SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
FORM 10/A
( Amendment No. 2)

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) OR 12(g) OF THE Securities Exchange Act Of 1934

SURGE COMPONENTS, INC.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation)

11-2602030
I.R.S. Employer Identification Number

95 East Jefryn Boulevard
Deer Park, New York 11729
(Address of Principal Executive Office) (Zip Code)

(631) 595-1818(Registrant’s Telephone Number)

Securities to be registered under Section 12(b) of the Act:

Title of each class
Name of each exchange on which
To be so registered
each class is to be registered
   
None
None

Securities to be registered under Section 12(g) of the Act:
Common stock, par value $0.001 per share
(Title of class)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨
 
Accelerated filer  ¨
     
Non-accelerated filer  ¨
(Do not check if a smaller reporting company)
 
Smaller reporting company  x

 
 
 
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TABLE OF CONTENTS
 
Item 1.
Business
3
     
Item 1A.
Risk Factors
12
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
     
Item 3.
Properties
18
     
Item 4.
Security Ownership of Certain Beneficial Owners and Management
18
     
Item 5.
Directors and Executive Officers
18
     
Item 6.
Executive Compensation
19
     
Item 7.
Certain Relationships and Related Transactions, and Director Independence
21
     
Item 8.
Legal Proceedings
22
     
Item 9.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
22
     
Item 10.
Recent Sales of Unregistered Securities
22
     
Item 11.
Description of Registrant’s Securities to be Registered
23
     
Item 12.
Indemnification of Directors and Officers
26
     
Item 13.
Financial Statements
F-1
     
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
27
     
Item 15.
Financial Statements and Exhibits
27
     
Signatures 
28

 
 
 
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Item 1. Business.

Background

References to "we," "us," "our", "our company" and "the company" refer to Surge Components, Inc. ("Surge" or the "Company") and, unless the context indicates otherwise, includes Surge's wholly-owned subsidiaries, Challenge/Surge, Inc. ("Challenge"), and Surge Components, Limited ("Surge Limited”).

We were incorporated under the laws of the State of New York on November 24, 1981, and re-incorporated in Nevada on August 26, 2010. Surge, a supplier of electronic products and components, i.e. capacitors, diodes, PC Boards completed an initial public offering of its securities in 1984 and a second offering of its securities in August 1996. Challenge, a New York corporation formed in 1988 and a wholly-owned subsidiary of Surge, supplies audible products, including buzzers, speakers, and microphones. Surge's and Challenge's principal executive offices are located at 95 East Jefryn Boulevard, Deer Park, New York 11729; and the telephone number is (631) 595-1818.

In July 1996, we filed a Form 8-A to register our Units, Common Stock and Class A Warrants. We were subject to the reporting obligations of the Securities Exchange Act of 1934, as amended  (the "Exchange Act") from 1996 until July 12, 2004.  We deregistered our Common Stock and Series A Warrants by filing a Form 15 (which Form 15 was filed with the intention of terminating our reporting obligations under the Exchange Act effective in July 2004) in April 2004 because of the low trading volume in our Common Stock and our failure to meet the minimum listing requirements of the Boston Stock Exchange. We deregistered our Common Stock and redeemable Class A Common Stock Purchase Warrants pursuant to Rule 12g-4 (a) (1) (ii) because we had fewer than 500 holders of record of our Common Stock and our total assets did not exceed $10,000,000 in 2003, 2002 or 2001.  We did not deregister the Units. Although the Units were immediately detachable from the securities that comprised them and as result such Units no longer existed, the SEC may take the position that, as a result of our failure to deregister the Units, we did not effectively terminate our reporting obligations effective July 2004 as we intended.

Our Common Stock was listed on the Nasdaq SmallCap Market (now known as the Nasdaq Capital Market) until November 2001. Our Common Stock was delisted in connection with certain questionable payments in the aggregate amount of $3,000,000 made by the Company during the year ended November 30, 2000 and the quarter ended February 28, 2001. Such payments were made to the wife of an employee of one of our suppliers in return for help obtaining components from that supplier and another distributor. According to management personnel responsible for making the payments, prior to making any payment, they disclosed the transaction to our legal counsel to determine whether payments to an employee of a supplier would be legal. Management personnel believed they had received reasonable assurances at the time, and thereafter, that such payments are not illegal, so long as the recipient of the payments received an IRS Form 1099, and all payments were made by check.

The costs of such payments were recorded in our books and records and financial statements as they were incurred. We duly issued a Form 1099 to the recipient of the payments, based upon the advice of our counsel. According to Steven Lubman, in mid-March 2001, he became aware of a document in a criminal proceeding unrelated to us in which the payments were described as kickbacks. This caused management to seek reconfirmation of the legal advice previously given. Legal counsel advised us by letter on or about March 22, 2001, that, since the payments had been described in a document in the unrelated criminal action as kickbacks, disclosure of the document should be made to our auditors, which was done. Such counsel stated in the letter that no conclusion had been reached that such payments were kickbacks. On April 19, 2001, we disclosed in a 10-QSB that the questionable payments had been made.

In addition, after receipt of the March 22 letter, the Board determined to investigate the payments and ask for the return of the payments. The Company requested that the $3 million be repaid, and we received $1 million.

In May 2001, another law firm,  Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., was engaged by the Company to assist in an investigation concerning the payments and to recommend policies to prevent any similar future payments. Due in part to the previously disclosed resignation of our outside counsel and such counsel's refusal to be interviewed as part of the investigation, we were unable to confirm what legal advice was rendered as to the making of such payments. The investigation did not uncover any additional payments similar to the previously disclosed "questionable payments".

By letters dated October 9, 2001 and January 17, 2002, we were contacted by the SEC regarding the potentially questionable payments, and were requested to voluntarily furnish various documents.  By letters dated October 23, 2001 and November 28, 2001, we voluntarily responded and provided the SEC with such documents. On March 13, 2002, we provided a supplemental response to the SEC.  We have not had any contact with, or received any letters from, the SEC concerning this matter since March 2002.


 
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In November 2001, NASDAQ  informed  us  that it had determined that the Company's securities would be delisted  based on public interest concerns related to the potentially questionable payments and additionally for  the  failure  of certain of our officers  and  directors  to submit to an interview by NASDAQ regarding these payments.

The legal counsel which advised the Company as to the legality of the questionable payments no longer has any relationship to the Company. Ira Levy and Steven Lubman were the sole officers and directors of the Company who were asked and refused (based on the advice of counsel) to submit to the NASDAQ interviews. They are currently officers and directors of the Company.
 
We are registering our Common Stock because we want to furnish our common stock holders with current and periodic information on our Company though the Securities and Exchange Commission Edgar site. Additionally, by registering under the Securities Exchange Act of 1934, as amended a market maker could arrange for an application to be filed with FINRA for the public trading of our common stock on the OTC Bulletin Board.   We have not yet had any discussions with any market makers about seeking to have our Common Stock quoted on the OTC Bulletin Board and there can be no assurance that any market makers will file an application on our behalf or that our shares of Common Stock will be quoted on the OTC Bulletin Board.

In May 2002, Surge and Ira Levy, our chief executive became sole owners of Surge Components, Limited ("Surge Limited"), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and Mr. Levy owns one share of the outstanding common stock. Mr. Levy has assigned his rights regarding his one share to Surge. Surge Limited started doing business in July 2002. The Company has opened this office and hired direct sales people in order to effectively handle the transfer business from United States customers purchasing and manufacturing in Asia after they do the design in America. This office has strengthened its global capabilities and service to its customer base.

In March 2000, Superus, a Delaware corporation was formed, to ultimately become a Delaware parent  holding company though a proposed merger of Surge with and into Superus, which did not occur.  Surge Components, Inc. owned 100% of Superus. Superus was a holding company which owned subsidiaries involved in two separate Internet technology businesses, Mailencrypt.com and Global Datatel.  Revenue for the subsidiaries failed to materialize during the dot.com era. The Company desired to focus its business on other areas, and the Company stopped funding Superus; as a result, Superus went bankrupt.  Superus filed for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code.  In June 2002, the trustee assigned to the case filed a report certifying, among other things, that the case had been fully administered and that there were no assets available for distribution to creditors. In December 2003, the Bankruptcy Court issued an Order approving the Trustee's Report and closing the case.

In December 2000, Surge launched a joint-venture limited liability company with Lelon, a Taiwan corporation, which joint venture ceased operating in 2006. The purpose of the joint venture was to provide a vehicle through which Surge would promote and sell Lelon products; Surge had a 55% interest in the joint venture and Lelon had a 45% interest. Surge and Lelon terminated the joint venture because they determined that, in order for the joint venture to succeed, the joint venture would require a greater level of involvement than the parties were willing to invest.

We are a supplier of electronic products and components. These products include capacitors, which are electrical energy storage devices, and discrete components, such as semiconductor rectifiers, transistors and diodes, which are single function low power semiconductor products that are packaged alone as compared to integrated circuits such as microprocessors. The products that we sell  are typically utilized in the electronic circuitry of diverse products, including, but not limited to, automobiles, telecomm, audio, cellular telephones, computers, consumer electronics, garage door openers, household appliances, power supplies and security equipment. The products that we sell are sold to both original equipment manufacturers, commonly referred to as OEMs, who incorporate them into their products, and to distributors of the lines of products we sell, who resell these products within their customer base.  The products that we sell are manufactured predominantly in Asia by approximately sixteen independent manufacturers. We do not have any binding long-term supply, distribution or franchise agreements with our manufacturers. We act as the exclusive sales agent utilizing independent sales representative organizations in North America to sell and market the products for one of such manufacturers pursuant to an oral agreement.  As the exclusive sales agent for this manufacturer, we are solely responsible for marketing and selling its products in North America. When we act as a sales agent, the supplier who sold the product to the customer that we introduced to such supplier will pay us a commission. The amount of the commission is determined on a sale by sale basis depending on the profit margin of the product. Such commissions have not been material to date. For example, such commissions were equal to $229,177 for the year ended November 30, 2009 and $99,081 for the six months ended May 31, 2010.

Challenge engages in the electronic components business. Challenge's revenues are principally derived from the sale of audible products. In 1999, Challenge began a division to sell audible components. This division since 2002 has grown by 22%.

From 1988 to 2001, Challenge was in the broker business. Under the broker business, Challenge would purchase name brand electronic components and products, typically from domestic manufacturers and authorized distributors, to fill specific customer orders. Challenge would purchases these components and products in the open market on the best available terms and generally would keep small inventories. In particular, Challenge would fill orders from customers which needed electronic components and products that were not readily available from their suppliers. Challenge’s broker business generated net sales of $2,923,000 in Fiscal 1998, $4,671,000 in Fiscal 1999, and $27,323,000 in Fiscal 2000. Challenge exited the broker business because, in 2001, an over-supply in the electronics components business reduced opportunities to operate profitably in the broker business. As a result, Challenge began to import products similarly to its parent company Surge, and to sell these products these under the Challenge name.
 
In order for us to grow, we will depend on, among other things, the continued growth of the electronics and semiconductor industries, our ability to withstand intense price competition, our ability to obtain new clients, our ability to retain sales and other personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in managing growth, including monitoring an expanded level of operations and controlling costs, and the availability of adequate financing.
 
 
Industry Background

The United States electronics distribution industry is composed of manufacturers, national and international distributors, as well as regional and local distributors. Electronics distributors market numerous products, including active components (such as transistors, microprocessors, integrated circuits and semiconductors), passive components (such as capacitors and audibles), and electro mechanical, interconnect (such as connectors and wire) and computer products. Surge focuses its efforts on the distribution of capacitors, discrete components, and audible products.

The electronics industry has been characterized by intense price cutting and rapid technological changes and development, which could materially adversely affect our future operating results. In addition, the industry has been affected historically by general economic downturns, which have had an adverse economic effect upon manufacturers and end-users of  the products that we sell, as well as distributors. Furthermore, the life-cycle of existing electronic products and the timing of new product development and introduction can affect the demand for electronic components, including the products that we sell. Accordingly, any downturn in the electronics industry in general could adversely affect our business and results of operations.  There are forces of change affecting the wholesale distribution industry, including the electronics industry. The industry is experiencing a strong move by U.S. manufacturers to design products in the United States, but then shift manufacturing and purchasing to Asia to benefit from this low cost labor region using their own factory or a subcontractor. Surge has responded to this trend by setting up a Hong Kong corporation, Surge Components, Limited, and hiring sales staff to better position the Company in the Asian markets.

Products

Surge supplies a wide variety of electronic components (some of which bear our private "Surge" label) which can be broadly divided into two categories—capacitors and discrete components. For Fiscal 2009 and Fiscal 2008, capacitors accounted for approximately 50% and 50% of Surge's sales respectively of which approximately 75% was Lelon capacitors (discussed below). Discrete components accounted for Surge's remaining sales in Fiscal 2009 and Fiscal 2008. Capacitors and discrete components can be categorized based on various factors, including function, construction, fabrication and capacity.

We sell, under the name of the manufacturer, Lelon Electronics, aluminum electrolytic capacitors, which are capacitor that store and release energy into a circuit incrementally and are used in various applications, including computers, appliances such as refrigerators and washer/dryers, and telecommunications devices. Our sales of products under the Lelon Electronics name accounts for approximately 40% of of our total sales (and approximately 75% of our capacitor sales as noted above).
 
The principal products sold by Surge under the Surge name (except with respect to capacitors, which the Company also sells under the Lelon Electronics name as noted above) or by Challenge are set forth below.
 
  Capacitors

A capacitor is an electrical energy storage device used in the electronics industry for varied applications, principally as elements of resonant circuits, coupling and bypass applications, blockage of DC current, frequency determining and timing elements, filters and delay-line components. All products are available in traditional leaded as well as surface mount (chip) packages. The product line of capacitors we sell includes:

 
 
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Aluminum Electrolytic Capacitors- These capacitors, which are Surge's principal product, are storage devices used in power applications to store and release energy as the electronic circuitry demands. They are commonly used in power supplies and can be found in a wide range of consumer electronics products. Our supplier is one of the largest facilities for these products in Taiwan and China. This facilities are fully certified for the International Quality Standard ISO 9001 and QS9000, and TS16949, which means that it meets the strictest requirements established by the automotive industry and adopted throughout the world to ensure that the facility's manufacturing processes, equipment and associated quality control systems will satisfy specific customer requirements. This system is also intended and designed to facilitate clear and thorough record keeping of all quality control and testing information and to ensure clear communication from one department to another about the information (i.e., quality control, production or engineering). This certification permits us to monitor quality control/manufacturing process information and to respond to any customer questions.

Ceramic Capacitors- These capacitors are the least expensive, and are widely used in the electronics industry. They are commonly used to bypass or filter semiconductors in resonant circuits and are found predominantly in a wide range of low cost products including computer, telecom, appliances, games and toys.

Mylar Film Capacitors- These capacitors are frequently used for noise suppression and filtering. They are commonly used in telecommunication and computer products. Surge's suppliers in China have facilities fully certified for all of the above mentioned certifications.

Discrete Components- Discrete components, such as semiconductor rectifiers, transistors and diodes, are packaged individually to perform a single or limited function, in contrast to integrated circuits, such as microprocessors and other "chips", which contain from only a few diodes to as many as several million diodes and other elements in a single package, and are usually designed to perform complex tasks. Surge almost exclusively distributes discrete, low power semiconductor components rather than integrated circuits.

The product line of discrete components we sell includes:

Rectifiers- Low power semiconductor rectifiers are devices that convert alternating current, or AC power, into one directional current, or DC power, by permitting current to flow in one direction only. They tend to be found in most electrical apparatuses, especially those drawing power from an AC wall
outlet.

Surge offers a wide variety of rectifiers, including:

- Schottky barrier rectifiers;

- super-fast rectifiers;

- ultra-fast/high efficiency rectifiers;

- fast recovery rectifiers, the time within which the current recovers from spikes of voltage or current;

- fast recovery glass passivated rectifiers, a chip coated with a glass material to protect the component from thermal stress in a circuit;

 
 
 
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- silicon rectifiers, which utilize silicon rectifying cells designed to withstand large currents and high voltages;

- soft recovery/fast switching rectifiers;

- high voltage rectifiers;

- bridge rectifiers, which connect multiple circuits in parallel;

- self packaged surface mount rectifiers, chip style without leads and used in miniaturization; and

- auto rectifiers.

All products are available in traditional leaded as well as surface mount (chip) packages. Surge's rectifier suppliers all have the afore mentioned certifications, giving us an opportunity to market the products that we sell  to the automotive industry.

Transistors- These products send a signal to the circuit for transmission of waves. They are commonly used in applications involving the processing or amplification of electric current and electric signals, including data, television, sound and power. All products are available in traditional leaded as well as surface mount (chip) packages. Surge sells many types of ISO 9002 transistors, including:

- small signal transistors, designed for lower levels of current; and

- power transistors, designed for large currents to safely dissipate large amounts of power.

Diodes- Diodes are two-lead or surface mount components that allow electric current to flow in only one direction. They are used in a variety of electronic applications, including signal processing and direction of current.

All products are available in traditional leaded as well as surface mount (chip) packages. Diodes sold include:

- zener diodes;

- high speed switching diodes; and

- rectifiers, the most popular type of diode.

Circuit Protection Devices- Our circuit protection devices include transient voltage suppressors and metal oxide varistors, which protect circuits against switching, lightning surges and other uncontrolled power surges and/or interruptions in circuits. Transient voltage suppressors, which offer a higher level of protection for the circuit, are required in telecommunication products and are typically higher priced products than the metal oxide varistors, which are more economically priced and are used in consumer products. All products are available in traditional leaded as well as surface mount (chip) packages.


 
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Audible Components- These include audible transducers, Piezo buzzers, speakers, and microphones, which produce an audible sound for, and are used in back-up power supplies for computers, alarms, appliances, smoke detectors, automobiles, telephones and other products which produce sounds. Challenge has initiated marketing relationships with certain Asian manufacturers of audible components to sell these products worldwide. All products are available in traditional leaded as well as surface mount (chip) packages.

New Products- We periodically introduce new products, which are intended to complement our existing product lines. These products are ones that are commonly used in the same circuit designs as other of the products that we sell and will further provide a one- stop-shop for the customer. Some of these products are common items used in all applications and others are niche items with a focus towards a particular application. These new products include fuses, printed circuit boards and switches. All products are available in traditional leaded as well as surface mount (chip) versions.

Inventory

In order to adequately service our customers' needs, we believe that it is necessary to maintain large inventories, which makes us more susceptible to price and technology changes. At any given time, we attempt to maintain a one-to-two month inventory on certain products in high demand for customers and at least one month for other products. Our inventory currently contains more than 100 million component units consisting of more than 3,000 different part numbers. The products that we sell range in sales price from less than one cent for a commercial diode to more than $2.00 for high power capacitors and semiconductors. As of November, 2009, we maintained inventory valued at $1,619,263.

Because of the experience of our management, Ira Levy and Steven Lubman, we believe that we know the best prices to buy the products we sell at and as a result we generally waive rights to manufacturers' inventory protection agreements (including price protection and inventory return rights), and thereby bear the risk of increases in the prices charged by our manufacturers and decreases in the prices of products held in our inventory or covered by purchase commitments. If prices of components, which we hold in inventory decline, or if new technology is developed that displaces products that we sell, our business could be materially adversely affected.

Challenge has obtained and is seeking to obtain product rights to certain brand name product lines and to establish direct relationships with those manufacturers for the audible products and fans. In late 1999 Challenge began to develop a new product division of speakers, fans and buzzers manufactured in Asia sold under the Challenge name, broadening our marketing of the products we sell.


 
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Product Availability

Surge obtains substantially all of its products from manufacturers in Asia, while Challenge historically purchases its products both domestically and from Asia. However, in Fiscal 2009 and Fiscal 2008, Challenge purchased approximately 77% and 91%, respectively, of its products overseas as a result of Challenge's introduction of new product lines. Of the total goods purchased by Surge and Challenge in Fiscal 2009, those foreign manufactured products were supplied from manufacturers in Taiwan (53%), Hong Kong (17%), elsewhere in Asia (19%) and overseas outside of Asia (1%). Surge purchases its products from approximately sixteen different manufacturers.

Most of the facilities that manufacture products for Surge have obtained International Quality Standard ISO 9002 and other certifications. We typically purchase the products that we sell  in United States currency in order to minimize the risk of currency fluctuations. In most cases, Surge utilizes two or more alternative sources of supply for each of its products with one primary and one complementary supplier for each product. Surge's relationships with many of its suppliers date back to the commencement of our import operations in 1983. We have established payment terms with our manufacturers of between 30 and 60 day open account terms.

We do not have any written long-term supply, distribution or franchise agreements with any of our manufacturers.  We act as the sales agent in North America for  one of our manufacturers, pursuant to an oral agreement. While we believe that we have established close working relationships with our principal manufacturers, our success depends, in large part, on maintaining these relationships and developing new supplier relationships for our existing and future product lines. Because of the lack of long- term contracts, we may not be able to maintain these relationships.

For Fiscal 2009 and Fiscal 2008, one of Surge's vendors, Lelon Electronics, accounted for approximately 46% and 44% of Surge's consolidated purchases. The loss of or a significant disruption in the relationship with Lelon Electronics, which is our major supplier,  could have a material adverse effect on our business and results of operations until a suitable replacement could be obtained.

The components business has, from time to time, experienced periods of extreme shortages in product supply, generally as the result of demand exceeding available supply. When these shortages occur, suppliers tend to either increase prices or reduce the number of units sold to customers. We believe that because of our inventory and our relationships with our manufacturers, we have been able to mitigate the effect of any of these shortages in components. However, should there be shortages in the future, such shortages could have both a beneficial or an adverse effect upon our business. Conversely, due to poor market demand, there could be an excess of components in the market, causing stronger competition and an erosion of prices.

Marketing and Sales

Surge's sales efforts are directed towards Original Equipment Manufacturer (OEM) customers in numerous industries where the products that we sell have wide application. Surge currently employs twelve sales and marketing personnel, including two of its executive officers, who are responsible for certain key customer relationships. Our executive officers also devote a significant amount of time to developing and maintaining continuing relations with our key customers.


 
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We use independent sales representatives or organizations, which often specialize in specific products and areas and have specific knowledge of and contacts in particular markets. As of November 30, 2009, we had representation agreements with approximately 30 sales representative organizations. Sales representative organizations, which are generally paid a 5% commission on net sales, are generally responsible in their respective geographic markets for identifying customers and soliciting customer orders. Pursuant to arrangements with our independent sales representatives, they are permitted to represent other electronics manufacturers, but are generally prohibited from carrying a line of products competitive with the products that we sell. These arrangements can be terminated on written notice by either party or if breached by either party. These organizations normally employ between one and twelve sales representatives. The individual sales representatives employed by the sales organizations generally possess an expertise which enhances the scope of our marketing and sales efforts. This permits us to avoid the significant costs associated with creating a direct marketing network. We have had relationships with certain sales organizations since 1988 and continue to engage new sales organizations as needed. We believe that additional sales organizations and representatives are available to us, if required.

We engage independent sales representative organizations in various regions throughout the world for marketing to OEM customers and distributors. We have initiated a formal national distribution program to attract more distributors to promote the products that we sell. We have a National Distribution Manager to develop and manage this program. We expect this market segment to contribute significantly to our sales growth over time.

