
                                             405 Lexington Avenue
                                             New York, NY 10174

or such other  address as either Party may at any time direct by notice given to
the other Party in accordance with this  paragraph.  The date of giving any such
notice shall be, in the case of clause (a)(i), the date of receipt;  in the case
of clause (a) (ii), five (5) business days after such notice is sent; and in the
case of clause (b),  the  business  day next  following  the date such notice is
sent.

                                      -5-
<PAGE>

         11.  Governing Law;  Jurisdiction.  This Agreement shall be governed by
the laws of the State of New Jersey,  without  giving  effect to  principles  of
conflicts or choice of law thereof.  The Parties hereto consent to the exclusive
jurisdiction  of any  state or  federal  court  located  within  the  County  of
Middlesex,  New Jersey, and irrevocably agree that all disputes relating to this
Agreement shall be litigated in such courts, and the Parties waive any objection
which they may have based on improper venue or forum  non-conveniens  to conduct
the proceeding in any such court.

         12. Survival of Obligations.  The rights and obligations of the Parties
pursuant to this Agreement shall survive the execution of this Agreement.

         13. Counterpart Signature;  Facsimile.  This Agreement may be signed in
counterparts,  each of which shall  constitute  an  original,  and shall  become
effective as if executed in a single,  complete  document upon  execution by the
undersigned  parties.  Facsimile signatures of the undersigned parties will have
the same force and effect as original signatures.

         IN WITNESS WHEREOF,  the undersigned have executed this Agreement as of
the date first written above.

                                        ION NETWORKS, INC.

                                        By: /s/ Stephen M. Deixler
                                            ---------------------------

                                            Name:  Stephen M. Deixler
                                            Title: Chairman

                                        /s/ Stephen B. Gray
                                        -------------------------------
                                                 Stephen B. Gray

         By signing  below,  the  undersigned  hereby  agrees to be bound by the
terms and provisions of this Agreement,  including (without limitation) Sections
3(a), 3(b), 4(c), 5 and 7 through 13 hereof.

                                    /s/ Kathleen D. Gray
                                    -------------------------------------
                                             Kathleen D. GrayTHIS PROMISSORY  NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933.
IT MAY NOT BE OFFERED OR  TRANSFERRED BY SALE,  ASSIGNMENT,  PLEDGE OR OTHERWISE
UNLESS  (I)  A  REGISTRATION  STATEMENT  FOR  SUCH  PROMISSORY  NOTE  UNDER  THE
SECURITIES  ACT OF 1933 IS IN  EFFECT  OR (II)  PAYEE  (AS  DEFINED  BELOW)  HAS
RECEIVED AN OPINION OF COUNSEL,  WHICH OPINION IS  SATISFACTORY TO THE PAYEE, TO
THE EFFECT THAT SUCH  REGISTRATION  IS NOT REQUIRED  UNDER THE SECURITIES ACT OF
1933.

                                 PROMISSORY NOTE

Principal: $163,000.00                                           Piscataway, NJ
                                                                October 5, 2000

                  FOR VALUE RECEIVED,  Stephen B. Gray, an individual  currently
residing at 9 Pavilica Road, Stockton,  NJ 08559 (the "Maker"),  hereby promises
to pay to ION NETWORKS, INC., a Delaware corporation currently having an address
at 1551 South Washington Avenue, Piscataway, New Jersey 08854 (the "Payee"), the
aggregate sum of One Hundred  Sixty-Three  Thousand Dollars  ($163,000.00)  (the
"Principal  Amount"),  without  interest,  all upon the terms and provisions set
forth  in this  promissory  note (as the  same  may be  supplemented,  modified,
amended,  restated or replaced from time to time in the manner provided  herein,
this "Note").  Payments  shall be made at the address set forth above or at such
other place as may be designated from time to time in writing by the Payee.

          1. Payment of  Principal.  The  Principal  Amount shall be paid by the
Maker to the Payee in installments of at least $20,000 each, with the first such
installment payment due on the last to occur of (a) November 1, 2000, or (b) the
tenth  Business  Day  following  the date of the earnings  press  release by the
Company for the quarter ended  September 30, 2000,  the second such  installment
payment due on December  11,  2000,  the third such  installment  payment due on
January 11, 2001, the fourth such  installment  payment due on February 9, 2001,
the  fifth  such  installment  payment  due on March  9,  2001,  and the  entire
remaining balance due in a single payment on or before the earliest to occur of:
(i) March 31, 2001;  or, (ii) the  occurrence of an Event of Default (as defined
below);  or (iii) such  earlier date as may be  otherwise  provided  herein (the
earliest such applicable date being referred to herein as the "Maturity Date").