Many OEMs require their suppliers to have a local presence and Surge's network of independent sales representatives are responsive to these needs. Surge formed a Hong Kong corporation, Surge Components, Limited and hired a regional sales manager to service the Hong Kong/Greater China region customers. Surge also opened a contracted warehouse space in Phoenix, Arizona to stock products for customers in the western region. This warehouse space was closed in 2004 due to the loss of the customer which the location served.
 
Other marketing efforts include generation and distribution of catalogs and brochures of the products we sell and attendance at trade shows. We have produced an exhibit for display at electronics trade shows throughout the year. The products that we sell have been exhibited at the electronic distribution show in Las Vegas, and we will continue our commitment and focus on the distribution segment of the industry by our visibility at the Electronic Distributor Trade Show.

Customers

The products that we sell are sold to distributors and OEMs in such diverse industries as the automotive, computer, communications, cellular telephones, consumer electronics, garage door openers, security equipment, audio equipment, telecomm products, computer related products, power supply products, utility meters and household appliances industries. We request our distributors to provide point of sales reporting, which enables us to gain knowledge of the breakdown of industries into which the products that we sell are sold. The Company had two customers, Honeywell and TTI, who accounted for 11% and 17% of net sales for the six months ended May 31, 2010, respectively. For Fiscal 2009, Honeywell  accounted for 14% of Surge's consolidated net sales. Our discrete components are often sold to the same clients as our capacitors. These OEM customers typically accept samples for evaluation and, if approved, we work towards procuring the next orders for these items.


 
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Typically, we do not maintain contracts with our customers and generally sell products pursuant to customer purchase orders. Although our customer base has increased, the loss of our largest customers as well as, to a lesser extent, the loss of any other material customer, could have a materially adverse effect on our operations during the short-term until we are able to generate replacement business, although we may not be able to obtain such replacement business. Because of our contracts and good working relationships with our distributors, we offer the OEMs, when purchasing through distributors, extended payment terms, just-in- time deliveries and one-stop shopping for many types of electronic products.

Competition

We conduct business in the highly competitive electronic components industry. We expect this industry to remain competitive. We face intense competition in both our selling efforts and purchasing efforts from the many companies that manufacture or distribute electronic components. Our principal competitors in the sale of capacitors include Nichicon, Panasonic, Illinois Capacitor, NIC, AVX, Murata, Epcos, United Chemicon, Rubycon, Vishay and Kemet. Our principal competitors in the sale of discrete components include Vishay, General Semiconductor Division, General Instrument Corp., OnSemi, Inc., Microsemi Corp., Diodes, Inc. and Littlefuse, and Copper Bussman Division. Our principal competition in the audible business include AVX, Murata, Panasonic, Projects Unlimited, International Components Corp. and Star Micronics. Many of these companies are well established with substantial expertise, and have much greater assets and greater financial, marketing, personnel, and other resources than we do. Many larger competing suppliers also carry product lines which we do not carry. Generally, large semiconductor manufacturers and distributors do not focus their direct selling efforts on small to medium sized OEMs and distributors, which constitute many of our customers. As our customers become larger, and as the market becomes more competitive, our competitors may find it beneficial to focus direct selling efforts on those customers, which could result in our facing increased competition, the loss of customers or pressure on our profit margins. We are finding increased competition from manufacturers located in Asia due to the increased globalization nature of the business. There can be no assurance that we will be able to continue to compete effectively with existing or potential competitors. Other factors that will affect our success in these markets include our continued ability to attract additional experienced marketing, sales and management talent, and our ability to expand our support, training and field service capabilities.

Customer Service

We have three full-time customer service employees whose time is dedicated largely to respond to customer inquiries such as price quote requests, delivery status of new or existing purchase orders, changes of existing order dates, quantities, dates, etc. We intend to increase our customer service capabilities, as necessary.

Foreign Trade Regulation

Most products sold by Surge are manufactured in Asia, including such countries as Taiwan, South Korea, Hong Kong, India, Japan and China. The purchase of goods manufactured in foreign countries is subject to a number of risks, including economic disruptions, transportation delays and interruptions, foreign exchange rate fluctuations, impositions of tariffs and import and export controls, and changes in governmental policies, any of which could have a material adverse effect on our business and results of operations. Potential concerns may include drastic devaluation of currencies, loss of supplies and increased competition within the region.

From time to time, protectionist pressures have influenced United States trade policy concerning the imposition of significant duties or other trade restrictions upon foreign products. We cannot predict whether additional United States customs quotas, duties, taxes or other charges or restrictions will be imposed upon the importation of foreign components in the future or what effect such actions could have on our business, financial condition or results of operations.

 
 
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Our ability to remain competitive with respect to the pricing of imported components could be adversely affected by increases in tariffs or duties, changes in trade treaties, strikes in air or sea transportation, and possible future United States legislation with respect to pricing and import quotas on products from foreign countries. Our ability to remain competitive could also be affected by other governmental actions related to, among other things, anti-dumping legislation and international currency fluctuations. While we do not believe that any of these factors adversely impact our business at the present time, there can be no assurance that these factors will not materially adversely affect us in the future. Any significant disruption in the delivery of merchandise from our suppliers, substantially all of whom are foreign, could have a materially adverse impact on our business and results of operations.

Government Regulation

Various laws and regulations relating to safe working conditions, including the Occupational Safety and Health Act, are applicable to our company. We believe we are in substantial compliance with all material federal, state and local laws and regulations regarding safe working conditions. We believe that the cost of compliance with such governmental regulations is not material.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Environmental and Regulatory Compliance

We are subject to various environmental laws and regulations relating to the protection of the environment, including those governing the handling and management of certain chemicals used in electronic components.

We are subject to legislation, effective July 2006, eliminating lead in certain of the products the Company sells. As a result of the legislation, the Company had a one-time write down of its inventory of approximately $500,000. The Company is able to currently obtain products which comply with this law.

We do not believe that compliance with these laws and regulations will have a material adverse effect on our capital expenditures, earnings, or competitive position.

Patents, Trademarks and Proprietary Information

With respect to the products that we sell, we have no patents, trademarks or copyrights registered in the United States Patent and Trademark Office or in any state. Additionally to the best of our knowledge the manufacturers of the products that we sell do not have patents, trademarks or copyrights registered in the United States Patent and Trademark Officer or in any state. We rely on the know-how, experience and capabilities of our management personnel. Although we believe that the products do not and will not infringe patents or trademarks, or violate proprietary rights of others, it is possible that infringement of existing or future patents, trademarks or proprietary rights of others may occur. In the event that the products that we sell infringe proprietary rights of others, these products may have to be modified or redesigned by the manufacturer of these products. However, there  can be no assurance that any infringing products will be able to be modified or redesigned in a way that does not infringe on the proprietary rights of others, which could have a material adverse effect upon our operations. In addition, there can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. Moreover, if the products we sell infringe patents, trademarks or proprietary rights of others, we could, under certain circumstances, become liable for damages, which also could have a material adverse effect on our business.

Backlog

As of November 30, 2009, our backlog was approximately $4,784,437.72, as compared with $  3,908,748.80 at November 30, 2008. Substantially all backlog is expected to be shipped by us within 90 to 180 days. Year to year comparisons of backlog are not necessarily indicative of future operating results.

Employees

As of November 2 , 2010 , Surge and Challenge employed 24 persons, two of whom are employed in executive capacities, seven are engaged in sales, two in engineering, three in purchasing, two in administrative capacities, three in customer service, two in accounting and three in warehousing.  None of our employees are covered by a collective bargaining agreement, and we consider our relationship with our employees to be good.
 
 
 
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Item 1A. Risk Factors

An investment in the Company’s Common Stock involves a high degree of risk. An investor should carefully consider the risks described below as well as other information contained in this registration statement. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our Common Stock could decline, and an investor may lose all or part of his or her investment.

Risks Related to our Business

We do not have written long-term supply contracts with manufacturers and we depend on a limited number of suppliers.

We do not have any written long-term supply, distribution or franchise agreements with any of our manufacturers. We act as the exclusive sales agent in North America for one of our manufacturers, pursuant to an oral agreement. While we believe that we have established close working relationships with our principal manufacturers, our success depends, in large part, on maintaining these relationships and developing new supplier relationships for our existing and future product lines. Because of the lack of long- term contracts, we may not be able to maintain these relationships. While we believe that there are alternative semiconductor and capacitor manufacturers whose replacement products may be acceptable to our customers, the loss of, or a significant disruption in the relationship with, one or more of our major suppliers would most likely have a material adverse effect on our business and results of operations.

We need to maintain large inventories in order to succeed; price fluctuations could harm us.

In order to adequately service our customers, we believe that it is necessary to maintain a large inventory of  products. Accordingly, we attempt to maintain a one-to-two month inventory of those products we offer which are in high demand. As a result of our strategic inventory purchasing policies, under which we order in to obtain preferential pricing, waive the rights to manufacturers' inventory protection agreements (including price protection and inventory return rights), we bear the risk of increases in the prices charged by our manufacturers and decreases in the prices of products held in our inventory or covered by purchase commitments. If prices of components which we hold in inventory decline or if new technology is developed that displaces products which we sell, our business could be materially adversely affected.

We depend on certain customers.

For Fiscal 2009 approximately14% of our net sales were derived from sales to one customer.  Although our customer base has increased, the loss of our largest customers as well as, to a lesser extent, the loss of any other principal customer, would be expected to have a materially adverse effect on our operations during the short-term until we are able to generate replacement business, although we may not be able to obtain such replacement business.

We may not be able to compete against large competitors who have better resources.

We face intense competition, in both our selling efforts and purchasing efforts, from the many companies that manufacture or distribute electronic components and semiconductors. Our principal competitors in the sale of capacitors include Nichicon, Panasonic, Illinois Capacitor, NIC, AVX, Murata, Epcos, United Chemicon, Rubycon, Vishay and Kemet, General Semiconductor Division, General Instrument Corp., OnSemi, Inc., Microsemi Corp., Diodes, Inc. and Littlefuse, and Copper Bussman Division. Many of these companies are well established with substantial expertise, and have much greater assets and greater financial, marketing, personnel, and other resources than we do. Many larger competing suppliers also carry product lines which we do not carry. Generally, large semiconductor manufacturers and distributors do not focus their direct selling efforts on small to medium sized OEMs and distributors, which constitute most of our customers. As our customers become larger, however, our competitors may find it beneficial to focus direct selling efforts on those customers, which could result in our facing increased competition, the loss of customers or pressure on our profit margins. There can be no assurance that we will be able to continue to compete effectively with existing or potential competitors.

 

 
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We will suffer if there is a shortage of components.

The components business has, from time to time, experienced periods of extreme shortages in product supply, generally as the result of demand exceeding available supply. When these shortages occur, suppliers tend to either increase prices or reduce the number of units sold to customers. We believe that because of our large inventory and our relationships with our manufacturers, we have not been adversely affected by shortages in certain discrete semiconductor components. However, in the future shortages may have an adverse effect upon our business.


Adverse effects of trade regulation and foreign economic conditions.

Approximately 90% of the total goods which we purchased in 2009 were manufactured in foreign countries, with the majority purchased from Taiwan-based companies manufacturing in Taiwan (53%) Hong Kong (17%), elsewhere in Asia (19%) and outside of Asia (1%). These purchases subject us to a number of risks, including economic disruptions, transportation delays and interruptions, foreign exchange rate fluctuations, imposition of tariffs and import and export controls and changes in governmental policies, any of which could have a materially adverse effect on our business and results of operations. In addition, the current economic conditions in Southeast Asia may severely impact our business. Potential concerns may include drastic devaluation of currencies, loss of supplies and increased competition within the region.

The ability to remain competitive with respect to the pricing of imported components could be adversely affected by increases in tariffs or duties, changes in trade treaties, strikes in air or sea transportation, and possible future United States legislation with respect to pricing and import quotas on products from foreign countries. For example, it is possible that political or economic developments in China, or with respect to the United States' relationship with China, could have an adverse effect on our business. Our ability to remain competitive could also be affected by other governmental actions related to, among other things, anti-dumping legislation and international currency fluctuations. While we do not believe that any of these factors have adversely impacted our business in the past, there can be no assurance that these factors will not materially adversely affect us in the future.

 

 
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Electronics industry cyclicality may adversely affect our operations.

The electronics industry has been affected historically by general economic downturns, which have had an adverse economic effect upon manufacturers and end-users of capacitors and semiconductors. In addition, the life-cycle of existing electronic products and the timing of new product developments and introductions can affect demand for semiconductor components. Any downturns in the electronics distribution industry could adversely affect our business and results of operations.

Absence of patents, trademarks and proprietary information.

We have no patents, trademarks or copyrights registered in the United States Patent and Trademark Office or in any state. We rely on the know-how, experience and capabilities of our management personnel. Therefore, without trademark and copyright protection, we have no protection from other parties attempting to offer similar services.  Although we believe that the  products that we sell do not and will not infringe patents or trademarks, or violate proprietary rights of others, it is possible that infringement of existing or future patents, trademarks or proprietary rights of others may occur. In the event that the products that we sell infringe proprietary rights of others, the manufactures of the products that we sell  may be required to modify the design of the products that we sell, change the name of these  products and/or obtain a license. There can be no assurance that the manufactures will be able to modify or redesign the products in a way that does not infringe on the proprietary rights of others.  Our failure to do any of the foregoing could have a material adverse effect upon our operations. In addition, there can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. Moreover, if the products that we sell infringe patents, trademarks or proprietary rights of others, we could, under certain circumstances, become liable for damages, which also could have a material adverse effect on our business.

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.
 
We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to our Common Stock

Our Common Stock is quoted on the Pink Sheets, which may limit the liquidity and price of our Common Stock more than if our Common Stock were quoted or listed on the Nasdaq Stock Market or a national exchange.

Our securities are currently quoted on the Pink Sheets, an inter-dealer electronic quotation  and trading system or equity securities. Quotation of our securities on the Pink Sheets may limit the liquidity and price of our securities more than if our securities were quoted or listed on The Nasdaq Stock Market or a national exchange. Some investors may perceive our securities to be less attractive because they are traded in the over-the-counter market. In addition, as a Pink Sheets listed company, we do not attract the extensive analyst coverage that accompanies companies listed on other exchanges. Further, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities traded on the Pink Sheets. These factors may have an adverse impact on the trading and price of our Common Stock.
 
The market price of our common stock may fluctuate significantly in response to the following factors, most of which are beyond our control:
 
 
variations in our quarterly operating results;
 
 
changes in general economic conditions and in the child health care product industry;
 
 
changes in market valuations of similar companies;
 
 
announcements by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital commitments;
 
 
loss of a major supplier or  customer; and
 
 
the addition or loss of key managerial and collaborative personnel.

 
 
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Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their shares, or may be forced to sell them at a loss.
 
The application of the “penny stock” rules could adversely affect the market price of our common shares and increase an investor’s transaction costs to sell those shares.

The Securities and Exchange Commission (the “SEC”) has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 
that a broker or dealer approve a person’s account for transactions in penny stocks; and
 
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 
obtain financial information and investment experience objectives of the person; and
 
 
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 
sets forth the basis on which the broker or dealer made the suitability determination; and
 
 
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, the Company will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by the Company contained a material misstatement of fact or was misleading in any material respect because of the Company’s failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
 
The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float which could lead to wide fluctuations in our share price.  Investors may be unable to sell their common shares at or above your purchase price, which may result in substantial losses to investors.
 
The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
 
We will incur increased costs as a result of being a public company, which could affect our profitability and operating results.

As a result of voluntarily registering our stock on this Form 10, we will become obligated to file annual, quarterly and current reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended.  In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the new rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board have imposed various new requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities of our more time-consuming and costly. We expect to spend between $125,000 and $150,000 in legal and accounting expenses annually to comply with our reporting obligations and Sarbanes-Oxley. These costs could affect profitability and our results of operations.

We have not paid dividends on our common stock in the past and do not expect to pay dividends for the foreseeable future.  Any return on investment may be limited to the value of our common stock.
 
No cash dividends have been paid on the Company’s common stock. We expect that any income received from operations will be devoted to our future operations and growth. The Company does not expect to pay cash dividends on its common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as the Company’s board of directors may consider relevant. If the Company does not pay dividends, the Company’s common stock may be less valuable because a return on an investor’s investment will only occur if the Company’s stock price appreciates.
 
The rights of the holders of common stock have been impaired by the issuance of preferred stock and may be further impaired by the potential future issuance of preferred stock.
 
We are authorized to issue up to 5,000,000 shares of blank check preferred stock of which 260,000 shares have been designated as Non-Voting Redeemable Convertible Series A Preferred Stock, of which no shares are issued and outstanding, 200,000 shares   have been designated Voting Redeemable Convertible Series B Preferred Stock, of which 0 shares are issued and outstanding, and 100,000 shares have been designated Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred Stock”), of which 32,700 shares are issued and outstanding. Holders of the Series C Preferred Stock are entitled to receive, upon liquidation, payment of $5.00 per share of Series C Preferred Stock prior to any payment to common shareholders. Holders of Series C Preferred Stock are entitled to dividends, if and when declared by the board of directors, at the rate of $0.50 per share per annum, prior to payment of dividends to common shareholders.
 
Furthermore, our board of directors has the right, without stockholder approval, to issue additional preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any additional shares of preferred stock or to create any additional series of preferred stock, we may issue such shares in the future.
 
As a result of our failure to deregister our Units under the Exchange Act, the SEC may take the position that we have failed to make required reports under the Exchange Act.
 
In July 1996, we filed a Form 8-A to register our Units, Common Stock and Class A Warrants.  We deregistered our Common Stock and Series A Warrants by filing a Form 15 in April 2004, which Form 15 was filed with the intention of terminating our reporting obligations under the Exchange Act effective in July 2004. We did not deregister the Units. Although the Units were immediately detachable from the securities that comprised them and as result such Units no longer existed, the SEC may take the position that, as a result of our failure to deregister the Units, we did not effectively terminate our reporting obligations effective July 2004 as we intended. As a result, the SEC may take the position that the Company failed to make required reports under the Exchange Act from July 2004 until July 2010 (when this registration statement became automatically effective), and the Company may be subject to an enforcement action by the SEC as a result of such failure. Any such action could have a material adverse effect on our profits, results of operations, financial condition and future prospects.
 
Certain of our current officers and directors refused to submit to interviews with NASDAQ, which may prevent or make more difficult listing on a national securities exchange.
 
In November 2001, NASDAQ  informed  us  that it had determined that the Company's securities would be delisted from the Nasdaq SmallCap Market, based on public interest concerns related to certain potentially questionable payments made by the Company during the year ended November 30, 2000 and the quarter ended February 28, 2001, and additionally for  the  failure  of certain of our officers  and  directors  to submit to an interview by NASDAQ regarding these payments (see “Business”). The officers and directors who were asked to and refused (based on the advice of counsel) to submit to the NASDAQ interviews (Ira Levy and Steven Lubman) are currently officers and directors of the Company. There can be no assurance that the failure of certain of our officers and directors to submit to the interviews will not negatively impact and/or prevent the Company’s ability to be listed on a national securities exchange, such as Nasdaq, even if the Company were to meet applicable listing qualifications .

 
 
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This registration statement contains forward-looking statements. All statements other than statements of historical facts contained in this registration statement, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading "Risk Factors." Also, these forward-looking statements represent our estimates and assumptions only as of the date of the filing of this registration statement. Except as required by law, we assume no obligation to update any forward-looking statements after the date of the filing of this registration statement.

This registration statement also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and investors are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this registration statement and, accordingly, we cannot guarantee their accuracy or completeness. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this registration statement. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

Overview

We are a supplier of electronic products and components. These products include capacitors, which are electrical energy storage devices, and discrete components, such as semiconductor rectifiers, transistors and diodes, which are single function low power semiconductor products that are packaged alone as compared to integrated circuits such as microprocessors. The products that we sell are typically utilized in the electronic circuitry of diverse products, including, but not limited to, automobiles, cellular telephones, computers, consumer electronics, garage door openers, household appliances, power supplies and security equipment. The products that we sell  are sold to both original equipment manufacturers, commonly referred to as OEMs, who incorporate them into their products, and to distributors of the lines of products we sell, who resell these products within their customer base.  The products that we sell  are manufactured predominantly in Asia by approximately sixteen independent manufacturers. We do not have any binding long-term supply agreements, with our suppliers. We act as the exclusive sales agent utilizing independent sales representative organizations in North America to sell and market the products for one such manufacturer pursuant to an oral agreement. When we act as a sales agent, the supplier who sold the product to the customer that we introduced to such supplier will pay us a commission. The amount of the commission is determined on a sale by sale basis depending on the profit margin of the product. Such commissions have not been material to date.
 
Challenge engages in the electronic components business. In 1999, Challenge began a division to sell audible components. Since 2002 this division has grown by 22%. We have been able to increase the types of products that we sell because some of our suppliers introduced new products, and we also located other products from new suppliers.  As a result we are continually trying to add to the types of products that we sell. In 2002 we started to import products similar to our parent company Surge, and sold these under the Challenge name. It started with a line of transducers, then we added battery snaps, and coin cell holders. In the past nine years we have increased our imported private label product mix to include buzzers, speakers, microphones, resonators, filters, and discriminators. We now also work with our suppliers to have our suppliers customize many of the products we sell for many customers through the customers’ own designs and those that we work with our suppliers to have our suppliers redesign for them at our suppliers’ factories. Five years ago, we hired a design engineer on our staff that had thirty years experience with these types of products, who works with our suppliers on such redesigns. We continue to expand the line of products we sell, we now are selling alarms and chimes. We sell these products through independent representatives that make a 5-6% commission rate on the gross sale of the products we sell. We also are working with local, regional, and National distributors to sell these products to local accounts in every state.  We do not have contractual authority from our manufactures to modify any of the products that we distribute.

As a result of voluntarily registering our stock on this Form 10, we will become obligated to file annual, quarterly and current reports with the SEC pursuant to the Securities Exchange Act of 1934, as amended.  In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the new rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board have imposed various new requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities of our more time-consuming and costly. We expect to spend between $125,000 and $150,000 in legal and accounting expenses annually to comply with our reporting obligations and Sarbanes-Oxley. These costs could affect profitability and our results of operations.

In 2002, the Company opened a Hong Kong office and hired direct sales people in order to effectively handle the transfer business from United States customers purchasing and manufacturing in Asia after they do the design in America. This office has strengthened its global capabilities and service to its customer base

The electronic components industry is currently experiencing a period of strong demand.  In addition, management believes that manufacturers are not expanding production capacity because they are unsure of how long the period of strong demand will last.  Management believes that demand for the electronic components will be strong through the end of the current calendar year before leveling off in 2011.

In order for us to grow, we will depend on, among other things, the continued growth of the electronics and semiconductor industries, our ability to withstand intense price competition, our ability to obtain new clients, our ability to retain sales and other personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in managing growth, including monitoring an expanded level of operations and controlling costs, and the availability of adequate financing.



Critical Accounting Policies
 
Accounts Receivable:

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.
 
 
 
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Revenue Recognition:
 
 
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This primarily occurs when product is shipped from the Company's warehouse.  For direct shipments, revenue is recognized when product is shipped from the Company’s supplier. The Company acts as a sales agent for certain customers for one of its suppliers. The Company reports these commissions as revenues in the period earned.

The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.

Inventory Valuation

Inventories are recorded at the lower of cost or market.  Write-downs of inventories to market value are based on stock rotation, historical sales requirements and obsolescence as well as assumptions about future market demand and market conditions.  Reserves required for obsolescence were not material in any of the periods in the financial statements presented.  A significant portion (approximately $500,000) of the total amount of the reserves relate to a product line for which demand dropped significantly as a result of a change in an environmental law several years ago.  If market conditions are less favorable than those projected by management, additional write-downs of inventories could be required.  For example, each additional 1% of obsolete inventory would reduce operating income by approximately $18,000.

The Company does not have price protection agreements with any of its vendors and assumes the risk of changes in the prices of its products.  The Company does not believe there to be a significant risk with regards to the lack of price protection agreements as many of its inventory items are purchased to fulfill purchase orders received.


Results of Operations

Comparison of nine months ended August 31, 2010 and August 31, 2009
 
Consolidated net sales for the nine months ended August 31, 2010 increased by $7,044,139 or 82%, to $15,620,352 as compared to net sales of $8,576,213 for the nine months ended August 31, 2009.  We attribute the increase to additional business with existing customers and new customers. The increase in sales is solely attributable to increase in volume, as prices for the products we sell have not increased.  The electronic components industry is currently experiencing a high demand in products and the Company is benefiting from that with an increase in volume.
 
Our gross profit for the nine months ended August 31, 2010 increased by $2,237,410, or 92%, as compared the nine months ended August 31, 2009. Gross margin as a percentage of net sales increased to 29.8% the nine months ended August 31, 2010 compared to 28.3% for the nine months ended August 31, 2009. We attribute the increase to new more profitable business and cutting costs, including an increase in the amount of purchase rebates earned from certain vendors.
 
Selling and shipping expenses for the nine months ended August 31, 2010 was $1,248,187, an increase of $495,569, or 66%, as compared to $752,618 for the nine months ended August 31, 2009. The increase is directly related to the increase in sales for the Company. Specifically the increase is due to additional  sales commissions, selling expenses, such as travel and freight out expense.
 
General and administrative expenses for the nine months ended August 31, 2010 was $1,836,010, an  increase of $357,379, or 24%, as compared to $1,478,631 for the nine months ended August 31, 2009. The increase is due to increased professional fees associated with the Company becoming a reporting company with the SEC and additional compensation in the amount of $50,000 approved by the Board for the officers and directors of the Company.
 
Investment income for the nine months ended August 31, 2010 was $3,522, compared to $6,106 for the nine months ended August 31, 2009. We attribute the decrease of $2,584, or 42%, to lower interest rates in our money market accounts in 2010.
 
Interest expense for the nine months ended August 31, 2010 was $90,270, compared to $89,799 for the nine months ended August 31, 2009. Interest expense remained relatively unchanged between the two periods. Interest rates have been comparable for the last year.
 
Income taxes for the nine months ended August 31, 2010 were $9,137, compared to $5,006 for the nine months ended August 31, 2009. The difference is a result of state income taxes.
 
As a result of the foregoing, net income for the nine months ended August 31, 2010 was $1,376,298, compared to net loss of $8,758 for the nine months ended August 31, 2009.


Comparison Fiscal 2009 and Fiscal 2008

Consolidated net sales for Fiscal 2009 decreased by $1,915,624, or 13.5%, to $12,325,812 as compared to net sales of $14,241,436 for Fiscal 2002.  The decrease in revenue is primarily due to the significant decrease in purchasing  as a result of the global recession.

Our gross profit for Fiscal 2009 decreased by $418,930, or 10.2%, as compared to Fiscal 2008. Gross margin as a percentage of net sales increased to 29.9% in Fiscal 2009 compared to 28.8% for Fiscal 2008. We attribute the increase to new more profitable business and cutting costs, including an increase in the amount of purchase rebates earned from certain vendors.

Selling and shipping expenses for Fiscal 2009 was $1,090,196, a decrease of $399,236, or 26.8%, as compared to $1,489,392 for Fiscal 2008. We attribute the decrease to the lower sales volume resulting in fewer sales commissions and shipping costs. In addition, the Company began an expense reduction program in 2009, under which the Company significantly reduced travel, entertainment and catalog printing costs.

General and administrative expenses for Fiscal 2009 was $2,012,639, a decrease of $226,827, or 10.1%, as compared to $2,239,466 for Fiscal 2008. We attribute the decrease to cutting costs, primarily payroll and payroll related costs

Investment income for fiscal 2009 was $7,405, compared to $24,245 for fiscal 2008. We attribute the decrease of $16,840, or 69.5%, lower interest rates in 2009.
 
Interest expense for fiscal 2009 was $126,503, compared to $114,985 for fiscal 2008. We attribute the increase of $11,518 to higher levels of borrowings on the Company’s line of credit throughout 2009.

Income taxes for Fiscal 2009 were $5,364, compared to $7,426 for fiscal 2008.

As a result of the foregoing, net income for Fiscal 2009 was $316,555, compared to $132,156 for Fiscal 2008.



 
17

 



Liquidity and Capital Resources

As of August 31, 2010 we had cash of $862,748, and working capital of $4,096,028. We believe that our working capital levels and available financing are adequate to meet our operating requirements during the next twelve months.
 
During the nine months ended August 31, 2010, we had net cash flow from operating activities of $500,359, as compared to net cash from operating activities of $176,137 for the nine months ended August 31, 2009. The increase in cash flow from operating activities resulted from increase in the 2010 profit, increase in accounts receivable and inventory offset by increase in accounts payable. The significant increase in accounts receivable in the current quarter was a direct result of the increase in revenues. As a result of these increased revenues, the Company made a significant investment in additional inventory. The Company adjusts its inventory levels based upon the industry outlook and near term expectations of demand for products the Company sells.
 
We had net cash used in investing activities of $(10,177) for the the nine months ended August 31, 2010, as compared to net cash used in investing activities of $(149,176) for the nine months ended August 31, 2009.  This decrease was the result of the Company purchasing additional computer hardware in 2009.
 
We had net cash used in financing activities of  $(767,772) for the nine months ended August 31, 2010, as compared to net cash from  financing activities of $140,417 for the nine months ended August 31, 2009.   The decrease  was the result of the decrease in borrowings in 2010 from our lender.
 
As a result of the foregoing, the Company had a net decrease in cash of $277,590 during the nine months ended August 31, 2010, as compared to a net increase in cash of $167,378 for the nine months ended August 31, 2009.
 
In July 2002, the Company obtained a financing commitment with an asset-based lender totaling $1,000,000 (the “Credit Line”). Borrowings under the Credit Line accrue interest at the greater of the prime rate plus two percent (2.0%) or 6.75%. The Company is required to make monthly interest only payments. The Company may repay all or a portion of the line of credit at any time. In addition, the Company is obligated to pay one-quarter of one percent (1/4 of 1%) annually as an unused line fee for the difference between $1,000,000 and the average daily balance of the Credit Line. The Credit Line is collateralized by substantially all the Company’s assets and contains various financial covenants pertaining to the maintenance of working capital and tangible net worth. At August 31, 2010, the Company was in compliance with the financial covenants.
 
Long-term debt, operating leases and other long-term obligations as of  August 31, 2010 mature as follows:
 
       
   
0 – 12
   
13 – 36
   
37 – 60
   
More than
       
Obligations
 
Total
   
Months
   
Months
   
Months
   
60 Months
 
                                     
Long-term debt
 
$
--
   
$
--
   
$
--
   
$
--
   
$
--
 
Operating leases
   
115,840
     
95,840
     
20,000
     
--
     
--
 
Employment agreements
   
525,000
     
450,000
     
75,000
     
--
     
--
 
                                         
Total obligations
 
$
640,840
   
$
545,840
   
$
95,000
   
$
--
   
$
- -
 
   
Inflation

In the past two fiscal years, inflation has not had a significant impact on our business. However, any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results. In addition, the interest on the Company's line of credit is based upon the prime rate. Any significant increase in the prime rate could significantly impact our future operating results.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Item 3. Properties.

Our executive offices and warehouse facilities are located at 95 Jefryn Boulevard, Deer Park, New York, 11729.  The Lessor is Great American Realty of Jefryn Blvd., LLC ("Great American"), an entity owned equally by Ira Levy, Surge's president, Steven Lubman, Surge's vice president and one of its former directors, Mark Siegel. Our lease is through September 31, 2020 and our monthly rent is $12,982. Our monthly rent will increase over the 10 year term, reaching $15,516 in the final year. We occupy approximately 23,250 square feet of office space and warehouse space.  Each lease was negotiated in an arm's length transaction and the rental rate is typical for the type and location of Surge's and Challenge's facilities. Since May 2006, we have sublet approximately 20% of the space that we occupy.  The sublease whose term is for five years, has a current base rent of $4,200 a month.

In June 2010, the Company entered into a lease to rent office space in Hong Kong for two years. Annual rental payments are approximately $20,000.
 
 
18

 
 

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth as of November 2 , 2010 , the number of shares of Common Stock held of record or beneficially (i) by each person who held of record, or was known by the Company to own beneficially, more than five percent of the outstanding shares of Common Stock, (ii) by each director and (iii) by all officers and directors as a group:


             
   
 
Amount and Nature
   
Percentage of
 
Name and address of
 
of Surge Common Stock
   
Surge Common
Stock Benefi-
 
Beneficial Owner (1)
 
Beneficially Owned
   
cally Owned (2)
 
             
Ira Levy
   
941,468
(3)
   
10.55
%
                 
Steven J. Lubman
   
305,100
(3)
   
3.42
%
                 
Lawrence Chariton
   
112,000
(4)
   
1.26
%
                 
Alan Plafker
   
12,000
(4)
   
*
 
                 
David Siegel
   
67,000
(4)
   
*
 
                 
Gary Jacobs
   
12,000
(4)
   
*
 
                 
All directors and executive officers as a group (6 persons)
   
   1,449,568
     
16.25
%
                 
Michael Tofias  
             
 
325 North End Avenue, Apt. 21D
   
2,195,317
     
24.6
%
New  York, NY 10282
               
                 
Paul Sonkin        456,106           5.11 %
575 Madison Avenue-9 th Floor                
New York, NY 10022                
                 
 
* Less than 1%

(1) Except as otherwise indicated, the address of each beneficial owner is c/o Surge Components, Inc., 95 East Jefryn Boulevard, Deer Park, NY 11729.

(2)  Applicable percentage ownership is based on 8,922,512 shares of Common Stock outstanding as of November 2, 2010, together with securities exercisable or convertible into shares of Common Stock within 60 days of November 2, 2010 for each stockholder.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities.  Shares of Common Stock that are currently exercisable or exercisable within 60 days of November 2, 2010 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
 
(3) Does not include 250,000 shares issuable upon exercise of options with an exercise price of $0.25, because the options are not exercisable within 60 days.
 
(4) Does not include 25,000 shares issuable upon exercise of options with an exercise price of $0.25, because the options are not exercisable within 60 days.

 
The following table sets forth as of November 2, 2010, the number of shares of Series C Preferred Stock held of record or beneficially (i) by each person who held of record, or was known by the Company to own beneficially, more than five percent of the outstanding shares of Common Stock, (ii) by each director and (iii) by all officers and directors as a group:
 
Name of beneficial holder
 
Number of shares
   
% Beneficially Owned
 
All directors and officers as a group
    0       0  
Gabriel Cerrone
    10,000       30.58 %
Stonehenge Asset Fund, LLC
    7,500       22.94 %
Burlin Portfolio
    5,000       15.29 %
Glenn Chwatt
    3,000       9.17 %
Summit Capital Associates
    2,000       6.12 %
Michael Gross
    2,000       6.12 %
Elan Adika
    2,000       6.12 %
 
As of November 2, 2010, there are 32,700 shares of Series C Preferred Stock issued and outstanding.

Item 5. Directors and Executive Officers.

Our executive officers and directors, and their ages, positions and offices with us are as follows:

Name
 
Age
 
Position and Offices with Surge
Ira Levy
 
53
 
Chief Executive Officer, Chief Financial Officer, President and Director
Steven J. Lubman
 
54
 
Vice President, Secretary and Director
Alan Plafker
 
51
 
Director, Member of Audit committee and Member of Compensation Committee
David Siegel
 
83
 
Director and Chairman of the Compensation Committee
Lawrence Chariton
 
52
 
Director, Member of the Audit Committee
Gary Jacobs
  
52
  
Director Member of Audit Committee

Ira Levy has served as President, Chief Executive Officer and a director of Surge Components since its inception in November 1981, and as Chief Financial Officer since March 2010. From  1976  to  1981, Mr. Levy was employed by  Capar  Components Corp., an importer  and  supplier  of  capacitor and  resistor products.

Steven  J.  Lubman has served as Surge Components’ Vice  President, Secretary and a director since our inception  in November 1981.  From 1975 to 1981, Mr. Lubman was employed by Capar Components, Inc.

 

 
19

 
 

Alan Plafker has served as a director since June 2001. Since July 2000, Mr. Plafker has been the President and Chief Executive Officer of Member Brokerage Service LLC, a credit union service organization owned by Melrose Credit Union. Mr. Plafker has over 20 years of management experience in the insurance and credit union industries.

David Siegel has served as a director since 1983, as well as Chairman of the Board from 1983 to February 2000. Mr. Siegel also serves on the boards of directors of Nu Horizons and Micronetics, Inc., each of which is a publicly traded company.  David Siegel is the father-in-law of Ira Levy.

Lawrence Chariton has served as a director since August 2001. For the last 31 years, Mr. Chariton has worked as a Sales Manager for Linda Shop, a retail jewelry business, and now does the same for Great American Jewelry, and is involved in charitable organizations benefiting the State of Israel. Mr. Chariton also is a director of New Island Hospital in Bethpage, Long Island. Mr. Chariton graduated from Hofstra University in 1979 with a Bachelor's Degree in accounting.

Gary M. Jacobs is the Chief Financial Officer of Chem Rx. He became Chief Financial Officer of Chem Rx on June 12, 2008. From May 2005 to June 2008, Mr. Jacobs was the Chief Financial Officer and Chief Operating Officer of Gold Force International, Ltd., a supplier of gold, silver and pearl jewelry to U.S. retail chains, and Karat Platinum LLC, a developer of an alternative to platinum. From July 2003 to April 2005, Mr. Jacobs served as President of The Innovative Companies, LLC, a supplier of natural stone.  From October 2001 to February 2003, Mr. Jacobs served as Executive Vice President of Operations and Corporate Secretary of The Hain Celestial Group, Inc., a food and personal care products company. Mr. Jacobs also served as Executive Vice President of Finance, Chief Financial Officer and Treasurer of The Hain Celestial Group, Inc. from September 1998 to October 2001. Prior to that, Mr. Jacobs was the Chief Financial Officer of Graham Field Health Products, Inc., a manufacturing and distribution company. Mr. Jacobs was employed for 13 years as a member of the audit staff of Ernst & Young LLP, where he attained the position of senior manager.  He is a certified public accountant and holds a Bachelor’s of Business Administration in Accounting from Adelphi University.

The Company believes that each of its directors has the experience, qualifications, attributes and skills that enable them to make a positive contribution to our board for the following reasons:

Both Mr. Levy and Mr. Lubman have been in the electronic components business for over 30 years and have a vast knowledge of this business. Mr. Levy’s and Mr. Lubman’s experience in and knowledge of the electronics components business led to the conclusion that Mr. Levy and Mr. Lubman should serve on the Company’s board given the Company’s business and structure.  Their knowledge of our business enables them to bring keen insight to the board.
 
Alan Plafker has been an executive in the insurance industry for over 20 years and is knowledgeable in financial matters, including reviewing financial statements. Mr. Plafker’s experience in the insurance industry and knowledge of financial matters led to the conclusion that he should serve on the Company’s board, given the Company’s business and structure.
 
David Siegel serves on the boards of two other public companies and as such he is very familiar with the required public filings that a public company must make and as a result he is able to easily communicate with the company’s advisors, such as their attorneys. Mr. Siegel’s experience on the board of directors of two other public companies and ability to communicate with the Company’s advisers led to the conclusion that he should serve on the Company’s board, given the Company’s business and structure.
 
Lawrence Chariton experience as a sales manager of a jewelry store gives him experience in running a small business like ours. Mr. Chariton’s experience running a small business led to the conclusion that he should serve on the Company’s board, given the Company’s business and structure.
 
Gary Jacobs’s  experience as a certified public accountant and Chief Financial Officer makes him extremely qualified to review and discuss the Company’s financial results and to make recommendations regarding the Company’s financial position. Mr. Jacobs’s experience as a certified public accountant and Chief Financial Officer led to the conclusion that he should serve on the Company’s board, given the Company’s business and structure.
 
Board Leadership Structure and Role in Risk Oversight

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles.  Mr. Levy has served as our Chairman since November 1981. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined.

Our Audit Committee is primarily responsible for overseeing our risk management processes on behalf of our board of directors.  The Audit Committee receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. In addition, the Audit Committee reports regularly to the full Board of Directors, which also considers our risk profile. The Audit Committee and the full Board of Directors focus on the most significant risks facing our company and our company’s general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
 
 

 
20

 
 

Item 6. Executive Compensation.

The following table sets forth information regarding compensation paid to our principal executive officer and any other executive officer whose total annual salary and bonus for the years ended November 30, 2009 and November 30, 2008 exceeded $100,000

Name 
 
Year 
 
Salary
   
Bonus
   
Stock 
Awards
   
Option 
Awards
   
Other
   
Total
 
Ira Levy
 
2009
 
$
225,000
     
-
     
-
     
-
     
-
   
$
225,000
 
President, CEO and CFO
 
2008
 
$
225,000
   
$
38,000
     
-
     
-
     
-
   
$
263,000
 
Steven J. Lubman
 
2009
 
$
225,000
*    
-
     
-
     
-
     
-
   
$
225,000
 
Vice President and Secretary
 
2008
 
$
225,000
   
$
38,000
     
-
     
-
     
-
   
$
263,000
 
 
Employment Agreements
 
* Includes $21,981 which Mr. Lubman is owed pursuant to his employment agreement, but which has not been paid, Mr. Lubman has agreed orally with the Company that this amount will be paid at such time as the Company is better able to afford such payment.. There is no written agreement with respect to this deferral.
 
The Company has entered into employment agreements (the “ Levy Agreement ” and the “ Lubman Agreement ”, individually, and collectively, the “Employment Agreements ”) with Ira Levy and Steven Lubman (the “ Executives ”), respectively, with terms through July 30, 2009 (renewable on each July 30 th for an additional one year period), which provides the Executives with a base salary of $225,000 (“ Base Salary ”).
 
The Company’s compensation committee may award Messrs. Levy and Lubman with bonuses.   Pursuant to the employment agreements, Messrs. Levy and Lubman are prohibited from engaging in activities which are competitive with those of the Company during the employment and for one year following termination.   The agreements further provide that in the event of a change of control, as defined, or a change in ownership of at least 25% of the issued and outstanding stock of the Company, and such issuance was not approved by either officer, or if they are not elected to the Board of Directors of the Company and/or are not elected as an officer of the Company, then the non-approving officer may elect to terminate his employment agreement. If he elects to terminate the agreement, he will receive 2.99 times his annual compensation (or such other amount then permitted under the Internal Revenue Code without an excess penalty), in addition to the remainder of his compensation under his existing employment contract.  In addition, if the Company makes or receives a “firm commitment” for a public offering of Common Shares, each officer will receive a warrant to purchase, at a nominal value, up to 9.5% of the Company’s common stock, provided they do not voluntarily terminate employment.

The Employment Agreements provide for the following payments upon each of the following circumstances in which the Executives’ employment could end:

(a)  
Payment upon termination due to disability – if either of the Employment Agreements is terminated by the Company by reason of any physical or mental illness so that the Executives are unable to perform the services required by them pursuant to the Employment Agreements for a continuous period of 4 months, or for an aggregate of 6 months during any consecutive 12 month period, then the Company shall pay to the Executives his Base Salary then in effect along with all other fringe benefits for a period of 1 year following the date of such termination.
(b)  
  Payment upon termination due to death – if either of the Employment Agreements is automatically terminated upon the death of the Executives, the Company shall pay to the Executive’s estate his Base Salary then in effect for a period of 1 year following the date of such termination.
(c)  
Payment upon termination for “cause” – the Company is not obligated to make any further payments to the Executives upon their termination for “cause.” The term “cause” means any event that the Executives are guilty of (i) reckless disregard to perform his duties as set forth in each Executive’s respective Agreement, (ii) willful malfeasance, or (iii) any act of dishonesty by the Executives with respect to the Company.
(d)  
Payment upon termination without “cause”
(i)  
if the Company terminates the Levy Agreement without “cause”, then the Company is obligated to pay Mr. Levy (i) any and all Base Salary and bonus amounts payable to Mr. Levy for the remainder of the term, (ii) the Company shall continue for the remainder of the term to permit Mr. Levy to receive or participate in all fringe benefits available to him pursuant to the Levy Agreement, provided, however, that any fringe benefits which Mr. Levy receives will be reduced by any payments or fringe benefits Mr. Levy receives during the remainder of the term from any other source of employment which is unaffiliated with the Company.
(ii)  
If the Company terminates the Lubman Agreement without cause, the Company is obligated to pay Mr. Lubman any and all Base Salary and bonus amounts payable to Mr. Lubman for the greater of (x) the remainder of the term in effect immediately prior to such termination, or (y) 1 year from the remainder of the term, and the Company shall also continue for the remainder of the term to permit Mr. Lubman to receive or participate in all fringe benefits available to him pursuant to the Lubman Agreement, provided, however, that any fringe benefits which Mr. Lubman receives will be reduced by any payments or fringe benefits Mr. Lubman receives during the remainder of the term from any other source of employment which is unaffiliated with the Company.
(e)  
Payment upon a “change of control” - if either of the Executives elects to terminate his employment in the event of a change of control, the Company shall pay the Executives, in addition to the remainder of their annual compensation, a “parachute payment” as said term is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “ Code ”) in an amount equal to 2.99 times the respective Executive’s annual compensation, including the Base Salary, bonus compensation and other remuneration and fringe benefits, if any. A “change in control” occurs when the Executives are not elected to the Board of Directors of the Company, and/or is not elected as an officer of the Company and/or there has been a change in the ownership following the Company’s 1996 public offering of at least 25% of the issued and outstanding stock of the Company, and such issuance was not approved by the Executives.  No change in control, as defined in the Employment Agreements, has occurred.

Director Compensation for Year Ending November 30, 2009

No director of the Company received any compensation for services as director for the year ending November 30, 2009.

Outstanding Equity Awards at November 30, 2009

There were no outstanding options as of November 30, 2009.
 
 
21

 
 
 
Item 7. Certain Relationships and Related Transactions, and Director Independence.
 
Certain Relationships and Related Transactions

Surge and Challenge, each lease their current executive offices from, Great American Realty of Jefryn Blvd., LLC, an entity owned equally by Ira Levy, Surge’s, Chief Executive Officer, President and Secretary and Steven Lubman, our vice president and one other individual who is not an executive officer or director of the Company.   Our lease is through 2010 and our annual minimum rent payments were approximately $212,000 for fiscal 2009 and 2008, respectively.