          2.  Prepayment.   The  Maker  shall  have  the  right  to  prepay  the
outstanding  Principal  Amount of this Note, in whole at any time, or in part at
any time and from time to time, without penalty or premium.

          3. Security. This Maker's obligations under this Note: (i) are subject
to and supported by certain  agreements  made by the Maker under the  Separation
and Forebearance  Agreement  between the Maker and the Payee dated as of October
5,  2000  (as the same  may be  supplemented,  modified,  amended,  restated  or
replaced  from time to time in the  manner  provided  therein,  the  "Separation
Agreement"),  (ii) are assured by the guaranty of Kathleen D. Gray,  the Maker's
wife (the "Guarantor"),  pursuant to her Guaranty Agreement with the Payee dated
as of  October  5,  2000 (as the same may be  supplemented,  modified,  amended,
restated  or  replaced  from time to time in the manner  provided  therein,  the
"Guaranty"),  and (iii) are secured by the Mortgage on the property located at 9
Pavilica Road, Stockton, New Jersey 08559, from the Maker and the Guarantor,  as
mortgagors,  to the Payee,  as  mortgagees,  dated as of October 5, 2000 (as the
same may be supplemented,  modified,  amended, restated or replaced from time to
time in the manner  provided  therein,  the  "Mortgage"),  which  Mortgage  also
secures the  obligations of the Guarantor  under her Guaranty.  The Guaranty and
Mortgage  also support the  Promissory  Note issued by the Maker to the Payee on
June 27, 2000, as amended by a first amendment dated as of the date hereof,

                                      -1-
<PAGE>

in the amount of Seven Hundred and Fifty  Thousand  ($750,000)  Dollars (as so
amended, and as the same may be supplemented,  modified,  amended,  restated or
replaced from time to time in the manner provided therein the "$750,000 Note").

          4. Events of Default.  An "Event of Default"  shall be deemed to occur
hereunder (i) upon the commencement of any proceedings by the Maker, or with the
consent  or  non-objection  of  Maker,  under  any  law  or  statute  concerning
bankruptcy,  arrangement  of debt,  insolvency or  readjustment  of debt, or the
commencement of any such  proceedings  without the consent of the Maker and such
proceedings  shall continue  undischarged  for a period of sixty (60) days; (ii)
the  failure  to pay any amount  under  this Note when due;  (iii) any "Event of
Default" under (and as defined in) the $750,000 Note, (iv) any breach or default
by Maker or the Guarantor  under the Separation  Agreement,  the Guaranty or the
Mortgage, , or (v) upon the death or disability of Maker or Guarantor.

          5. Payment Upon Default. Without limiting any other rights or remedies
of the Payee in accordance with this Note or applicable law, in the event of the
occurrence of an Event of Default,  Payee,  at its election,  may accelerate and
demand immediate  payment of the Principal Amount and all other  obligations due
under this Note and Maker shall be liable for all such amounts. Payee shall also
be  entitled  to the  payment  of  interest  at the rate of 12% per annum on the
outstanding Principal Amount from and after the date of any Event of Default. In
addition,  the Maker  shall  pay or  reimburse  ON DEMAND  any and all costs and
expenses  incurred by the Payee,  whether directly or indirectly,  in connection
with  all  waivers,  releases,  satisfactions,   modifications,  amendments  and
consents, all payments made and actions taken in the name of or on behalf of the
Maker or the Guarantor,  and the  administration,  maintenance,  enforcement and
adjudication of this Note and the Payee's rights,  powers,  privileges and other
interests under this Note and applicable law, including (without limitation) the
disbursements, expenses and fees of counsel to the Payee.