In May 2002, Surge and Ira levy, an officer of Surge became sole owners of Surge Components, Limited (“Surge Limited”), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and Mr. Levy owns 1 share of the outstanding common stock. No payments have been made to Levy in connection with this share ownership. Mr. Levy has assigned his rights regarding his 1 share to Surge. Surge Limited started doing business in July 2002. Surge Limited operations have been consolidated with the Company.  During fiscal 2009 and fiscal 2008, Surge Limited’s revenues were $2,510,000 and $3,251,000 respectively.

Director Independence

Lawrence Chariton, Alan Plafker, and Gary Jacobs are independent directors as that term is defined under the Nasdaq Marketplace Rules.
 
Item 8. Legal Proceedings.
 
There are no legal proceedings to which the Company or any of its property is the subject.

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

The shares of our common stock are quoted on the over-the-counter “pink sheets” maintained by Pink Sheets LLC under the symbol “SPRS.PK”. Trading in our common stock is limited.

For the periods indicated, the following table sets forth the high and low bid prices per share of our common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

Fiscal Quarter
 
High Bid
   
Low Bid
 
2008 First Quarter
 
$
0.075
   
$
0.04
 
2008 Second Quarter
 
$
0.07
   
$
0.03
 
2008 Third Quarter  
 
$
0.09
   
$
0.04
 
2008 Fourth Quarter
 
$
0.08
   
$
0.07
 
2009 First Quarter
 
$
0.075
   
$
0.04
 
2009 Second Quarter
 
$
0.041
   
$
0.035
 
2009 Third Quarter
 
$
0.13
   
$
0.036
 
2009 Fourth Quarter
 
$
0.041
   
$
0.041
 
2010 First Quarter
 
$
0.35
   
$
0.042
 
2010 Second Quarter
 
$
0.36
   
$
0.10
 
2010 Third Quarter    
 
$  
            0.50
   
            0.25
 
2010 Fourth Quarter *
 
$
0.75
   
$
0.10
 

* (As of November 2, 2010 )
 
As of the date of the filing of this registration statement, there are issued and outstanding 8,922,512 shares of Common Stock.

As of the date of the filing of this registration statement, there are 204 holders of record of our Common Stock.

As of the date of the filing of this registration statement: (i) 600,000 shares of Common Stock are subject to outstanding options or warrants to purchase, or securities convertible into, Common Stock; (ii) 8,874,512 shares of Common Stock can be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, and (iii) 0 shares of Common Stock are being, or has been publicly proposed to be, publicly offered by the Company.

There is no provision of the Company’s charter or by-laws that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to an extraordinary corporate transaction involving the Company, such as a merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation.
 
 
 
22

 
 
 
We have not declared any cash dividends on our Common Stock since inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any decisions as to future payment of cash dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.

Equity Compensation Plan Information

The Company does not have any compensation plans under which  under which equity securities of can be issued.
 
Item 10. Recent Sales of Unregistered Securities.
 
During the last three years, we have issued the following securities:

On May 6, 2010, we issued options to purchase 250,000 shares of our common stock to each of Ira Levy and Steven Lubman. The options vest one year after issuance.

On May 6, 2010, we issued 12,000 shares of common stock and options to purchase 25,000 shares of our common stock at an exercise price of $0.25 to each of our non-officer directors. The options vest one year after issuance.

In connection with the foregoing, the Company relied upon the exemption from securities registration afforded by Section 4(2)under the Securities Act of 1933, as amended (the “Securities Act”) for transactions not involving a public offering. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, and transfer was restricted by the Company in accordance with the requirements of the Securities Act.

Item 11. Description of Registrant’s Securities to be Registered.

This registration statement relates to our Common Stock, par value $0.01 per share. We are authorized to issue 75,000,000  shares of Common Stock, of which 8,922,512 shares are issued and outstanding, and 5,000,000 shares of blank check preferred stock of which 260,000 shares have been designated as Non-Voting Redeemable Convertible Series A Preferred Stock (“Series A Preferred Stock”), of which no shares are issued and outstanding, 200,000 shares   have been designated Voting Redeemable Convertible Series B Preferred Stock (“Series B Preferred Stock”), of which 0 shares are issued and outstanding, and 100,000 shares have been designated Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred Stock”), of which 32,700 shares are issued and outstanding.

Common Stock

Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Our outstanding shares of Common Stock are fully paid and non-assessable. Holders of shares of Common Stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the Common Stock.

Series A Preferred Stock

The terms of the Series A preferred Stock are as follows:

·  
Holders of the Series A Preferred Stock are entitled to dividends on a pro rata basis and prior to payment of dividends to common shareholders.

·  
Holdres of the Series A Preferred Stock do not have voting rights except as required by applicable law.

·  
Upon liquidation, holders ofthe Series A Preferred Stock are entitled to payment of $0.001 per share (plus any declared but unpaid dividends) prior to any payments to common shareholders.


 
23

 

 
Series B Preferred Stock

The terms of the Series B Preferred Stock are as follows:


·  
Holders of the Series B Preferred Stock are entitled to dividends on a pro rata basis with the Series A Preferred Stock and prior to payment of dividends to common shareholders.

·  
Holders of the Series B Preferred Stock vote as a single class with common shareholders and each share of Series B Preferred Stock entitles the holder to 5.4 votes.

·  
Upon liquidation, holders ofthe Series B Preferred Stock are entitled to payment of $0.001 per share (plus any declared but unpaid dividends) prior to any payments to common shareholders.

 
 
 
24

 
 
Series C Preferred Stock

The terms of the Series C Preferred Stock are as follows:


·  
Holders of the Series C Preferred Stock are entitled to dividends, if, as and when declared by the board of directors, at the rate of $0.50 per share per annum, prior to payment of dividends to common shareholders.

·  
Holders of the Series C Preferred Stock do not have voting rights, except as required by law, and except that, so long as 15,200 shares of Series C Preferred Stock are outstanding, the consent of two-third of the holders of the Series C Preferred Stock will be required to create a series of securities senior to the Series C Preferred Stock or to amend the Series C certificate of designation in a way that would adversely affect the rights of the Series C Preferred Stock holders. (There are currently less than 15,200 shares of Series C Preferred Stock outstanding.)

·  
Upon liquidation, holders of the Series C Preferred Stock are entitled to payment of $5.00 per share (plus any accrued but unpaid dividends) prior to any payments to common shareholders.

The Series C Preferred Stock further provided that, subject to certain conditions, the Company would be required to redeem the Series C Preferred Stock upon the affirmative vote of a majority of the holders of the Series C Preferred Stock. Such affirmative vote did not occur and as a result the Company has not redeemed the Series C Preferred Stock.
  
 
 
25

 
 

 

  Item 12. Indemnification of Directors and Officers.

Our Certificate of Incorporation provides that to the fullest extent permitted by Article 7 of the New York Business Corporation Law, we shall indemnify all persons whom we have the power to indemnify under Article 7 from and against any and all of the expenses, liabilities or other matters referred to in or covered by Article 7 and this indemnification is not exclusive of any other rights to which any person may be entitled under our By-laws or otherwise, as permitted by the Article as to action in any capacity in which he served at the request of the Corporation. The effect of this provision of our Certificate of Incorporation is to eliminate our rights and our stock holders' rights (through stock holders' derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent behavior) except under certain situations defined by statue. We believe that the indemnification provisions in our Certificate of Incorporation are necessary to attract and retain qualified persons as directors and officers.
 
Our by-laws provides that to the extent legally permissible, we shall indemnify our directors and officers who are a party or threatened to be made a party to any action or proceeding (other than one by or in our right to procure a judgment in our favor) whether civil or criminal against judgments, fines, amounts paid in settlements and reasonable expenses, including attorneys’ fees actually and necessarily incurred as a result of such action or other proceeding if such director or officer acted in good faith for a purpose which he reasonably believed to be in the best in our best interest, and in criminal actions or proceedings, in addition had no reason to believe that his conduct was unlawful.

We shall to the extent legally permissible indemnify officers and directors who are threatened to be a party to an action or proceeding by or in the our right to procure a judgment in our favor by reason of the fact that he was an officer or director or ours or at our request was serving as an officer or director of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlements and reasonable expenses, including attorneys’ fees if such director or officer acted in good faith for a purpose which he reasonably believed to be in our best interest, except that no indemnification shall be made in respect of (1) a threatened action or pending action which is settled or otherwise disposed of (2) any claim, issue or matter to which such person shall have been adjudged to be liable to us unless and only to the extent that the court in which the action was brought or if no action was brought any court of competent jurisdiction, determines upon application that in view of all of the circumstances of the case the person is entitled to indemnify for such portion of the settlement amount and expenses as the court deems proper.

Expenses incurred in defending a civil or criminal action or proceeding may be paid by us in advance of the final disposition of such action or proceeding upon receipt of an undertaking of such officer or director to repay such amount, as and to the extent, required by Section 725 of the New York Business Corporation Law.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.


 
 
26

 
 
Item 13. Financial Statements
 
INDEPENDENT AUDITORS' REPORT


To The Board of Directors and Shareholders
Surge Components, Inc.


We have audited the accompanying consolidated balance sheets of Surge Components, Inc. and subsidiaries as of November 30, 2009 and 2008 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended. These consolidated 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Surge Components, Inc. and subsidiaries as of November 30, 2009 and 2008 and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.


/s/Seligson & Giannattasio, LLP  

White Plains, New York
March 1, 2010

 
F-1

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2008
 
   
(Unaudited)
             
ASSETS
                 
 
                 
                   
Current assets:
                 
Cash
  $ 862,748     $ 1,140,338     $ 905,163  
Restricted cash
    245,412       244,020       241,946  
Accounts receivable - net of allowance for
                       
  doubtful accounts of $19,513, $19,513 and $16,334
    3,966,500       2,547,213       2,346,822  
Inventory, net
    2,378,134       1,619,263       1,480,010  
Prepaid expenses and income taxes
    70,883       62,210       188,107  
                         
Total current assets
    7,523,677       5,613,044       5,162,048  
                         
Fixed assets – net of accumulated depreciation
                       
 and amortization of $2,129,843, $2,027,662 and $1,889,391
    211,843       303,847       283,606  
                         
Other assets
    4,139       5,459       6,790  
 
                       
                         
Total assets
  $ 7,739,659     $ 5,922,350     $ 5,452,444  
 
See notes to financial statements

 
F-2

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES
 
Consolidated Balance Sheets
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2008
 
   
(Unaudited)
             
                   
LIABILITIES AND SHAREHOLDERS' EQUITY
                 
                   
                   
Current liabilities:
                 
Line of credit
  $ --     $ 766,468     $ 722,697  
Accounts payable
    2,610,370       1,474,539       1,219,116  
Accrued expenses
    817,279       731,004       824,023  
Current portion of note payable
    -       1,303       14,378  
 
                       
Total current liabilities
    3,427,649       2,973,314       2,780,214  
                         
Deferred rent
    2,302       23,016       45,112  
Note payable – less current portion
    -       --       1,303  
 
                       
Total liabilities
    3,429,951       2,996,330       2,826,629  
 
                       
Commitments and contingencies
                       
                         
Shareholders' equity
                       
Preferred stock - $.001 par value stock,
                       
5,000,000 shares authorized:
                       
Series A – 260,000 shares authorized,
                       
none outstanding.
                       
Series B – 200,000 shares authorized,
                       
none outstanding, non-voting, convertible,
                       
       redeemable.
                       
Series C – 100,000 shares authorized,
                       
32,700 shares issued and outstanding,
                       
redeemable,  convertible, and a
                       
liquidation preference of $5 per share
    33       33       33  
Common stock - $.001 par value stock,
                       
75,000,000 shares authorized, 8,922,512, 8,874,512
                       
 and 8,874,512 shares issued and outstanding
    8,922       8,874       8,874  
Additional paid-in capital
    22,911,827       22,888,135       22,888,135  
Accumulated deficit
    (18,611,074 )     (19,971,022 )     (20,271,227 )
 
                       
Total shareholders' equity
    4,309,708       2,926,020       2,625,815  
 
                       
Total liabilities and shareholders' equity
  $ 7,739,659     $ 5,922,350     $ 5,452,444  

See notes to financial statements.

 
F-3

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
 
   
Nine months ended August 31,
   
Year Ended November 30,
 
   
2010
   
2009
   
2009
   
2008
 
   
(Unaudited)
   
(Unaudited)
             
                         
Net sales
  $ 15,620,352     $ 8,576,213     $ 12,325,812     $ 14,241,436  
                                 
Cost of goods sold
    10,958,792       6,152,063       8,640,117       10,136,811  
                                 
Gross profit
    4,661,560       2,424,150       3,685,695       4,104,625  
 
                               
Operating expenses:
                               
Selling and shipping
    1,248,187       752,618       1,090,196       1,489,392  
General and administrative
    1,836,010       1,478,631       2,012,639       2,239,466  
Depreciation expense
    105,180       112,960       141,843       145,445  
 
                               
Total operating expenses
    3,189,377       2,344,209       3,244,678       3,874,303  
 
                               
Income before other income
                               
(expense)and income taxes
    1,472,183       79,941       441,017       230,322  
 
                               
Other income (expense):
                               
Investment income
    3,522       6,106       7,405       24,245  
Interest expense
    (90,270 )     (89,799 )     (126,503 )     (114,985 )
                                 
       Other income (expenses)
    (86,748 )     (83,693 )     (119,098 )     (90,740 )
 
                               
Income(loss) before income taxes
    1,385,435       (3,752 )     321,919       139,582  
                                 
Income taxes
    9,137       5,006       5,364       7,426  
                                 
Net income (loss)
  $ 1,376,298     $ (8,758 )   $ 316,555     $ 132,156  
                                 
Dividends on preferred stock
    16,350       16,350       16,350       16,350  
Net income (loss) available to
                               
   common shareholders
  $ 1,359,948     $ (25,108 )   $ 300,205     $ 115,806  
 
                               
Net income (loss) per share
                               
  available to common shareholders:
                               
                                 
 Basic
  $ .15     $ (.00 )   $ .04     $ .00  
 Diluted
  $ .15     $ (.00 )   $ .04     $ .00  
                                 
Weighted Shares Outstanding:
                               
                                 
Basic
    8,895,008       8,874,512       8,874,512       8,874,512  
                                 
Diluted
    9,222,008       8,874,512       9,201,512       9,201,512  
 
See notes to financial statements .

 
F-4

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

Years ended November 30, 2009 and 2008
And Nine Months Ended August 31, 2010 (unaudited)
 
 
 
Series C Preferred
   
Common
   
Additional
   
Accumulated
       
 
 
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In Capital
   
Deficit
   
Total
 
 
                                         
                                           
Balance – November 30, 2007
    32,700     $ 33       8,874,512     $ 8,874     $ 22,888,135     $ (20,387,033 )   $ 2,510,009  
                                                         
Preferred stock dividends
    --       --       --       --       --       (16,350 )     (16,350 )
                                                         
Net income
            --       --       --       --       -- 132,156       132,156  
 
                                                       
Balance – November 30, 2008
    32,700       33       8,874,512       8,874       22,888,135       (20,271,227 )     2,625,815  
                                                         
Preferred stock dividends
    --       --       --       --       --       (16,350 )     (16,350 )
                                                         
Net income
    --       --       --       --       --       316,555       316,555  
                                                         
 
                                                       
Balance – November 30, 2009
    32,700       33       8,874,512       8,874       22,888,135       (19,971,022 )     2,926,020  
                                                         
Stock compensation expense
    --       --       48,000       48       8,592       --       8,640  
                                                         
Issuance of options
    --       --       --       --       15,100       --       15,100  
                                                         
Preferred stock dividends
    --       --       --       --       --       (16,350 )     (16,350 )
                                                         
Net income
    --       --       --       --       --       1,376,298       1,376,298  
                                                         
Balance- August 31, 2010
(unaudited)
    32,700     $ 33       8,922,512     $ 8,922     $ 22,911,827     $ (18,611,074 )   $ 4,309,708  
 
See notes to financial statements.

 
F-5

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

   
Nine Months ended
August 31,
   
Year Ended November 30,
 
   
2010
   
2009
   
2009
   
2008
 
 
 
(Unaudited)
         
(Unaudited)
       
                         
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income (loss)
  $ 1,376,298     $ (8,758 )   $ 316,555     $ 132,156  
Adjustments to reconcile net income (loss)
                               
  to net cash provided by operating
                               
 activities:
                               
Depreciation and amortization
    105,180       112,960       141,843       145,445  
Change in allowance for doubtful accounts
    --       --       3,179       546  
Stock compensation expense
    23,740       --       --       --  
CHANGES IN OPERATING ASSETS AND LIABILITIES:
                               
Accounts receivable
    (1,419,287 )     (63,568 )     (203,570 )     147,235  
Inventory
    (758,871 )     80,762       (139,253 )     (47,453 )
Prepaid expenses and taxes
    (8,673 )     60,410       125,897       (65,358 )
Other assets
    (72 )     (1,084 )     (743 )     (8,488 )
Accounts payable
    1,132,832       294,640       251,851       (20,390 )
Accrued expenses
    69,926       (283,482 )     (109,369 )     (671,393 )
Deferred rent
    (20,714 )     (15,743 )     (22,096 )     (15,630 )
 
                               
NET CASH FLOWS FROM OPERATING ACTIVITIES
    500,359       176,137       364,294       (403,330 )
 
                               
CASH FLOWS FROM INVESTING ACTIVITIES:
                               
Acquisition of fixed assets
    (10,177 )     (149,176 )     (158,512 )     (44,067 )
 
                               
NET CASH FLOWS FROM INVESTING ACTIVITIES
    (10,177 )     (149,176 )     (158,512 )     (44,067 )
 
                               
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Net borrowings from line of credit
    (766,468 )     150,987       43,770       482,261  
Repayment of note payable
    (1,304 )     (10,570 )     (14,377 )     (12,295 )
 
                               
NET CASH FLOWS FROM FINANCING ACTIVITIES
    (767,772 )     140,417       29,393       469,966  
 
                               
NET INCREASE IN CASH
    (277,590 )     167,378       235,175       22,569  
                                 
CASH AT BEGINNING OF YEAR
    1,140,338       905,163       905,163       882,594  
 
                               
CASH AT END OF YEAR
  $ 862,748     $ 1,072,541     $ 1,140,338     $ 905,163  
 
                               
                                 
                                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                               
                                 
Income taxes paid
  $ 9,137     $ 5,006     $ 5,364     $ 7,426  
 
                               
Interest paid
  $ 90,270     $ 89,799     $ 126,503     $ 114,985  
 
                               
                                 
NONCASH INVESTING AND FINANCING ACTIVITIES:
                               
Accrued dividends on preferred stock
  $ 16,350     $ 16,350     $ 16,350     $ 16,350  
 
See notes to financial statements.

 
F-6

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
 
NOTE A – ORGANIZATION, DESCRIPTION OF COMPANY'S BUSINESS AND BASIS OF PRESENTATION
 
Surge Components, Inc. (“Surge”) was incorporated in the State of New York and commenced operations on November 24, 1981 as an importer of electronic products, primarily capacitors and rectifiers, to customers located principally throughout the United States. On June 24, 1988, Surge formed Challenge/Surge Inc., (“Challenge”) a wholly-owned subsidiary to engage in the distribution of electronic component products from established brand manufacturers to customers located principally throughout the United States.
 
In May 2002, Surge and an officer of Surge became sole owners of Surge Components, Limited (“Surge Limited”), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and the officer of Surge owns 1 share of the outstanding common stock. The officer of Surge has assigned his rights regarding his 1 share to Surge. Surge Limited started doing business in July 2002. Surge Limited operations have been consolidated with the Company.

On August 31, 2010, the Company changed its corporate domicile by merging into a newly-formed corporation, Surge Components, Inc. (Nevada), which was formed in the State of Nevada for that purpose.  Surge Components Inc. is the surviving entity. The number of common stock shares authorized for issuance was increased to 75,000,000 shares.
 
 
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
[1] Principles of Consolidation :
 
The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the “Company”).  All material intercompany balances and transactions have been eliminated in consolidation.

 
F-7

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
 
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
[1] Principles of Consolidation (Continued) :
 
The accompanying interim consolidated financial statements have been prepared, without audit, in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission.

The results and trends on these interim consolidated financial statements for the nine months ended August 31, 2010 and 2009 may not be representative of those for the full fiscal year or any future periods.

(2) Accounts Receivable:

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company’s operating history and customer base, bad debts to date have not been material.
 
[3] Revenue Recognition :
 
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This primarily occurs when product is shipped from the Company's warehouse.  For direct shipments, revenue is recognized when product is shipped from the Company’s supplier. The Company acts as a sales agent for certain customers for one of its suppliers. The Company reports these commissions as revenues in the period earned.

The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.

 
F-8

 


SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
 
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
[4] Inventories :
 
Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or market.  Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at November 30, 2009 approximated $827,953. The Company, at November 30, 2009, has a reserve against slow moving and obsolete inventory of $818,640. From time to time the Company’s products are subject to legislation from various authorities on environmental matters. Legislation was enacted, effective July 2006, eliminating lead in certain of the Company’s products. The Company has provided a reserve for these products which is reflected as slow moving. The Company is able to currently obtain products which comply with this law.
 
[5] Depreciation and Amortization :

Fixed assets are recorded at cost.  Depreciation is generally on a straight line method and amortization of leasehold improvements is provided for on the straight-line method over the estimated useful lives of the various assets as follows:

Furniture, fixtures and equipment
5 - 7 years
Computer equipment
5 years
Leasehold Improvements
Estimated useful
 
life or lease
 
term, whichever is
 
shorter

Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.

 
F-9

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

[6] Concentration of Credit Risk :

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable.  The Company maintains substantially all of its cash balances in two financial institutions.  The balances are each insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2013. At August 31, 2010 and November 30, 2009, the Company's uninsured cash balances totaled approximately $640,848 and $823,322, respectively.
 
[7] Income Taxes :

The Company's deferred income taxes arise primarily from the differences in the recording of net operating losses, allowances for bad debts, inventory reserves and depreciation expense for financial reporting and income tax purposes.  A valuation allowance is provided when it has been determined to be more likely than not that the likelihood of the realization of deferred tax assets will not be realized.

The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, “Income Taxes” (ASC 740).There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations as a result of ASC 740.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2007, and state tax examinations for years before fiscal years ending November 30, 2006. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the twelve month periods ended November 30, 2009 and 2008.

 
F-10

 
 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
[8] Cash Equivalents :
 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
 
[9] Use of Estimates :
 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

[10] Marketing and promotional costs:

 
Marketing and promotional costs are expensed as incurred and have not been material to date. The Company has contractual arrangements with several of its distributors which provide for cooperative advertising obligations. Cooperative advertising is expensed as incurred and has not been material to date.
 
[11] Fair Value of Financial Instruments :
 

Cash balances and the carrying amount of the accrued expenses approximate their fair value based on the nature of those items. Estimated fair values of financial instruments are determined using available market information and appropriate valuation methodologies.  Considerable judgment is required to interpret the market data used to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.

 
F-11

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
[12] Shipping Costs

The Company classifies shipping costs as a component of selling expenses.  Shipping costs totaled $12,293 and $5,744 for the nine months ended August 31, 2010 and 2009, respectively. Shipping costs totaled $6,902 and $6,206 for the years ended November 30, 2009 and 2008, respectively.

(13) Earnings Per Share

Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and convertible preferred stock exercised into common stock.   Total potentially dilutive shares excluded from diluted weighted shares outstanding at August 31, 2010 and 2009 and November 30, 2009 and 2008 totaled 600,000, 694,000, 380,000 and 710,000, respectively.

[14] Recent Accounting Standards:
 
In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) – Multiple Deliverable Revenue Arrangements.” ASU No. 2009-13 eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and expands the disclosures related to multiple deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. The adoption of ASU No. 2009-13 is not expected to have a material impact on the Company’s results of operations or financial position.

In September 2009, the FASB also ratified authoritative accounting guidance requiring the sales of all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality to be excluded

 
F-12

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

14) Recent Accounting Standards (continued):

from the scope of the software revenue guidance. The Company adopted the guidance on a prospective basis during the three months ended September 27, 2009 effective for all periods in 2009. Prior to the adoption of this guidance, the Company assessed all software items included in the Company’s product offerings to be incidental to the product itself and, therefore, excluded all sales from the scope of the related software revenue guidance. As a result, the adoption of this guidance had no impact on the Company’s consolidated financial statements.
 
 
NOTE C - FIXED ASSETS

Fixed assets consist of the following:
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2008
 
   
(Unaudited)
             
Furniture and fixtures
  $ 349,930     $ 349,930     $ 349,930  
Leasehold improvements
    891,741       892,060       892,060  
Computer equipment
    1,100,015       1,089,519       931,007  
 
                       
      2,341,686       2,331,509       2,172,997  
Less - accumulated
                       
    Depreciation
    2,129,843       2,027,662       1,889,391  
 
                       
Net fixed assets
  $ 211,843     $ 303,847     $ 283,606  

Depreciation and amortization expense for the nine months ended August 31, 2010 and 2009 was $105,180   and $112,960, respectively.
Depreciation and amortization expense for the years ended November 30, 2009 and 2008 was $141,843 and $145,445, respectively.

NOTE D – RETIREMENT PLAN

In June 1997, the Company adopted a qualified 401(k) plan for all full-time employees who are twenty-one years of age and have completed twelve months of service.  The Plan allows total employee contributions of up to fifteen percent (15%) of the eligible employee’s salary through salary reduction. The Company

 
F-13

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE D – RETIREMENT PLAN (continued)

makes a matching contribution of twenty percent (20%) of each employee’s contribution for each dollar of employee deferral up to five percent (5%) of the employee’s salary.  Net assets for the plan, as estimated by Union Central, Inc., which maintains the plan’s records, were approximately $648,000 at November 30, 2009. Pension expense for the nine months ended August 31, 2010 and 2009 was $5,420 and $144, respectively. Pension expense for the years ended November 30, 2009 and 2008 was $3,662 and $4,716, respectively.
 
NOTE E – SHAREHOLDERS’ EQUITY
 
[1] Preferred Stock :

In February 1996, the Company amended its Certificate of Incorporation to authorize the issuance of 1,000,000 shares of preferred stock in one or more series. In August 2010, the number of preferred shares authorized for issuance was increased to 5,000,000 shares.
 
In January 2000, the Company authorized 260,000 shares of preferred stock as Non-Voting Redeemable Convertible Series A Preferred Stock. None of the Series A preferred stock is outstanding as of November 30, 2009.

In November 2000, the Company authorized 200,000 shares of preferred stock as Voting Redeemable Convertible Series B Preferred Stock (“Series B Preferred”). No shares of Series B Preferred Stock are currently issued or outstanding.

In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). Each share of Series C Preferred is automatically convertible into 10 shares of the Company’s Common Stock upon shareholder approval.  If the Series C Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $.50 per share per annum commencing April 15, 2001 payable on June 30 and December 31 of each year.  In November 2000, 70,000 shares of the Series C Preferred were issued in payment of financial consulting services to its investment banker and a
 
 
F-14

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE E – SHAREHOLDERS’ EQUITY (Continued)
 
[1] Preferred Stock (continued) :

shareholder of the Company.  In April 2001, 8,000 shares of the Series C Preferred were repurchased and cancelled.  Dividends
aggregating $166,300 have not been declared or paid for the semiannual periods ended December 31, 2001 through the semiannual payment due December 31, 2009.  The Company has accrued these dividends.  The December 31, 2009 dividend of $8,175 has not been declared or paid.

In April 2002, in connection with a Mutual Release, Settlement, Standstill and Non-Disparagement Agreement and among other provisions, certain investors transferred back to the Company 252,000 shares of common stock, 19,300 shares of Series C preferred stock, and certain warrants, in exchange for $225,000. These repurchased shares were cancelled.

In February 2006, the Company settled with a shareholder to repurchase 10,000 shares of Series C preferred stock plus accrued dividends for $50,000.

At August 31, 2010 there are 32,700 shares of Series C Preferred stock issued and outstanding.
 
[2] 1995 Employee Stock Option Plan :

In January 1996, the Company adopted, and in February 1996 the shareholders ratified, the 1995 Employee Stock Option Plan (“Option Plan”).  The plan provides for the grant of options to qualified employees of the Company, independent contractors, consultants and other individuals to purchase an aggregate of 350,000 common shares.  In March 1998, the Option Plan was amended to increase the number of aggregate Common Shares available under the plan to 850,000.

The Employee Stock Option Plan has expired. The remaining 53,000 options outstanding expired in July 2010.
 
 
F-15

 
 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE E – SHAREHOLDERS’ EQUITY (Continued)
 
[3] 2010 Incentive Stock Plan

In March 2010, the Company adopted, and in April 2010 the shareholders ratified, the 2010 Incentive Stock Plan (“Stock Plan”).  The plan provides for the grant of options to officers, employees or consultants to the Company to purchase an aggregate of 1,500,000 common shares.

Stock option incentive plan activity is summarized as follows:
 
 
       
Weighted Average
 
   
Shares
   
Exercise Price
 
             
Options issued in May 2010
    600,000     $ 0.25  
                 
Options outstanding August 31, 2010
    600,000     $ 0.25  
 
               
Options exercisable August 31, 2010
    --     $ --  
 
 
F-16

 

 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE E – SHAREHOLDERS’ EQUITY (Continued)
 
[4] Authorized Repurchase :
 
In November 2002, the Board of Directors authorized the repurchase of up to 1,000,000 Common Shares at a price between $.04 and $.045. The Company has not repurchased any shares to date pursuant to such authority.

[5] Compensation of Directors

In May 2010, the Company issued 12,000 shares of its common stock to each non-officer director as compensation for services on the Board of Directors.
 
NOTE F – INCOME TAXES
 
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates in effect in the years in which the differences are expected to reverse.  Because of the questionable ability of the Company to utilize these deferred tax assets, the Company has established a 100% valuation allowance for these assets.

The Company’s deferred income taxes are comprised of the following:
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2008
 
   
(Unaudited)
             
Deferred tax assets
                 
Net operating losses
  $ 6,305,499     $ 6,986,371     $ 6,933,318  
Allowance for bad debts
    7,793       7,793       6,524  
Inventory
    301,819       301,819       335,417  
Capital loss
    63,616       63,816       63,816  
Deferred rent
    919       9,193       18,018  
Depreciation
    177,012       154,398       169,207  
 
                       
Total deferred tax assets
    6,856,658       7,523,390       7,526,300  
Valuation allowance
    (6,856,658 )     (7,523,390 )     (7,526,300 )
 
                       
Deferred tax assets
  $ --     $ --     $ --  
 
 
F-17

 
 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
 
NOTE F – INCOME TAXES(CONTINUED)
 
The valuation allowance changed by approximately $(667,000) and $(2,900) during the nine months ended August 31, 2010 and the year ended November 30, 2009, respectively.

The Company's income tax expense consists of the following:
 
 
 
Nine Months Ended
   
Year Ended
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2009
   
2008
 
   
(Unaudited)
                   
Current:
                       
Federal
  $ --     $ --     $ --     $ --  
States
    9,137       5,006       5,364        7,426  
 
                               
      9,137       5 ,006       5,364        7,426  
Deferred:
                               
Federal
    --       --       --       --  
States
    --       --       --       --  
                                 
Provision for income taxes
  $ 9,137     $ 5,006     $ 5,364     $ 7,426  
 
The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $15,764,000 for federal and state purposes, which expire through 2029. The utilization of this operating loss carryforward may be limited based upon changes in ownership as defined in the Internal Revenue Code.
 
A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company's effective rate is as follows:

 
   
Nine Months Ended
   
Year Ended
 
 
 
August 31,
   
November 30,
 
   
2010
   
2009
   
2009
   
2008
 
                         
U.S. Federal income
                       
  tax statutory rate
    34 %     (34 )%     34 %     (34 )%
Valuation allowance
    (37 )%     39 %     (34 )%     34 %
State income taxes
    4 %     4 %     2 %     5 %
Effective tax rate
    1 %     1 %     2 %     5 %
 
 
F-18

 
 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
 
NOTE G– RENTAL COMMITMENTS
 

The Company leases its office and warehouse space through 2010 from a corporation that is controlled by officers/shareholders of the Company (“Related Company”).  Annual minimum rental payments to the Related Company approximated $212,000 for the Fiscal 2009, and increase at the rate of three per cent per annum throughout the lease term.

Pursuant to the lease, rent expense charged to operations differs from rent paid because of scheduled rent increases.  Accordingly, the Company has recorded deferred rent.  Rent expense is calculated by allocating to rental payments, including those attributable to scheduled rent increases, on a straight line basis, over the lease term.

In June 2010, the Company entered into a lease to rent office space in Hong Kong for two years. Annual minimum rental payments are approximately $20,000.

The future minimum rental commitments at November 30, 2009:
 
Year Ending November 30,
     
2010
    199,600  
2011
    20,000  
2012
     10,000  
         
    $ 229,600  

Net rental expense for the nine months ended August 31, 2010 and 2009, were $151,969 and $152,608 respectively, of which $158,682 was paid to the Related Company. Net rental expense for Fiscal 2009 and 2008, were $201,972 and $210,838 respectively, of which $211,576 was paid to the Related Company. Commencing in May 2006, the Company had sublet certain of its space it occupies. The sublease whose term is for five years, includes a base rent, which increases over the term, and provides for additional rent for a portion of the real estate taxes and certain operating expenses.

In October 2010, the Company renewed their office and warehouse space for ten years. Annual minimum rental payments to the Related Company approximate $156,000, and increase at the rate of two per cent per annum throughout the lease term.

 
F-19

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 
NOTE H – EMPLOYMENT AND OTHER AGREEMENTS
 
The Company has employment agreements, with terms through July 30, 2009 (renewable on each July 30 th for an additional one year period) with two officers/stockholders of the Company, which provides each with a base salary of $225,000, subject to certain increases as defined, per annum, plus fringe benefits and bonuses.  The Compensation Committee of the Company’s Board of Directors determines the bonuses.  Bonuses issued to the two officers totaled $54,000 for the year ended November 30, 2008. The agreement also contains provisions prohibiting the officers from engaging in activities, which are competitive with those of the Company during employment and for one year following termination.  The agreements further provide that in the event of a change of control, as defined, or a change in ownership of at least 25% of the issued and outstanding stock of the Company, and such issuance was not approved by either officer, or if they are not elected to the Board of Directors of the Company and/or are not elected as an officer of the Company, then the non-approving officer may elect to terminate his employment agreement. If he elects to terminate the agreement, he will receive 2.99 times his annual compensation (or such other amount then permitted under the Internal Revenue Code without an excess penalty), in addition to the remainder of his compensation under his existing employment contract.  In addition, if the Company makes or receives a “firm commitment” for a public offering of Common Shares, each officer will receive a warrant to purchase, at a nominal value, up to 9.5% of the Company’s common stock, provided they do not voluntarily terminate employment. In April 2010, the Board of Directors approved the officers receiving $25,000 bonus each.
 
NOTE I– MAJOR CUSTOMERS
 
The Company had two customers who accounted for 13% and 11% of net sales for the nine months ended August 31, 2010. The Company had one customer who accounted for 15% of accounts receivable at August 31, 2010. The Company had one customer who accounted for over 14% of net sales for Fiscal 2009. The Company had one customer who accounted for 21% of accounts receivable at November 30, 2009 and 14% at November 30, 2008 .

 
F-20

 


SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE J - MAJOR SUPPLIERS

During the nine months ended August 31, 2010 and 2009 there was one foreign supplier accounting for 53% and 45% of total inventory purchased. During Fiscal 2009 and Fiscal 2008 there was one foreign supplier accounting for 46% and 44% of total inventory purchased.

The Company purchases a significant portion of its products overseas.  For Fiscal 2009, the Company purchased 53% from Taiwan, 17% from Hong Kong, 19% from elsewhere in Asia and 1% overseas outside of Asia.

NOTE K - EXPORT SALES

The Company’s export sales approximated:
 
   
Nine Months Ended
   
Year Ended
 
   
August 31,
   
November 30,
 
   
2010
   
2009
   
2009
   
2008
 
 
                       
Canada
  $ 1,132,706     $ 537,690     $ 89,092     $ 426,000  
China
    1,749,886       736,530       2,180,437       2,812,000  
Other Asian Countries
    2,815,930       1,305,678       704,588       1,602,000  
Europe
    76,071       32,119       50,753       73,000  
Central America
    4,308       708       21,221       19,000  

Revenues are attributed to countries based on location of customer. 

NOTE L – LINE OF CREDIT

In July 2002, the Company obtained a financing commitment with an asset-based lender totaling $1,000,000 (the “Credit Line”). Borrowings under the Credit Line accrue interest at the greater of the prime rate plus two percent (2.0%) or 6.75%. The Company is required to make monthly interest only payments. The Company may repay all or a portion of the line of credit at any time. In addition, the Company is obligated to pay one-quarter of one percent (1/4 of 1%) annually as an unused line fee for the difference between $1,000,000 and the average daily balance of the Credit Line. The Credit Line is collateralized by substantially all the Company’s assets and contains various financial covenants pertaining to the maintenance of working capital and tangible net
 
 
 
F-21

 
 
SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements


NOTE L – LINE OF CREDIT(CONTINUED)

worth. At August 31, 2010, the Company was in compliance with the financial covenants.

In December 2003, the Company entered into a Security Agreement with the lender establishing a restricted cash collateral account totaling $200,000. The balance on the account including interest
accrued is $245,412 and $244,020 at August 31, 2010 and November 30, 2009, respectively.
 
NOTE M – NOTE PAYABLE

The Company leases equipment under a capitalized lease arrangement with Capital One Equipment Leasing.  Pursuant to the leases, the lessor retains actual title to the leased property until the termination of the lease, at which time the equipment can be purchased for one dollar. The term of the lease is 36 months with monthly payments of $1,320. The assumed interest rate on the lease is 16%. The Company exercised its option to purchase the equipment in January 2010.

The future minimum payments under the capital lease are as follows:

Year Ending November 30,
     
       
2010
    1,320  
         
Total
    1,320  
Portion representing
       
  Interest
    17  
         
Balance
    1,303  
Current portion
    1,303  
         
Noncurrent portion
  $ 0  

 
 
 
 
 
F-22 

 
 
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None .

Item 15. Financial Statements and Exhibits.

(a) Financial Statements. See page F-1.

(b) Exhibits


Exhibit Number
 
Description
     
3.1
 
Articles of Incorporation of Surge Components, Inc. (filed as exhibit to 8-K filed on September 16, 2010 and incorporated herein by reference)
     
3.2
 
By-Laws of Surge Components, Inc. (filed as exhibit to 8-K filed on September 16, 2010 and incorporated herein by reference)
 
10.1
 
Lease between Surge Components and Great American Realty of 95 Jefryn BLVD., LLC (previously filed)
     
10.2
 
Lease between Challenge Electronics and Great American Realty of 95 Jefryn BLVD., LLC (previously filed)
     
10.3
 
Employment Agreement between Surge Components, Inc. and Ira Levy (previously filed)
     
10.4
 
Employment Agreement between Surge Components Inc. and Steven Lubman (previously filed)
     
10.5
 
Amendment to Employment Agreement between Surge Components, Inc. and Ira Levy
     
10.6
 
Financing Agreement, dated July 2, 2002, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.7
 
Letter Agreement, dated July 2, 2002, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.8
 
Inventory Security Agreement, dated July 2, 2002, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.9
 
Security Agreement, dated July 2, 2002, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.10
 
General Security Agreement, dated July 2, 2002, between Challenge/Surge Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.11
 
Guarantee, dated July 2, 2002, by Surge Components, Inc. in favor of Rosenthal & Rosenthal, Inc. (previously filed)
     
10.12
 
Letter Agreement, dated November 13, 2003, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.13
 
Letter Agreement, dated December 4, 2003, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.14
 
Letter Agreement, dated February 23, 2004, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.15
 
Letter Agreement, dated August 4, 2004, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.16
 
Letter Agreement, dated May 2, 2005, between Surge Components, Inc. and Rosenthal & Rosenthal, Inc. (previously filed)
     
10.17
 
1995 Stock Option Plan (previously filed)
     
10.18
 
Preliminary Tenancy Agreement been Surge Components, Inc. and Sam Cheong Stove Parts Co. Ltd
     
10.19
 
Declaration of Trust (previously filed)
     
10.20
 
2010 Incentive Stock Plan
     
10.21
 
Lease Agreement, dated October 1, 2010, between Great American Realty of Jefryn Boulevard, LLC and Surge Components, Inc.
     
10.22
 
Lease Agreement, dated October 1, 2010, between Great American Realty of Jefryn Boulevard, LLC and Challenge Electronics, Inc.
     
21.1
 
Subsidiaries (previously filed)
     
 
 

 
27

 
 

 

 
SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SURGE COMPONENTS, INC.
 
       
Date:   November 4, 2010
By:
/s/ Ira Levy  
   
Ira Levy, Chief Executive Officer, President
 
   
and Chief Financial Officer
 
       




 



 



 



 
28

Exhibit 10.5
 
AMENDMENT TO
 
EMPLOYMENT AGREEMENT
 
AMENDMENT TO EMPLOYMENT AGREEMENT dated February 1, 1996, by and between Surge Components, Inc., a New York corporation, with its principal place of business at 1016 Grand Boulevard, Deer Park, New York 11729 (the "Company") and Ira Levy residing at 2441 Riverside Dr., Wantagh, New York 11793 (the "Executive").
 
WITNESSETH:
 
WHEREAS, the Company and the Executive entered into an employment agreement dated February 1, 1996 (the "Agreement"), and
 
WHEREAS, the Company, GDIS Acquisition Corp. ("GDIS") and Global Datatel, Inc. ("GDI") have entered into an Asset Purchase Agreement, dated December 8, 1999, pursuant to which GDIS will acquire substantially all of the assets of GDI (the "GDI Acquisition"), and
 
WHEREAS, under Section 3(d)(2) of the Asset Purchase Agreement the Company agreed to amend the Agreement in accordance with a letter agreement with the Executive, dated October 8, 1999, and
 
WHEREAS, the Company, Mail Acquisition Corporation, and MailEncrypt.com , Inc., have entered into a Merger Agreement and Plan of Reorganization, dated February 11, 2000 (the "Merger Agreement"), whereby MailEncrypt.com , Inc. will be merged with and into Mail Acquisition Corporation with Mail Acquisition Corporation as the surviving corporation (the "Mail Merger"), and
 
WHEREAS, a merger agreement between Surge and Superus provides for the reorganization (the "Reorganization") of the Company whereby the Company will be merged with and into a newly formed Delaware corporation ("Superus Holdings, Inc.") which shall be the successor (hereinafter, the "Company") to the Company and the assets of the Company will be held by a wholly-owned subsidiary of Superus Holdings, Inc_ ("New Surge"), and
 
WHEREAS, under Section 1.5(b)(iii) of the Merger Agreement, New Surge is required to amend the Agreement.
 
NOW, THEREFORE, in consideration of the mutual premises and agreements contained herein and for other good and valuable consideration by each of the parties, the parties hereby agree as follows:
 
Section 1(b) of the Agreement will be amended to add the following sentences at the end of the Section:
 
1

 
 
"Commencing upon the execution of the Merger Agreement, Executive shall continue to serve as President of the Company and maintain day-to-day operational and managerial control over the Company's electronic components business, however the Executive will resign as Chief Executive Officer.
 
"Subsequent to the Reorganization, the Executive will be a member of the Board of Directors of Superus Holdings, Inc. and the President and Chief Executive Officer and a director of New Surge, a wholly owned subsidiary of Superus Holdings, Inc., or such other name as the parties may agree."
 
Section 4 of the Agreement is amended to add Subsection (e) as follows:
 
"(e) Increases to Base Salary. In the event that any other employee ofNew Surge or any of its subsidiaries receives a base salary in excess of $200,000.00, the Executive's Base Salary shall be increased commensurately so that his Base Salary remains at all times as high or higher than that received by any other employee of New Surge or its subsidiaries. In addition, promptly following each anniversary of the Effective Time (as defined in the Merger Agreement), provided that Executive has elected to continue his employment for the succeeding year, the compensation committee of New Surge's Board of Directors shall review Executive's Base Salary and implement such increase, if any, as it shall determine is reasonable and appropriate; provided, however, that in the event any other employee of New Surge or any of its subsidiaries has received an increase to his or her base salary during the 12-month period preceding such review of Executive's Base Salary, the amount of the increase to Executive's Base Salary shall equal or exceed the amount of the greatest salary increase received by any such other person."
 
Section 12 of the Agreement is amended to read as follows:
 
"(a) If at any time during the term of this Agreement: (i) a consolidation or merger of New Surge (other than in a consolidation or merger where New Surge is the surviving company); (ii) the sale, lease, conveyance or transfer of all or substantially all of the assets of New Surge; (iii) the liquidation or dissolution of New Surge; or (iv) a "change of control" as defined below, other than  the GDI Acquisition and the Mail Merger, is propose. or if (v) the nature of New Surge's business matenally changes, including but not limited to, if New Surge has insufficient funds to carry on its business; then New Surge will give Executive written notice of the proposed transaction or change, which notice shall contain the terms of the proposed transaction and the identities of the parties, at least thirty (30) days before the proposed transaction or change is to become effective (the "Notice Period").
 
(b) Within the Notice Period, Executive may exercise a right of first refusal to purchase, alone or in conjunction with Steven Lubman, all of the outstanding common stock of New Surge. That exercise may be effected by giving the Company notice of the Executive's exercise during the Notice period. Executive will pay a purchase price equal to: (x) in a proposed transaction as described in clauses (i), (ii) and (iv) in paragraph (a) above, the price that would have been paid
 
 
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under the proposed transaction by the third party; and (v) in the event of a change as described in clause (iii) of (v) in paragraph (a) above, the fair market value of the stock. In the exercise of his right of first refusal pursuant to clause (y), Executive will provide the Company with an independent appraisal from a recognized commercial broker or appraisal firm and a fairness opinion stating that the proposed acquisition of New Surge, pursuant to the right of first refusal, is fair to the Company's shareholders.
 