          6. Waiver of  Presentment,  Etc.  Presentment  for payment,  notice of
dishonor,  protest,  notice of  protest,  notice of  acceptance  and all similar
notices  are  hereby  expressly  waived by the  Maker.  Any  waiver  or  consent
respecting  any term or provision of this  Agreement  shall be effective only in
the specific instance and for the specific purpose for which given and shall not
be deemed,  regardless of frequency given, to be a further or continuing  waiver
or  consent.  The  failure or delay of the Payee at any time or times to require
performance of, or to exercise its rights with respect to, any term or provision
of this Agreement in no manner shall affect the Payee's right at a later time to
enforce any such provision.  No notice to or demand on the Maker or Guarantor in
any case shall  entitle  such party to any other or further  notice or demand in
the same, similar or other circumstances. The acceptance by the Payee of (a) any
partial or late payment  shall not  constitute a  satisfaction  or waiver of the
full amount then due or the resulting Event of Default or (b) any payment during
the  continuance  of an Event of Default  shall not  constitute a waiver or cure
thereof;  and the Payee may accept or reject any such payment without  affecting
any of the Payee' rights, powers, privileges, remedies and other interests under
this Agreement and applicable law. All representations, warranties and covenants
of the Maker and all rights, powers, privileges, remedies and other interests of
the  Payee  hereunder  are  cumulative  and not  alternatives,  and  they are in
addition to and shall not limit (except as other-wise expressly provided herein)
any other right, power,  privilege,  remedy or other interest of the Payee under
this Agreement, any related document or applicable law.

          7.  Governing  Law.  This Note shall be governed by, and  construed in
accordance  with,  the  laws of the  State  of New  Jersey,  without  regard  to
principles  of  conflicts  or choice  of laws  thereof.  This Note  shall not be
interpreted or construed with any presumption against the Payee by virtue of the
Payee causing this Note to be drafted.

          8. Amendments. No amendment,  modification, or waiver of any provision
of this  Note nor  consent  to any  departure  by the Maker  therefrom  shall be
effective  unless the same  shall be in writing  and signed by the Payee and the
Maker.

                                      -2-
<PAGE>

          9.  Successors  And  Assigns.  This  Note  shall  not  be  negotiable,
transferable  or assignable  by the Maker  without the prior written  consent of
Payee.  This Note shall be binding  upon and shall  inure to the  benefit of the
Payee and its successors and assigns, if any, subject to the provisions hereof.

          10. Entire  Agreement.  This Note,  the $750,000  Note, the Separation
Agreement,  the Mortgage and the  Guaranty  contain the entire  agreement of the
parties and  supersede all other  representations,  warranties,  agreements  and
understandings, oral or otherwise, among the parties with respect to the matters
contained herein and therein.

          11. Waiver of the Right to Trial by Jury. The Maker hereby irrevocably
waives the right to trial by jury in any action,  suit,  claim,  counterclaim or
other  proceeding,  whether in  contract  or tort,  at law or in equity,  in any
manner connected with this Note or any transactions  contemplated hereunder. The
exclusive jurisdiction of any disputes arising hereunder shall be in the federal
or state courts of the State of New Jersey in Middlesex County.

          12.  Notices.  Any  notice,  request,  demand  or other  communication
permitted or required to be given hereunder  shall be in writing,  shall be sent
by one of the  following  means to the  addressee at the address set forth above
(or at such other  address  as shall be  designated  hereunder  by notice to the
other parties and persons receiving  copies,  effective upon actual receipt) and
shall be deemed  conclusively to have been given:  (a) on the first Business Day
(as hereinafter defined) following the day timely deposited with Federal Express
(or other equivalent  national overnight courier) or United States Express Mail,
with the cost of delivery  prepaid;  (b) on the fifth Business Day following the
day duly sent by certified or registered United States mail, postage prepaid and
return  receipt  requested;  or (c) when  otherwise  actually  delivered  to the
addressee.  Copies may be sent by regular  first-class mail, postage prepaid, to
such  person(s) as a party may direct from time to time by notice to the others,
but failure or delay in sending copies shall not affect the validity of any such
notice, request, demand or other communication so given to a party. For purposes
hereof,  "Business  Day"  shall  mean any day  during  which  banks are open for
business  in New York,  New York,  other than any  Saturday,  Sunday or a day on
which commercial banks in New York State are authorized or required to close.

IN  WITNESS  WHEREOF,  the Maker  has  executed  this Note as of the date  first
written above.

                                           MAKER:

                                    /s/ Stephen  B. Gray
                                   ----------------------------
                                        Stephen B. Gray

                                      -3-

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