(c)   if at any time during the term of this Agreement, the Company proposes to make, or receives a firm commitment of an underwriter regarding, a public offering of its Class A Common Stock, Executive will receive a warrant to purchase, at a nominal value, up to 9.5% of the Class A Common Stock of the Company.
 
(d)   Notwithstanding the foregoing, in the event that Executive voluntarily leaves the employment of New Surge at any time prior to a proposed transaction in subparagraph (a) becoming effective, the provisions of subparagraphs (b) and (c) above and subparagraph (e) below, shall no longer be in effect and shall be null and void.
 
(e)   In the event that a "change in control" occurs, as such term is defined below, at any time during the term of this Agreement, the Executive may, by written notice to the Company within sixty (60) days after the date of such change of control, elect to terminate his employment with the Company within sixty (60) days after such notice (the "Termination Date"), If the Executive elects to terminate his employment pursuant to this Section 12 (d), the Company shall pay the Executive, in addition to the remainder of his annual compensation, a "parachute payment," as such term is defined in Section 280G of the Internal Revenue Code of 1986, as amended, (the "Code") in an amount equal to 2.99 times the Executive's annual compensation and other remuneration and fringe benefits, if any. This amount shall be payable by the Company to the Executive in one lump sum payment within sixty (60) days of the Termination Date. The Executive shall be responsible for the payment of all income or excise taxes which may become due as a result of the Company's payment to him of any "excess parachute payments," as such phrase is defined in Section 280G of the Code. A "change in control" shall be deemed to occur when the Executive is not elected to the Board of Directors of New Surge and/or is not elected as an officer of New Surge. A change of control shall also result when there has been a change in the ownership following the Company's 1996 public offering, other than the GDI Acquisition and the Mail Merger, of at least twenty five percent (25%) of the issued and outstanding stock of the Company if such 25% is owned by a single person or "Group" as defined in Section 13 of the Securities Exchange Act of 1934, as amended, or such other persons who become such Group or otherwise act in concert, provided that any change of control set forth in this sentence shall only be considered a change of control if such person(s) or such group is acting in concert for purposes of changing or affecting the control and direction of the Company, and such issuance was not approved by the executive, and/or would result in a material change in the nature of New Surge's business."

 
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Section 5(d) of the Agreement is hereby amended to read as follows:
 
"(d) New Surge shall continue to maintain on behalf of the Executive, the two existing life insurance policies: (i) a one million dollar ($1,000,000) key man life insurance policy, which names New Surge as the beneficiary, and (ii) a one million dollar ($1,000,000) split dollar key man life insurance policy, which names New Surge as the beneficiary of seven hundred thousand dollars ($700,000) and the Executive's choice of beneficiary as the beneficiary of three hundred thousand ($300.000) dollars."
 
Except as set forth herein, the Agreement, as amended, remains in full force and effect.
 
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the 28 th day of April 2000.
 
 
"EXECUTIVE"     "COMPANY"  
         
         
/s/ Ira Levy
   
/s/ Adam Epstein
 
Ira Levy
   
Adam Epstein, Chairman of the Board
 
Title 
   
Title
 
 
ACCEPTED AND AGREED TO:
GLOBAL DATATEL, INC.
         
/s/ Richard Baker
   
 
 
Richard Baker, President
   
 
 
 
   
 
 
 
 
 
 
 
 
4
 
 
Exhibit 10.18
 

 
(Chung Mei Property Agency Ltd.)
 
C-036817
 
Good Loyalty Property Agency
 
 
Preliminary Tenancy Agreement
No. 0003

 
AN AGREEMENT made this  ________________  Between the first party SAM CHEONG STOVE PARTS CO. LTD (holder of Hong Kong Identity Card No. / Business Registration No _______________ ) of ______________ the second party and SURGE COMPONENTS, LTD. (holder of Hong Kong Identity Card No. / Business Registration No _______________ ) of ______________ the third party and GOOD LOYALTY PROPERTY AGENCY (holder of Business Registration No. S1516953) of _________________________ (hereinafter called “the Agent”).
 
WHEREAS:-
 
 
1.
The Landlord is the owner of the premises situated at Workshop H on 14 th floor including the corresponding part of roof there of high win factory building no. 07 hoi yaeri koto.
 
(hereinafter called the said Premises)
 
 
2.
The Landlord has appointed the Agent as his agent for the purpose of letting the said Premises.
 
 
3.
The Tenant has agreed to take up the tenancy of the sold premises through the Agent.
 
NOW IT IS HEREBY AGREED AS FOLLOWS:-
 
 
1.
The Landlord and the Tenant have agreed to enter into the formal tenancy agreement within __________ days from 6/6/2010 the date hereof.
 
 
2.
The term of Tenancy shall be 3 years commencing from 6/6/2010.
 
 
3.
The said premises shall be used for  industrial purpose.
 
 
4.
The Rent for the said Premises shall be HK$12,630 inclusive/charge, management fee, rates and government rent.
 
 
5.
Rental deposit shall be HK$25,260.
 
 
6.
Part of Rental Deposit HK$12,630 shall be paid by the Tenant to the Landlord as initial deposit upon signing this Agreement.
 
 
7.
Upon signing of the formal tenancy agreement the Tenant shall pay to the Landlord:-.
 
 
a)
The balance of rental deposit HK$126,307 b)The Rent for the first month HK$12,6302.
 
 
c)
Air conditioning.
 
 
8.
a)    Rent fees period from7/6/2010 to 16/6/2010.
 
 
9.
In consideration of the services rendered by the Agent, the Agent shall after Formal Territory agreement be entitled to receive HK$6,315 from the Landlord and HK$6,315 from the Tenant as commission. Such commission shall be paid no later than 6/6/2010.
 
 
10.
Should the Tenant fail to complete the deal in the manner herein contained the initial deposit paid hereunder shall be forfeited and the Landlord shall then be entitled at his absolute discretion to let the said premises to anyone he thinks fit, and the Landlord shall not sue the Tenant for any liabilities and/or damages or to enforce specific performance.
 
 
11.
Should the Landlord fail to let the said premises to the Tenant in the manner herein contained the Landlord shall compensate the Tenant with a sum equivalent to the amount of the initial deposit together with the refund of initial deposit paid her under, and the Tenant shall not take any further action to claim for damages or to enforce specific performance.
 
 
12.
If for any reasons either the Landlord or the Tenant fail to complete the deal in the manner herein contained, the defaulting party shall compensate at once the Agent HK$12,630 as liquidated damage.
 
 
13.
Should the Landlord and the Tenant after signing that agreement both agree to cancel this agreement without the consent of the Agent they will jointly and separately become the defaulting parties of this agreement and will still be liable for the payment of their own commission mentioned herein before.
 
 
14.
The Landlord and the Tenant agree to appoint Messrs ____________ as their solicitors. The costs incidental to the preparation and execution of formal agreement including solicitors fees and stamp duties etc. shall be borne equality be the Landlord and the Tenant. The Landlord and the Tenant agree that they shall separately appoint their own solicitors. The Landlord shall be represented by Messrs ________ ____ whereas the Tenant shall be represented by Messrs ____________  Each party shall pay his own legal costs. The stamp duty shall be borne equally by the Landlord and the Tenant.
 
 
15.
It is hereby declared that this Tenancy Agreement hereof shall include the chattels, furniture and fitting as set out in the Schedule attached hereto.
 
 
16.
Remark 1. Illegible
              2. Illegible
              3. Illegible
 
 
17.
This agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto.
 
 
 

 
 
 
AS WITNESS the hands of the parties hereto the day and year first before written.
 
 
 /s/  Sam Cheong Stove Parts Co. Ltd    /s/ Surge Components, Ltd  
SEAL  
 
Landlord
 
Tenant
 
For and on behalf the agent
 
 
RECEIVED the above mentioned sum Hong Kong Dollars being the initial deposit hereinbefore mentioned HK$_____
 
 
Cash/Check no.
   
     
Bank
   
 
Date
     
     
Landlord
 
 

Exhibit 10.20
 

 
 SURGE COMPONENTS INC. INCENTIVE STOCK PLAN


 
This SURGE COMPONENTS 2010 Incentive Stock Plan (the " Plan ") is designed to retain directors, executives and selected employees and consultants and reward them for making major contributions to the success of the Company.  These objectives are accomplished by making long-term incentive awards under the Plan thereby providing Participants with a proprietary interest in the growth and performance of the Company.

1.  
Definitions.

(a)  
" Board " - The Board of Directors of the Company.

(b)  
" Code " - The Internal Revenue Code of 1986, as amended from time to time.

(c)  
" Committee " - The Compensation Committee of the Company's Board, or such other committee of the Board that is designated by the Board to administer the Plan, composed of not less than two members of the Board all of whom are disinterested persons, as contemplated by Rule 16b-3 (" Rule 16b-3 ") promulgated under the Securities Exchange Act of 1934, as amended (the " Exchange Act ").

(d)  
" Company " – Surge Components Inc. and its subsidiaries including subsidiaries of subsidiaries.

(e)  
" Exchange Act " - The Securities Exchange Act of 1934, as amended from time to time.

(f)  
" Fair Market Value " - The fair market value of the Company's issued and outstanding Stock as determined in good faith by the Board or Committee.

(g)  
" Grant " - The grant of any form of stock option, stock award, or stock purchase offer, whether granted singly, in combination or in tandem, to a Participant pursuant to such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan.

(h)  
" Grant Agreement " - An agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant.

(i)  
" Option " - Either an Incentive Stock Option, in accordance with Section 422 of Code, or a Nonstatutory Option, to purchase the Company's Stock that may be awarded to a Participant under the Plan. A Participant who receives an award of an Option shall be referred to as an " Optionee ."

(j)  
" Participant " - A director, officer, employee or consultant of the Company to whom an Award has been made under the Plan.

(k)  
" Restricted Stock Purchase Offer " - A Grant of the right to purchase a specified number of shares of Stock pursuant to a written agreement issued under the Plan.

(l)  
" Securities Act " - The Securities Act of 1933, as amended from time to time.

(m)  
" Stock " - Authorized and issued or unissued shares of common stock of the Company.

(n)  
" Stock Award " - A Grant made under the Plan in stock or denominated in units of stock for which the Participant is not obligated to pay additional consideration.
 
 
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2.  
Administration. The Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the Committee. Subject to the provisions of the Plan, the Board and/or the Committee shall have authority to (a) grant, in its discretion, Incentive Stock Options in accordance with Section 422 of the Code, or Nonstatutory Options, Stock Awards or Restricted Stock Purchase Offers; (b) determine in good faith the fair market value of the Stock covered by any Grant; (c) determine which eligible persons shall receive Grants and the number of shares, restrictions, terms and conditions to be included in such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent with the Plan and with the consent of the Participant, as appropriate, amend any outstanding Grant or amend the exercise date or dates thereof; (g) determine the duration and purpose of leaves of absence which may be granted to Participants without constituting termination of their employment for the purpose of the Plan or any Grant; and (h) make all other determinations necessary or advisable for the Plan's administration. The interpretation and construction by the Board of any provisions of the Plan or selection of Participants shall be conclusive and final. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant made thereunder.

3.  
Eligibility.

(a)  
General:   The persons who shall be eligible to receive Grants shall be directors, officers, employees or consultants to the Company. The term consultant shall mean any person, other than an employee, who is engaged by the Company to render services and is compensated for such services. An Optionee may hold more than one Option. Any issuance of a Grant to an officer or director of the Company subsequent to the first registration of any of the securities of the Company under the Exchange Act shall comply with the requirements of Rule 16b-3.

(b)  
Incentive Stock Options:   Incentive Stock Options may only be issued to employees of the Company. Incentive Stock Options may be granted to officers or directors, provided they are also employees of the Company. Payment of a director's fee shall not be sufficient to constitute employment by the Company.

The Company shall not grant an Incentive Stock Option under the Plan to any employee if such Grant would result in such employee holding the right to exercise for the first time in any one calendar year, under all Incentive Stock Options granted under the Plan or any other plan maintained by the Company, with respect to shares of Stock having an aggregate fair market value, determined as of the date of the Option is granted, in excess of $100,000. Should it be determined that an Incentive Stock Option granted under the Plan exceeds such maximum for any reason other than a failure in good faith to value the Stock subject to such option, the excess portion of such option shall be considered a Nonstatutory Option. To the extent the employee holds two (2) or more such Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Option as Incentive Stock Options under the Federal tax laws shall be applied on the basis of the order in which such Options are granted. If, for any reason, an entire Option does not qualify as an Incentive Stock Option by reason of exceeding such maximum, such Option shall be considered a Nonstatutory Option.

(c)  
Nonstatutory Option:   The provisions of the foregoing Section 3(b) shall not apply to any Option designated as a " Nonstatutory Option " or which sets forth the intention of the parties that the Option be a Nonstatutory Option.

(d)  
Stock Awards and Restricted Stock Purchase Offers:   The provisions of this Section 3 shall not apply to any Stock Award or Restricted Stock Purchase Offer under the Plan.

4.  
Stock.

(a)  
Authorized Stock: Stock subject to Grants may be either unissued or reacquired Stock.

(b)  
Number of Shares:   Subject to adjustment as provided in Section 5(i) of the Plan, the total number of shares of Stock which may be purchased or granted directly by Options, Stock Awards or Restricted Stock Purchase Offers, or purchased indirectly through exercise of Options granted under the Plan shall not exceed one million five hundred thousand (1,500,000) shares.  If any Grant shall for any reason terminate or expire, any shares allocated thereto but remaining unpurchased upon such expiration or termination shall again be available for Grants with respect thereto under the Plan as though no Grant had previously occurred with respect to such shares. Any shares of Stock issued pursuant to a Grant and repurchased pursuant to the terms thereof shall be available for future Grants as though not previously covered by a Grant.

(c)  
Reservation of Shares:   The Company shall reserve and keep available at all times during the term of the Plan such number of shares as shall be sufficient to satisfy the requirements of the Plan. If, after reasonable efforts, which efforts shall not include the registration of the Plan or Grants under the Securities Act, the Company is unable to obtain authority from any applicable regulatory body, which authorization is deemed necessary by legal counsel for the Company for the lawful issuance of shares hereunder, the Company shall be relieved of any liability with respect to its failure to issue and sell the shares for which such requisite authority was so deemed necessary unless and until such authority is obtained.

(d)  
Application of Funds : The proceeds received by the Company from the sale of Stock pursuant to the exercise of Options or rights under Stock Purchase Agreements will be used for general corporate purposes.

(e)  
No Obligation to Exercise :  The issuance of a Grant shall impose no obligation upon the Participant to exercise any rights under such Grant.
 
 
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5.  
Terms and Conditions of Options. Options granted hereunder shall be evidenced by agreements between the Company and the respective Optionees, in such form and substance as the Board or Committee shall from time to time approve. The form of Incentive Stock Option Agreement attached hereto as Exhibit A and the three forms of a Nonstatutory Stock Option Agreement for employees, for directors and for consultants, attached hereto as Exhibit B-1, Exhibit B-2 and Exhibit B-3, respectively, shall be deemed to be approved by the Board. Option agreements need not be identical, and in each case may include such provisions as the Board or Committee may determine, but all such agreements shall be subject to and limited by the following terms and conditions:

(a)  
Number of Shares: Each Option shall state the number of shares to which it pertains.

(b)  
Exercise Price: Each Option shall state the exercise price.

(c)  
Medium and Time of Payment:   The exercise price shall become immediately due upon exercise of the Option and shall be paid in cash or check made payable to the Company. Should the Company's outstanding Stock be registered under Section 12(g) of the Exchange Act at the time the Option is exercised, then the exercise price may also be paid as follows:
 
 
(i)  
in shares of Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes and valued at Fair Market Value on the exercise date, or

(ii)  
through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions (a) to a Company designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such purchase and (b) to the Company to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale transaction.

At the discretion of the Board, exercisable either at the time of Option grant or of Option exercise, the exercise price may also be paid (i) by Optionee's delivery of a promissory note in form and substance satisfactory to the Company and permissible under applicable securities rules and bearing interest at a rate determined by the Board in its sole discretion, but in no event less than the minimum rate of interest required to avoid the imputation of compensation income to the Optionee under the Federal tax laws, or (ii) in such other form of consideration permitted by the State of Nevada Revised Statutes as may be acceptable to the Board.

(d)  
Term and Exercise of Options:   Any Option granted to an employee of the Company shall become exercisable over a period of no longer than ten (10) years. No Option shall be exercisable, in whole or in part, prior to one (1) year from the date it is granted unless the Board shall specifically determine otherwise, as provided herein. In no event shall any Option be exercisable after the expiration of ten (10) years from the date it is granted. Unless otherwise specified by the Board or the Committee in the resolution authorizing such Option, the date of grant of an Option shall be deemed to be the date upon which the Board or the Committee authorizes the granting of such Option.

Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. During the lifetime of an Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable by the Optionee, and no other person shall acquire any rights therein. To the extent not exercised, installments (if more than one) shall accumulate, but shall be exercisable, in whole or in part, only during the period for exercise as stated in the Option agreement, whether or not other installments are then exercisable.

(e)  
Termination of Status as Employee, Consultant or Director:   If Optionee's status as an employee shall terminate for any reason other than Optionee's disability or death, then Optionee (or if the Optionee shall die after such termination, but prior to exercise, Optionee's personal representative or the person entitled to succeed to the Option) shall have the right to exercise the portions of any of Optionee's Incentive Stock Options which were exercisable as of the date of such termination, in whole or in part, not less than 30 days nor more than three (3) months after such termination (or, in the event of " termination for good cause " as that term is defined in Nevada case law related thereto, or by the terms of the Plan or the Option Agreement or an employment agreement, the Option shall automatically terminate as of the termination of employment as to all shares covered by the Option).

With respect to Nonstatutory Options granted to employees, directors or consultants, the Board may specify such period for exercise, not less than 30 days (except that in the case of " termination for cause " or removal of a director, the Option shall automatically terminate as of the termination of employment or services as to shares covered by the Option, following termination of employment or services as the Board deems reasonable and appropriate. The Option may be exercised only with respect to installments that the Optionee could have exercised at the date of termination of employment or services. Nothing contained herein or in any Option granted pursuant hereto shall be construed to affect or restrict in any way the right of the Company to terminate the employment or services of an Optionee with or without cause.

(f)  
Disability of Optionee:   If an Optionee is disabled (within the meaning of Section 22(e)(3) of the Code) at the time of termination, the three (3) month period set forth in Section 5(e) shall be a period, as determined by the Board and set forth in the Option, of not less than six months nor more than one year after such termination.

(g)  
Death of Optionee:   If an Optionee dies while employed by, engaged as a consultant to, or serving as a Director of the Company, the portion of such Optionee's Option which was exercisable at the date of death may be exercised, in whole or in part, by the estate of the decedent or by a person succeeding to the right to exercise such Option at any time within (i) a period, as determined by the Board and set forth in the Option, of not less than six (6) months nor more than one (1) year after Optionee's death, which period shall not be more, in the case of a Nonstatutory Option, than the period for exercise following termination of employment or services, or (ii) during the remaining term of the Option, whichever is the lesser. The Option may be so exercised only with respect to installments exercisable at the time of Optionee's death and not previously exercised by the Optionee.

(h)  
Nontransferability of Option:   No Option shall be transferable by the Optionee, except by will or by the laws of descent and distribution.

(i)  
Recapitalization:   Subject to any required action of shareholders, the number of shares of Stock covered by each outstanding Option, and the exercise price per share thereof set forth in each such Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock of the Company resulting from a stock split, stock dividend, combination, subdivision or reclassification of shares, or the payment of a stock dividend, or any other increase or decrease in the number of such shares affected without receipt of consideration by the Company; provided, however, the conversion of any convertible securities of the Company shall not be deemed to have been " effected without receipt of consideration " by the Company.
 
 
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In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a " Reorganization "), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization.  In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Paragraph 5(d) of the Plan; provided, that any such right granted shall be granted to all Optionees not receiving an offer to receive substitute options on a consistent basis, and provided further, that any such exercise shall be subject to the consummation of such Reorganization.

Subject to any required action of shareholders, if the Company shall be the surviving entity in any merger or consolidation, each outstanding Option thereafter shall pertain to and apply to the securities to which a holder of shares of Stock equal to the shares subject to the Option would have been entitled by reason of such merger or consolidation.

In the event of a change in the Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares without par value into the same number of shares with a par value, the shares resulting from any such change shall be deemed to be the Stock within the meaning of the Plan.

To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided in this Section 5(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number or price of shares of Stock subject to any Option shall not be affected by, and no adjustment shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The Grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make any adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets.

(j)  
Rights as a Shareholder:   An Optionee shall have no rights as a shareholder with respect to any shares covered by an Option until the effective date of the issuance of the shares following exercise of such Option by Optionee. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 5(i) hereof.

(k)  
Modification, Acceleration, Extension, and Renewal of Options:   Subject to the terms and conditions and within the limitations of the Plan, the Board may modify an Option, or, once an Option is exercisable, accelerate the rate at which it may be exercised, and may extend or renew outstanding Options granted under the Plan or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution for such Options, provided such action is permissible under Section 422 of the Code and applicable state securities rules. Notwithstanding the provisions of this Section 5(k), however, no modification of an Option shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights or obligations under any Option theretofore granted under the Plan.

(l)  
Exercise Before Exercise Date:   At the discretion of the Board, the Option may, but need not, include a provision whereby the Optionee may elect to exercise all or any portion of the Option prior to the stated exercise date of the Option or any installment thereof. Any shares so purchased prior to the stated exercise date shall be subject to repurchase by the Company upon termination of Optionee's employment as contemplated by Section 5(n) hereof prior to the exercise date stated in the Option and such other restrictions and conditions as the Board or Committee may deem advisable.

(m)  
Other Provisions:   The Option agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the Options, as the Board or the Committee shall deem advisable. Shares shall not be issued pursuant to the exercise of an Option, if the exercise of such Option or the issuance of shares thereunder would violate, in the opinion of legal counsel for the Company, the provisions of any applicable law or the rules or regulations of any applicable governmental or administrative agency or body, such as the Code, the Securities Act, the Exchange Act, applicable state securities rules, Nevada corporation law, and the rules promulgated under the foregoing or the rules and regulations of any exchange upon which the shares of the Company are listed. Without limiting the generality of the foregoing, the exercise of each Option shall be subject to the condition that if at any time the Company shall determine that (i) the satisfaction of withholding tax or other similar liabilities, or (ii) the listing, registration or qualification of any shares covered by such exercise upon any securities exchange or under any state or federal law, or (iii) the consent or approval of any regulatory body, or (iv) the perfection of any exemption from any such withholding, listing, registration, qualification, consent or approval is necessary or desirable in connection with such exercise or the issuance of shares thereunder, then in any such event, such exercise shall not be effective unless such withholding, listing registration, qualification, consent, approval or exemption shall have been effected, obtained or perfected free of any conditions not acceptable to the Company.

(n)  
Repurchase Agreement:   The Board may, in its discretion, require as a condition to the Grant of an Option hereunder, that an Optionee execute an agreement with the Company, in form and substance satisfactory to the Board in its discretion (" Repurchase Agreement "), (i) restricting the Optionee's right to transfer shares purchased under such Option without first offering such shares to the Company or another shareholder of the Company upon the same terms and conditions as provided therein; and (ii) providing that upon termination of Optionee's employment with the Company, for any reason, the Company (or another shareholder of the Company, as provided in the Repurchase Agreement) shall have the right at its discretion (or the discretion of such other shareholders) to purchase and/or redeem all such shares owned by the Optionee on the date of termination of his or her employment at a price equal to: (A) the fair value of such shares as of such date of termination; or (B) if such repurchase right lapses at 20% of the number of shares per year, the original purchase price of such shares, and upon terms of payment permissible under applicable state securities rules; provided that in the case of Options or Stock Awards granted to officers, directors, consultants or affiliates of the Company, such repurchase provisions may be subject to additional or greater restrictions as determined by the Board or Committee.
 
 
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6.  
Stock Awards and Restricted Stock Purchase Offers.

(a)  
Types of Grants.

(i)  
Stock Award.   All or part of any Stock Award under the Plan may be subject to conditions established by the Board or the Committee, and set forth in the Stock Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attaining growth rates and other comparable measurements of Company performance. Such Awards may be based on Fair Market Value or other specified valuation. All Stock Awards will be made pursuant to the execution of a Stock Award Agreement substantially in the form attached hereto as Exhibit C .

(ii)  
Restricted Stock Purchase Offer.   A Grant of a Restricted Stock Purchase Offer under the Plan shall be subject to such (i) vesting contingencies related to the Participant's continued association with the Company for a specified time and (ii) other specified conditions as the Board or Committee shall determine, in their sole discretion, consistent with the provisions of the Plan. All Restricted Stock Purchase Offers shall be made pursuant to a Restricted Stock Purchase Offer substantially in the form attached hereto as Exhibit D .

(b)  
Conditions and Restrictions.   Shares of Stock which Participants may receive as a Stock Award under a Stock Award Agreement or Restricted Stock Purchase Offer under a Restricted Stock Purchase Offer may include such restrictions as the Board or Committee, as applicable, shall determine, including restrictions on transfer, repurchase rights, right of first refusal, and forfeiture provisions. When transfer of Stock is so restricted or subject to forfeiture provisions it is referred to as " Restricted Stock ". Further, with Board or Committee approval, Stock Awards or Restricted Stock Purchase Offers may be deferred, either in the form of installments or a future lump sum distribution. The Board or Committee may permit selected Participants to elect to defer distributions of Stock Awards or Restricted Stock Purchase Offers in accordance with procedures established by the Board or Committee to assure that such deferrals comply with applicable requirements of the Code including, at the choice of Participants, the capability to make further deferrals for distribution after retirement. Any deferred distribution, whether elected by the Participant or specified by the Stock Award Agreement, Restricted Stock Purchase Offers or by the Board or Committee, may require the payment be forfeited in accordance with the provisions of Section 6(c). Dividends or dividend equivalent rights may be extended to and made part of any Stock Award or Restricted Stock Purchase Offers denominated in Stock or units of Stock, subject to such terms, conditions and restrictions as the Board or Committee may establish.

(c)  
Cancellation and Rescission of Grants.   Unless the Stock Award Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board or Committee, as applicable, may cancel any unexpired, unpaid, or deferred Grants at any time if the Participant is not in compliance with all other applicable provisions of the Stock Award Agreement or Restricted Stock Purchase Offer, or the Plan.
 
(d)  
Nonassignability.

(i)  
Except pursuant to Section 6(e)(iii) and except as set forth in Section 6(d)(ii), no Grant or any other benefit under the Plan shall be assignable or transferable, or payable to or exercisable by, anyone other than the Participant to whom it was granted.

(ii)  
Where a Participant terminates employment and retains a Grant pursuant to Section 6(e)(ii) in order to assume a position with a governmental, charitable or educational institution, the Board or Committee, in its discretion and to the extent permitted by law, may authorize a third party (including but not limited to the trustee of a "blind" trust), acceptable to the applicable governmental or institutional authorities, the Participant and the Board or Committee, to act on behalf of the Participant with regard to such Awards.

(e)  
Termination of Employment.   If the employment or service to the Company of a Participant terminates, other than pursuant to any of the following provisions under this Section 6(e), all unexercised, deferred and unpaid Stock Awards or Restricted Stock Purchase Offers shall be cancelled immediately, unless the Stock Award Agreement or Restricted Stock Purchase Offer provides otherwise:

(i)  
Retirement Under a Company Retirement Plan.   When a Participant's employment terminates as a result of retirement in accordance with the terms of a Company retirement plan, the Board or Committee may permit Stock Awards or Restricted Stock Purchase Offers to continue in effect beyond the date of retirement in accordance with the applicable Grant Agreement and the exercisability and vesting of any such Grants may be accelerated.

(ii)  
Rights in the Best Interests of the Company.   When a Participant resigns from the Company and, in the judgment of the Board or Committee, the acceleration and/or continuation of outstanding Stock Awards or Restricted Stock Purchase Offers would be in the best interests of the Company, the Board or Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of Grants issued prior to such termination and (ii) permit the exercise, vesting and payment of such Grants for such period as may be set forth in the applicable Grant Agreement, subject to earlier cancellation pursuant to Section 8 or at such time as the Board or Committee shall deem the continuation of all or any part of the Participant's Grants are not in the Company's best interest.

(iii)  
Death or Disability of a Participant.

(1)  
In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period up to the expiration date specified in the Grant Agreement within which to receive or exercise any outstanding Grant held by the Participant under such terms as may be specified in the applicable Grant Agreement. Rights to any such outstanding Grants shall pass by will or the laws of descent and distribution in the following order: (a) to beneficiaries so designated by the Participant; if none, then (b) to a legal representative of the Participant; if none, then (c) to the persons entitled thereto as determined by a court of competent jurisdiction. Grants so passing shall be made at such times and in such manner as if the Participant were living.

(2)  
In the event a Participant is deemed by the Board or Committee to be unable to perform his or her usual duties by reason of mental disorder or medical condition which does not result from facts which would be grounds for termination for cause, Grants and rights to any such Grants may be paid to or exercised by the Participant, if legally competent, or a committee or other legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability.

(3)  
After the death or disability of a Participant, the Board or Committee may in its sole discretion at any time (1) terminate restrictions in Grant Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Company to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative; notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the Grant might ultimately have become payable to other beneficiaries.

(4)  
In the event of uncertainty as to interpretation of or controversies concerning this Section 6, the determinations of the Board or Committee, as applicable, shall be binding and conclusive.
 
 
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7.  
Investment Intent.  All Grants under the Plan are intended to be exempt from registration under the Securities Act provided by Rule 701 thereunder. Unless and until the granting of Options or sale and issuance of Stock subject to the Plan are registered under the Securities Act or shall be exempt pursuant to the rules promulgated thereunder, each Grant under the Plan shall provide that the purchases or other acquisitions of Stock thereunder shall be for investment purposes and not with a view to, or for resale in connection with, any distribution thereof. Further, unless the issuance and sale of the Stock have been registered under the Securities Act, each Grant shall provide that no shares shall be purchased upon the exercise of the rights under such Grant unless and until (i) all then applicable requirements of state and federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel, and (ii) if requested to do so by the Company, the person exercising the rights under the Grant shall (i) give written assurances as to knowledge and experience of such person (or a representative employed by such person) in financial and business matters and the ability of such person (or representative) to evaluate the merits and risks of exercising the Option, and (ii) execute and deliver to the Company a letter of investment intent and/or such other form related to applicable exemptions from registration, all in such form and substance as the Company may require. If shares are issued upon exercise of any rights under a Grant without registration under the Securities Act, subsequent registration of such shares shall relieve the purchaser thereof of any investment restrictions or representations made upon the exercise of such rights.

8.  
Amendment, Modification, Suspension or Discontinuance of the Plan.  The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to outstanding Grants, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that without the approval of the shareholders of the Company, no such revision or amendment shall (i) increase the number of shares subject to the Plan, (ii) decrease the price at which Grants may be granted, (iii) materially increase the benefits to Participants, or (iv) change the class of persons eligible to receive Grants under the Plan; provided, however, no such action shall alter or impair the rights and obligations under any Option, or Stock Award, or Restricted Stock Purchase Offer outstanding as of the date thereof without the written consent of the Participant thereunder. No Grant may be issued while the Plan is suspended or after it is terminated, but the rights and obligations under any Grant issued while the Plan is in effect shall not be impaired by suspension or termination of the Plan.

In the event of any change in the outstanding Stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Board or the Committee may adjust proportionally (a) the number of shares of Stock (i) reserved under the Plan, (ii) available for Incentive Stock Options and Nonstatutory Options and (iii) covered by outstanding Stock Awards or Restricted Stock Purchase Offers; (b) the Stock prices related to outstanding Grants; and (c) the appropriate Fair Market Value and other price determinations for such Grants. In the event of any other change affecting the Stock or any distribution (other than normal cash dividends) to holders of Stock, such adjustments as may be deemed equitable by the Board or the Committee, including adjustments to avoid fractional shares, shall be made to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board or the Committee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code applies, and other Grants by means of substitution of new Grant Agreements for previously issued Grants or an assumption of previously issued Grants.

9.  
Tax Withholding. The Company shall have the right to deduct applicable taxes from any Grant payment and withhold, at the time of delivery or exercise of Options, Stock Awards or Restricted Stock Purchase Offers or vesting of shares under such Grants, an appropriate number of shares for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. If Stock is used to satisfy tax withholding, such stock shall be valued based on the Fair Market Value when the tax withholding is required to be made.

10.  
Availability of Information. During the term of the Plan and any additional period during which a Grant granted pursuant to the Plan shall be exercisable, the Company shall make available, not later than one hundred and twenty (120) days following the close of each of its fiscal years, such financial and other information regarding the Company as is required by the bylaws of the Company and applicable law to be furnished in an annual report to the shareholders of the Company.

11.  
Notice. Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the chief personnel officer or to the chief executive officer of the Company, and shall become effective when it is received by the office of the chief personnel officer or the chief executive officer.

12.  
Indemnification of Board. In addition to such other rights or indemnifications as they may have as directors or otherwise, and to the extent allowed by applicable law, the members of the Board and the Committee may be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any claim, action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken, or failure to act, under or in connection with the Plan or any Grant granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such claim, action, suit or proceeding, except in any case in relation to matters as to which it shall be adjudged in such claim, action, suit or proceeding that such Board or Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of any such action, suit or Board proceeding the member involved shall offer the Company, in writing, the opportunity, at its own expense, to handle and defend the same.

13.  
Governing Law. The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the securities laws of the United States, shall be governed by the law of the State of Nevada and construed accordingly.

14.  
Effective and Termination Dates. The Plan shall become effective on the date it is approved by the Board. If the Plan is not approved by the holders of a majority of the shares of Stock within one (1) year from the date it is adopted and approved by the Board of Directors of the Company, all stock options granted hereunder shall be deemed non-statutory options.  The Plan shall terminate ten years later, subject to earlier termination by the Board pursuant to Section 8.

The foregoing SURGE COMPONENTS 2010  Incentive Stock Plan (consisting of 14 pages, including this page) was duly adopted and approved by the Board of Directors on March 11 , 2010.

 
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EXHIBIT A

SURGE COMPONENTS INC.
INCENTIVE STOCK OPTION AGREEMENT
       
       
This Incentive Stock Option Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between Surge Components Inc., a Nevada corporation (the " Company "), and the employee of the Company named in Section 1(b). (" Optionee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Option Information.
 
  (a) Date of Option:    
       
  (b) Optionee:    
       
  (c) Number of Shares:    
       
 
(d)  Exercise Price:  
   
       
  (e) Vesting Schedule     
       
       
       
       
  (f) Termination Date     
       
 
2.   Acknowledgements.

(a)
Optionee is an employee of the Company.

(b)
The Board of Directors (the " Board " which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted the Surge Component Incorporated 2010 Incentive Stock Plan (the " Plan "), pursuant to which this Option is being granted.

(c)
The Board has authorized the granting to Optionee of an incentive stock option (" Option ") as defined in Section 422 of the Internal Revenue Code of 1986, as amended, (the " Code ") to purchase shares of common stock of the Company (" Stock ") upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.
 
 
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3.   Shares; Price.   The Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the " Shares ") for cash (or other consideration as is authorized under the Plan and acceptable to the Board, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the " Exercise Price "), such price being not less than the fair market value per share of the Shares covered by this Option as of the date hereof.

4.   Term of Option; Continuation of Employment.   This Option shall expire, and all rights hereunder to purchase the Shares shall terminate upon the Termination Date noted above. This Option shall earlier terminate subject to Sections 7 and 8 hereof upon, and as of the date of, the termination of Optionee's employment if such termination occurs prior to the Termination Date Nothing contained herein shall confer upon Optionee the right to the continuation of his or her employment by the Company or to interfere with the right of the Company to terminate such employment or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.

5.   Vesting of Option.   Subject to the provisions of Sections 7 and 8 hereof, this Option shall become exercisable during the term of Optionee's employment according to terms deemed acceptable to the Board of Directors of Company in their sole and absolute discretion according to the schedule set forth in Section 1(e) above (the “Vesting Schedule”).

6.   Exercise.   This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A, (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 13 hereof. Notwithstanding anything to the contrary contained in this Option, this Option may be exercised by presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “Cashless Exercise”).  In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock.  For example, if the holder is exercising 100,000 Options with a per Option exercise price of $0.75 per share through a cashless exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such Cashless Exercise the holder will receive 62,500 shares of Common Stock.  Market Price is defined as the average of the last reported sale prices on the principal trading market for the Common Stock during the five (5) trading days immediately preceding such date.  This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime, except as provided in Section 8 hereof.

7.   Termination of Employment.   If Optionee shall cease to be employed by the Company for any reason, whether voluntarily or involuntarily, other than by his or her death, Optionee (or if the Optionee shall die after such termination, but prior to such exercise date, Optionee's personal representative or the person entitled to succeed to the Option) shall have the right at any time within three (3) months following such termination of employment or the remaining term of this Option, whichever is the lesser, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the date of termination of employment and had not previously been exercised; provided, however: (i) if Optionee is permanently disabled (within the meaning of Section 22(e)(3) of the Code) at the time of termination, the foregoing three (3) month period shall be extended to six (6) months; or (ii) if Optionee is terminated " for cause " or by the terms of the Plan or this Option Agreement or by any employment agreement between the Optionee and the Company, this Option shall automatically terminate as to all Shares covered by this Option not exercised prior to termination. Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.
 
 
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8.   Death of Optionee.   If the Optionee shall die while in the employ of the Company, Optionee's personal representative or the person entitled to Optionee's rights hereunder may at any time within six (6) months after the date of Optionee's death, or during the remaining term of this Option, whichever is the lesser, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee's death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.

9.   No Rights as Shareholder.   Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 10 hereof.

10.   Recapitalization.   Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been " effected without receipt of consideration by the Company ".
 
In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a " Reorganization "), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.

Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.
 
 
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In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

11.   Additional Consideration.   Should the Internal Revenue Service determine that the Exercise Price established by the Board as the fair market value per Share is less than the fair market value per Share as of the date of Option grant, Optionee hereby agrees to tender such additional consideration, or agrees to tender upon exercise of all or a portion of this Option, such fair market value per Share as is determined by the Internal Revenue Service.

12. Modifications, Extension and Renewal of Options.   The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan, and Section 422 of the Code. Notwithstanding the foregoing provisions of this Section 12, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.

13.   Investment Intent; Restrictions on Transfer.

 
(a) Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Sections 7 and 8 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.
 
 
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(b) Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information.

 
(c) Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN INCENTIVE STOCK OPTION AGREEMENT DATED ____________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.
 
such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.

14.   Effects of Early Disposition.   Optionee understands that if an Optionee disposes of shares acquired hereunder within two (2) years after the date of this Option or within one (1) year after the date of issuance of such shares to Optionee, such Optionee will be treated for income tax purposes as having received ordinary income at the time of such disposition of an amount generally measured by the difference between the purchase price and the fair market value of such stock on the date of exercise, subject to adjustment for any tax previously paid, in addition to any tax on the difference between the sales price and Optionee's adjusted cost basis in such shares. The foregoing amount may be measured differently if Optionee is an officer, director or ten percent holder of the Company. Optionee agrees to notify the Company within ten (10) working days of any such disposition.
 
 
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15.   Stand-off Agreement.   Optionee agrees that in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.

16.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

 
(a) Repurchase Right on Termination Other Than for Cause. For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Optionee's employment by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee's spouse pursuant thereto (in which case this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b) Repurchase Right on Termination for Cause.   In the event Optionee's employment is terminated by the Company " for cause ", then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c)   Exercise of Repurchase Right.   Any Repurchase Right under Paragraphs 16(a) or 16(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada Revised Statutes, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 16.
 
 
12

 
 
 
(d)   Right of First Refusal.   In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e)   Acceptance of Restrictions.   Acceptance of the Shares shall constitute the Optionee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f)   Permitted Transfers.   Notwithstanding any provisions in this Section 16 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 16(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.
 
 
13

 
 
 
(g)   Release of Restrictions on Shares.   All other restrictions under this Section 16 shall terminate five (5) years following the date of this Agreement, or when the Company's securities are publicly traded, whichever occurs earlier.

17.   Notices.   Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided to the Company by Optionee for his or her employee records.

18.   Agreement Subject to Plan; Applicable Law.   This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Option has been granted, executed and delivered in the State of Nevada, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts located in the State of New York.
 
In Witness Whereof , the parties hereto have executed this Option as of the date first above written.
 
COMPANY:
SURGE COMPONENTS INC.
 
 
a Nevada corporation
 
       
 
By:
   
  Name:    
  Title:    
       
 
OPTIONEE:
     
 
By:
   
   
( signature )
 
  Name:     
       
 
 
14

 
Appendix A

NOTICE OF EXERCISE

Surge Components Inc.
95 Jefryn Boulevard
Deer Park
New York, New York 11729

Re: Incentive Stock Option

1)           Notice is hereby given pursuant to Section 6 of my Incentive Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Incentive Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

OR

2)           I elect a cashless exercise pursuant to Section 6 of my Incentive Stock Option.  The Average Market Price as of _______ was $_____.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws. Further, I understand that the exemption from taxable income at the time of exercise is dependent upon my holding such stock for a period of at least one year from the date of exercise and two years from the date of grant of the Option.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Surge Components Inc. 2010 Incentive Stock Plan.
 
       
 
By:
   
   
( signature )
 
  Name:      
       

 
15

 
 
EXHIBIT B-1

SURGE COMPONENTS INC.
EMPLOYEE NONSTATUTORY STOCK OPTION AGREEMENT
       
       
This Employee Nonstatutory Stock Option Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between Surge Components Inc., a Nevada Corporation (the " Company "), and the following employee of the Company (" Optionee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Option Information.
 
  (a) Date of Option:    
       
  (b) Optionee:    
       
  (c) Number of Shares:    
       
 
(d)  Exercise Price:  
   
       
  (e) Vesting Schedule     
       
       
       
       
  (f) Termination Date     
       

2.   Acknowledgements.
 
(a) Optionee is an employee of the Company.

 
(b) The Board of Directors (the " Board " which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted the Surge Components Inc. 2010  Incentive Stock Plan (the " Plan "), pursuant to which this Option is being granted; and

 
(c) The Board has authorized the granting to Optionee of a nonstatutory stock option (" Option ") to purchase shares of common stock of the Company (" Stock ") upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.

3.   Shares; Price.   Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the " Shares ") for cash or on a cashless basis (or other consideration as is acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the " Exercise Price ").

4.   Term of Option; Continuation of Service.   This Option shall expire, and all rights hereunder to purchase the Shares shall terminate upon the Termination Date noted above. This Option shall earlier terminate subject to Sections 7 and 8 hereof upon, and as of the date of, the termination of Optionee's employment if such termination occurs prior to the Termination Date. Nothing contained herein shall confer upon Optionee the right to the continuation of his or her employment by the Company or to interfere with the right of the Company to terminate such employment or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.
 
 
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5.   Vesting of Option.   Subject to the provisions of Sections 7 and 8 hereof, this Option shall become exercisable during the term of Optionee's employment according to terms deemed acceptable to the Board of Directors of Company in their sole and absolute discretion according to the schedule set forth in Section 1(e) above (the “Vesting Schedule”)

6.   Exercise.   This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A , (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 13 hereof. Notwithstanding anything to the contrary contained in this Option, this Option may be exercised by presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “Cashless Exercise”).  In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock.  For example, if the holder is exercising 100,000 Options with a per exercise price of $0.75 per share through a cashless exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such Cashless Exercise the holder will receive 62,500 shares of Common Stock.  Market Price is defined as the average of the last reported sale prices on the principal trading market for the Common Stock during the five (5) trading days immediately preceding such date.  This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime, except as provided in Section 8 hereof.

7.   Termination of Employment.   If Optionee shall cease to be employed by the Company for any reason, whether voluntarily or involuntarily, other than by his or her death, Optionee (or if the Optionee shall die after such termination, but prior to such exercise date, Optionee's personal representative or the person entitled to succeed to the Option) shall have the right at any time within three (3) months following such termination of employment or the remaining term of this Option, whichever is the lesser, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the date of termination of employment and had not previously been exercised; provided, however: (i) if Optionee is permanently disabled (within the meaning of Section 22(e)(3) of the Code) at the time of termination, the foregoing three (3) month period shall be extended to six (6) months; or (ii) if Optionee is terminated "for cause", or by the terms of the Plan or this Option Agreement or by any employment agreement between the Optionee and the Company, this Option shall automatically terminate as to all Shares covered by this Option not exercised prior to termination.
 
 
17

 
 
Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.

8.   Death of Optionee.   If the Optionee shall die while in the employ of the Company, Optionee's personal representative or the person entitled to Optionee's rights hereunder may at any time within six (6) months after the date of Optionee's death, or during the remaining term of this Option, whichever is the lesser, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee's death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.

9.   No Rights as Shareholder.   Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of the Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 10 hereof.

10.   Recapitalization.   Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been "effected without receipt of consideration by the Company".

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a " Reorganization "), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.
 
 
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Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.

In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

11.   Taxation upon Exercise of Option.   Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.

12.   Modification, Extension and Renewal of Options.   The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan and the Code.  Notwithstanding the foregoing provisions of this Section 12, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.
 
 
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13.   Investment Intent; Restrictions on Transfer.

 
(a)  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Sections 7 and 8 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

 
(b)  Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information

 
(c)  Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN NONSTATUTORY STOCK OPTION AGREEMENT DATED ____________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.
 
 
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14.   Stand-off Agreement.   Optionee agrees that, in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.

15.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

 
(a) Repurchase Right on Termination Other Than for Cause. For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Optionee's employment by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee's spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b) Repurchase Right on Termination for Cause. In the event Optionee's employment is terminated by the Company "for cause", then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c) Exercise of Repurchase Right. Any Repurchase Right under Paragraphs 15(a) or 15(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada Revised Statutes, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 15.

 
 
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(d) Right of First Refusal. In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e) Acceptance of Restrictions. Acceptance of the Shares shall constitute the Optionee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f) Permitted Transfers. Notwithstanding any provisions in this Section 15 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 15(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.

 
(g) Release of Restrictions on Shares. All other restrictions under this Section 15 shall terminate five (5) years following the date of this Agreement, or when the Company's securities are publicly traded, whichever occurs earlier.

16.   Notices.   Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee for his or her employee records.
 
 
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17.   Agreement Subject to Plan; Applicable Law.   This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Option has been granted, executed and delivered in the State of Nevada, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts located in the State of New York.

In Witness Whereof , the parties hereto have executed this Option as of the date first above written.
 
COMPANY:
SURGE COMPONENTS INC.
 
 
a Nevada corporation
 
       
 
By:
   
  Name:     
  Title:    
       
OPTIONEE:
By:    
   
( signature )
 
  Name:     

 
 
23

 

Appendix A

NOTICE OF EXERCISE

Surge Components Inc.
95 East Jefryn
Deer Park, New York 11729

Re: Nonstatutory Stock Option

1)           Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Nonstatutory Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

OR

2)           I elect a cashless exercise pursuant to Section 6 of my Nonstatutory Stock Option Agreement.  The Average Market Price as of _______ was $_____.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws. Further, I understand that the exemption from taxable income at the time of exercise is dependent upon my holding such stock for a period of at least one year from the date of exercise and two years from the date of grant of the Option.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Surge Components Inc. 2010 Incentive Stock Plan.
 
       
 
By:
   
   
( signature )
 
  Name:     
       
 
 
24

 
 
EXHIBIT B-2

SURGE COMPONENTS INC.
NONSTATUTORY STOCK OPTION AGREEMENT
     
     
This Nonstatutory Stock Option Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between  Surge Components Inc., a Nevada corporation (the " Company "), and the following Director of the Company (" Optionee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Option Information.
 
  (a) Date of Option:    
       
  (b) Optionee:    
       
  (c) Number of Shares:    
       
 
(d)  Exercise Price:  
   
       
  (e) Vesting Schedule     
       
       
       
       
  (f) Termination Date     
       

2.   Acknowledgements.
 
(a)  Optionee is a member of the Board of Directors of the Company.

 
(b)  The Board of Directors (the " Board " which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted the Surge Components 2010 Incentive Stock Plan (the " Plan "), pursuant to which this Option is being granted; and

 
(c)  The Board has authorized the granting to Optionee of a nonstatutory stock option (" Option ") to purchase shares of common stock of the Company (" Stock ") upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.

3.   Shares; Price.   Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the " Shares ") for cash or on a cashless basis (or other consideration as is acceptable to the Board of Directors of the Company, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the " Exercise Price ").

4.   Term of Option; Continuation of Service.   This Option shall expire, and all rights hereunder to purchase the Shares shall terminate upon the Termination Date noted above. This Option shall earlier terminate subject to Sections 7 and 8 hereof upon, and as of the date of, the termination of Optionee's employment if such termination occurs prior to the Termination Date. Nothing contained herein shall confer upon Optionee the right to the continuation of his or her employment by the Company or to interfere with the right of the Company to terminate such employment or to increase or decrease the compensation of Optionee from the rate in existence at the date hereof.
 
 
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5.   Vesting of Option.   Subject to the provisions of Sections 7 and 8 hereof, this Option shall become exercisable during the term that Optionee serves as a Director of the Company according to terms deemed acceptable to the Board of Directors of the Company in their sole and absolute discretion according to the schedule set forth in Section 1(e) above (the “Vesting Schedule”)

6.   Exercise.   This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A , (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 13 hereof. Notwithstanding anything to the contrary contained in this Option, this Option may be exercised by presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “Cashless Exercise”).  In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock.  For example, if the holder is exercising 100,000 Options with a per Warrant exercise price of $0.75 per share through a cashless exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such Cashless Exercise the holder will receive 62,500 shares of Common Stock.  Market Price is defined as the average of the last reported sale prices on the principal trading market for the Common Stock during the five (5) trading days immediately preceding such date.  This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime, except as provided in Section 8 hereof.

7.   Termination of Service.   If Optionee shall cease to serve as a Director of the Company for any reason, no further installments shall vest pursuant to Section 5, and the maximum number of Shares that Optionee may purchase pursuant hereto shall be limited to the number of Shares that were vested as of the date Optionee ceases to be a Director (to the nearest whole Share). Thereupon, Optionee shall have the right to exercise this Option, at any time during the remaining term hereof, to the extent, but only to the extent, that this Option was exercisable as of the date Optionee ceases to be a Director; provided, however, if Optionee is removed as a Director pursuant to the Nevada Revised Statutes, the foregoing right to exercise shall automatically terminate on the date Optionee ceases to be a Director as to all Shares covered by this Option not exercised prior to termination. Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.
 
 
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8.   Death of Optionee.   If the Optionee shall die while in the employ of the Company, Optionee's personal representative or the person entitled to Optionee's rights hereunder may at any time within six (6) months after the date of Optionee's death, or during the remaining term of this Option, whichever is the lesser, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee's death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.

9.   No Rights as Shareholder.   Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of issuance of the Shares following exercise of this Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 10 hereof.

10.   Recapitalization.   Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been "effected without receipt of consideration by the Company".

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a " Reorganization "), unless otherwise provided by the Board, this Option shall terminate immediately prior to such date as is determined by the Board, which date shall be no later than the consummation of such Reorganization. In such event, if the entity which shall be the surviving entity does not tender to Optionee an offer, for which it has no obligation to do so, to substitute for any unexercised Option a stock option or capital stock of such surviving of such surviving entity, as applicable, which on an equitable basis shall provide the Optionee with substantially the same economic benefit as such unexercised Option, then the Board may grant to such Optionee, in its sole and absolute discretion and without obligation, the right for a period commencing thirty (30) days prior to and ending immediately prior to the date determined by the Board pursuant hereto for termination of the Option or during the remaining term of the Option, whichever is the lesser, to exercise any unexpired Option or Options without regard to the installment provisions of Section 5; provided, however, that such exercise shall be subject to the consummation of such Reorganization.
 
 
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Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.

In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

11.   Taxation upon Exercise of Option.   Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.

12.   Modification, Extension and Renewal of Options.   The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan and the Code.  Notwithstanding the foregoing provisions of this Section 12, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.
 
 
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13.   Investment Intent; Restrictions on Transfer.

 
(a)  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Sections 7 and 8 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

 
(b)  Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information

 
(c) Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN NONSTATUTORY STOCK OPTION AGREEMENT DATED ____________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.
 
 
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14.   Stand-off Agreement.   Optionee agrees that, in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering.

15.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

 
(a)   Repurchase Right on Termination Other Than by Removal.   For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Optionee's service as a director; (ii) death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee's spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, and upon mutual agreement of the Company and Optionee, the Company may repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b)   Repurchase Right on Removal.   In the event Optionee is removed as a director pursuant to the Nevada Revised Statutes, or Optionee voluntarily resigns as a director prior to the date upon which the last installment of Shares becomes exercisable pursuant to Section 5, then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse ratably in equal annual increments on each anniversary of the date of this Agreement over the term of this Option specified in Section 4. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon removal or resignation all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of such removal or resignation, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c)   Exercise of Repurchase Right.   Any Repurchase Right under Paragraphs 15(a) or 15(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination or cessation of services as director, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada Revised Statutes, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 15.
 
 
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(d)  Right of First Refusal. In the event Optionee desires to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e)  Acceptance of Restrictions. Acceptance of the Shares shall constitute the Optionee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f)  Permitted Transfers. Notwithstanding any provisions in this Section 15 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 15(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.

 
(g)  Release of Restrictions on Shares. All other restrictions under this Section 15 shall terminate five (5) years following the date of this Agreement, or when the Company's securities are publicly traded, whichever occurs earlier.
 
 
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16.   Notices.   Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee for use in Company records related to Optionee.

17.   Agreement Subject to Plan; Applicable Law.   This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Option has been granted, executed and delivered in the State of Nevada, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts located in the State of New York.

IN WITNESS WHEREOF, the parties hereto have executed this Option as of the date first above written.
 
COMPANY:
SURGE COMPONENTS INC.
 
 
a Nevada corporation
 
       
 
By:
   
  Name:    
  Title:    
       
OPTIONEE:
     
  By:    
   
( signature )
 
  Name:    
 
 
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Appendix A

NOTICE OF EXERCISE

Surge Components Inc.
95 East Jefryn Boulevard
Deer Park, New York 11729

Re: Nonstatutory Stock Option

1)           Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Nonstatutory Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

OR

2)           I elect a cashless exercise pursuant to Section 6 of my Nonstatutory Stock Option Agreement.  The Average Market Price as of _______ was $_____.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws. Further, I understand that the exemption from taxable income at the time of exercise is dependent upon my holding such stock for a period of at least one year from the date of exercise and two years from the date of grant of the Option.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Surge Components Inc. 2010 Incentive Stock Plan.
 
       
 
By:
   
   
( signature )
 
  Name:    
       
 
 
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EXHIBIT B-3

SURGE COMPONENTS INC.
CONSULTANT NONSTATUTORY STOCK OPTION AGREEMENT
     
     
This Consultant Nonstatutory Stock Option Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between Surge Components Inc. a Nevada  corporation (the " Company "), and the following consultant to the Company (herein, the " Optionee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Option Information.
 
  (a) Date of Option:    
       
  (b) Optionee:    
       
  (c) Number of Shares:    
       
 
(d)  Exercise Price:  
   
       
  (e) Vesting Schedule     
       
       
       
       
  (f) Termination Date     
       
 
2.   Acknowledgements.
 
 
(a)  Optionee is an independent consultant to the Company, not an employee;

 
(b)  The Board of Directors (the " Board " which term shall include an authorized committee of the Board of Directors) and shareholders of the Company have heretofore adopted the Surge Components Inc. 2010 Incentive Stock Plan (the " Plan "), pursuant to which this Option is being granted; and

 
(c)  The Board has authorized the granting to Optionee of a nonstatutory stock option (" Option ") to purchase shares of common stock of the Company (" Stock ") upon the terms and conditions hereinafter stated and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.

3.   Shares; Price.   The Company hereby grants to Optionee the right to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) above (the " Shares ") for cash or on a cashless basis (or other consideration as is acceptable to the Board, in their sole and absolute discretion) at the price per Share set forth in Section 1(d) above (the " Exercise Price ").

4.   Term of Option.   This Option shall expire, and all rights hereunder to purchase the Shares, shall terminate upon the Termination Date noted above. Nothing contained herein shall be construed to interfere in any way with the right of the Company to terminate Optionee as a consultant to the Company, or to increase or decrease the compensation paid to Optionee from the rate in effect as of the date hereof.
 
 
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5.   Vesting of Option.   Subject to the provisions of Sections 7 and 8 hereof, this Option shall become exercisable during the period that Optionee serves as a consultant of the Company according to terms deemed acceptable to the Board of Directors of the Company in their sole and absolute discretion according to the schedule set forth in Section 1(e) above (the “Vesting Schedule”)

6.   Exercise.   This Option shall be exercised by delivery to the Company of (a) written notice of exercise stating the number of Shares being purchased (in whole shares only) and such other information set forth on the form of Notice of Exercise attached hereto as Appendix A , (b) a check or cash in the amount of the Exercise Price of the Shares covered by the notice (or such other consideration as has been approved by the Board of Directors consistent with the Plan) and (c) a written investment representation as provided for in Section 13 hereof. Notwithstanding anything to the contrary contained in this Option, this Option may be exercised by presentation and surrender of this Option to the Company at its principal executive offices with a written notice of the holder’s intention to effect a cashless exercise, including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a “Cashless Exercise”).  In the event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the holder shall surrender this Option for that number of shares of Common Stock determined by multiplying the number of Shares to which it would otherwise be entitled by a fraction, the numerator of which shall be the difference between the then current Market Price per share of the Common Stock and the Exercise Price, and the denominator of which shall be the then current Market Price per share of Common Stock.  For example, if the holder is exercising 100,000 Options with a per Warrant exercise price of $0.75 per share through a cashless exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such Cashless Exercise the holder will receive 62,500 shares of Common Stock.  Market Price is defined as the average of the last reported sale prices on the principal trading market for the Common Stock during the five (5) trading days immediately preceding such date.  This Option shall not be assignable or transferable, except by will or by the laws of descent and distribution, and shall be exercisable only by Optionee during his or her lifetime.

7.   Termination of Service.   If Optionee's service as a consultant to the Company terminates for any reason, no further installments shall vest pursuant to Section 5, and Optionee shall have the right at any time within thirty (30) days following such termination of services or the remaining term of this Option, whichever is the lesser, to exercise in whole or in part this Option to the extent, but only to the extent, that this Option was exercisable as of the date Optionee ceased to be a consultant to the Company; provided, however, if Optionee is terminated for reasons that would justify a termination of employment " for cause ", the foregoing right to exercise shall automatically terminate on the date Optionee ceases to be a consultant to the Company as to all Shares covered by this Option not exercised prior to termination. Unless earlier terminated, all rights under this Option shall terminate in any event on the expiration date of this Option as defined in Section 4 hereof.
 
 
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8.   Death of Optionee.   If the Optionee shall die while serving as a consultant to the Company, Optionee's personal representative or the person entitled to Optionee's rights hereunder may at any time within ninety (90) days after the date of Optionee's death, or during the remaining term of this Option, whichever is the lesser, exercise this Option and purchase Shares to the extent, but only to the extent, that Optionee could have exercised this Option as of the date of Optionee's death; provided, in any case, that this Option may be so exercised only to the extent that this Option has not previously been exercised by Optionee.

9.   No Rights as Shareholder.   Optionee shall have no rights as a shareholder with respect to the Shares covered by any installment of this Option until the effective date of the issuance of shares following exercise of this to Option, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate or certificates are issued except as provided in Section 10 hereof.

10.   Recapitalization.   Subject to any required action by the shareholders of the Company, the number of Shares covered by this Option, and the Exercise Price thereof, shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company; provided however that the conversion of any convertible securities of the Company shall not be deemed having been "effected without receipt of consideration by the Company."

In the event of a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets or capital stock of the Company (collectively, a " Reorganization "), this Option shall terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board; provided, however, if Optionee shall be a consultant at the time such Reorganization is approved by the stockholders, Optionee shall have the right to exercise this Option as to all or any part of the Shares, without regard to the installment provisions of Section 5, for a period beginning 30 days prior to the consummation of such Reorganization and ending as of the Reorganization or the expiration of this Option, whichever is earlier, subject to the consummation of the Reorganization. In any event, the Company shall notify Optionee, at least 30 days prior to the consummation of such Reorganization, of his exercise rights, if any, and that the Option shall terminate upon the consummation of the Reorganization.

Subject to any required action by the shareholders of the Company, if the Company shall be the surviving entity in any merger or consolidation, this Option thereafter shall pertain to and apply to the securities to which a holder of Shares equal to the Shares subject to this Option would have been entitled by reason of such merger or consolidation, and the installment provisions of Section 5 shall continue to apply.
 
 
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In the event of a change in the shares of the Company as presently constituted, which is limited to a change of all of its authorized Stock without par value into the same number of shares of Stock with a par value, the shares resulting from any such change shall be deemed to be the Shares within the meaning of this Option.

To the extent that the foregoing adjustments relate to shares or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided, Optionee shall have no rights by reason of any subdivision or consolidation of shares of Stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, and the number and price of Shares subject to this Option shall not be affected by, and no adjustments shall be made by reason of, any dissolution, liquidation, merger, consolidation or sale of assets or capital stock, or any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class.

The grant of this Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure or to merge, consolidate, dissolve or liquidate or to sell or transfer all or any part of its business or assets.

11.   Taxation upon Exercise of Option.   Optionee understands that, upon exercise of this Option, Optionee will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, determined as of the date of exercise, exceeds the Exercise Price. The acceptance of the Shares by Optionee shall constitute an agreement by Optionee to report such income in accordance with then applicable law and to cooperate with Company in establishing the amount of such income and corresponding deduction to the Company for its income tax purposes. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Optionee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of the exercise of this Option.

12.   Modification, Extension and Renewal of Options.   The Board or Committee, as described in the Plan, may modify, extend or renew this Option or accept the surrender thereof (to the extent not theretofore exercised) and authorize the granting of a new option in substitution therefore (to the extent not theretofore exercised), subject at all times to the Plan, the Code. Notwithstanding the foregoing provisions of this Section 12, no modification shall, without the consent of the Optionee, alter to the Optionee's detriment or impair any rights of Optionee hereunder.
 
 
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13.   Investment Intent; Restrictions on Transfer.
 
 
(a)  Optionee represents and agrees that if Optionee exercises this Option in whole or in part, Optionee will in each case acquire the Shares upon such exercise for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that upon such exercise of this Option in whole or in part, Optionee (or any person or persons entitled to exercise this Option under the provisions of Sections 7 and 8 hereof) shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares represented by this Option are registered under the Securities Act, either before or after the exercise of this Option in whole or in part, the Optionee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

 
(b)  Optionee further represents that Optionee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition, and to obtain additional information reasonably necessary to verify the accuracy of such information.

 
(c)  Unless and until the Shares represented by this Option are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN NONSTATUTORY STOCK OPTION AGREEMENT DATED ___________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.
 
 
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14.   Stand-off Agreement.   Optionee agrees that, in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Optionee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of up to one year following the effective date of registration of such offering.

15.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Optionee except as hereinafter provided.

 
(a)   Repurchase Right on Termination Other Than for Cause.   For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Optionee's service as a consultant, voluntary or involuntary and with or without cause; (ii) retirement or death of Optionee; (iii) bankruptcy of Optionee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Optionee, to the extent that any of the Shares are allocated as the sole and separate property of Optionee's spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Optionee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Optionee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b)   Repurchase Right on Termination for Cause.   In the event Optionee's service as a consultant is terminated by the Company "for cause" (as contemplated by Section 7), then the Company shall have the right (but not an obligation) to repurchase Shares of Optionee at a price equal to the Exercise Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse ratably in equal annual increments on each anniversary of the date of this Agreement over the term of this Option specified in Section 4. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon any such termination of service for cause all or any portion of the Shares of Optionee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c)   Exercise of Repurchase Right.   Any repurchase right under Paragraphs 15(a) or 15(b) shall be exercised by giving notice of exercise as provided herein to Optionee or the estate of Optionee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Optionee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada  General Corporation Law, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 15.
 
 
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(d)   Right of First Refusal.   In the event Optionee desir es to transfer any Shares during his or her lifetime, Optionee shall first offer to sell such Shares to the Company. Optionee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Optionee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Optionee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Optionee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e)   Acceptance of Restrictions.   Acceptance of the Shares shall constitute the Optionee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Optionee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f)   Permitted Transfers.   Notwithstanding any provisions in this Section 15 to the contrary, the Optionee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Optionee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Optionee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 15(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Optionee and the Company.

 
(g)   Release of Restrictions on Shares.   All rights and restrictions under this Section 15 shall terminate five (5) years following the date of this Agreement, or when the Company's securities are publicly traded, whichever occurs earlier.
 
 
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16.   Notices.   Any notice required to be given pursuant to this Option or the Plan shall be in writing and shall be deemed to be delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Optionee at the address last provided by Optionee for use in Company records related to Optionee.

17.   Agreement Subject to Plan; Applicable Law.   This Option is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Optionee, at no charge, at the principal office of the Company. Any provision of this Option inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Option has been granted, executed and delivered in the State of Nevada, and the interpretation and enforcement shall be governed by the laws thereof and subject to the exclusive jurisdiction of the courts located in the State of New York.

[SIGNATURE PAGE FOLLOWS.]

In Witness Whereof , the parties hereto have executed this Option as of the date first above written.
 
COMPANY:
SURGE COMPONENTS INC.
 
 
a Nevada corporation
 
       
 
By:
   
  Name:    
  Title:     
       
OPTIONEE:
     
  By:     
   
( signature )
 
  Name:     
 
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Appendix A

NOTICE OF EXERCISE

Surge Components Inc.
95 East Jefryn Boulevard
Deer Park, New York 11729

Re:  Nonstatutory Stock Option

1)           Notice is hereby given pursuant to Section 6 of my Nonstatutory Stock Option Agreement that I elect to purchase the number of shares set forth below at the exercise price set forth in my option agreement:

Nonstatutory Stock Option Agreement dated: ____________

Number of shares being purchased: ____________

Exercise Price: $____________

A check in the amount of the aggregate price of the shares being purchased is attached.

OR

2)           I elect a cashless exercise pursuant to Section 6 of my Nonstatutory Stock Option Agreement.  The Average Market Price as of _______ was $_____.

I hereby confirm that such shares are being acquired by me for my own account for investment purposes, and not with a view to, or for resale in connection with, any distribution thereof. I will not sell or dispose of my Shares in violation of the Securities Act of 1933, as amended, or any applicable federal or state securities laws. Further, I understand that the exemption from taxable income at the time of exercise is dependent upon my holding such stock for a period of at least one year from the date of exercise and two years from the date of grant of the Option.

I understand that the certificate representing the Option Shares will bear a restrictive legend within the contemplation of the Securities Act and as required by such other state or federal law or regulation applicable to the issuance or delivery of the Option Shares.

I agree to provide to the Company such additional documents or information as may be required pursuant to the Surge Components Inc. 2010 Incentive Stock Plan.
 
       
 
By:
   
   
( signature )
 
  Name:    
       
 
 
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EXHIBIT C

SURGE COMPONENTS INC.
STOCK AWARD AGREEMENT
     
     
This Stock Award Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between Surge Components Inc., a Nevada corporation (the " Company "), and the employee, director or consultant of the Company named in Section 1(b). (" Grantee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Stock Award Information.
 
  (a) Date of Award:    
       
  (b) Grantee:    
       
  (c) Number of Shares:    
       
 
(d)  Original Value:
   
 
2.   Acknowledgements.
 
 
(a)  Grantee is a [ employee/director/consultant ] of the Company.

 
(b) The Company has adopted the Surge Components Inc. 2010 Incentive Stock Plan (the " Plan ") under which the Company's common stock (" Stock ") may be offered to directors, officers, employees and consultants pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.
 
3.   Shares; Value.   The Company hereby grants to Grantee, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) (the " Shares "), which Shares have a fair value per share (" Original Value ") equal to the amount set forth in Section 1(d). For the purpose of this Agreement, the terms " Share " or " Shares " shall include the original Shares plus any shares derived therefrom, regardless of the fact that the number, attributes or par value of such Shares may have been altered by reason of any recapitalization, subdivision, consolidation, stock dividend or amendment of the corporate charter of the Company. The number of Shares covered by this Agreement and the Original Value thereof shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a recapitalization, subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company.
 
 
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4.   Investment Intent.   Grantee represents and agrees that Grantee is accepting the Shares for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that, if requested, Grantee shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares are registered under the Securities Act, Grantee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

5.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Grantee except as hereinafter provided.
 
 
(a)   Repurchase Right on Termination Other Than for Cause.   For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Grantee's employment [ or service as a director/consultant ] by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Grantee; (iii) bankruptcy of Grantee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Grantee, to the extent that any of the Shares are allocated as the sole and separate property of Grantee's spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Grantee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to purchase all or any portion of the Shares of Grantee, at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b)   Repurchase Right on Termination for Cause. In the event Grantee's employment [ or service as a director/consultant ] is terminated by the Company " for cause " (as defined below), then the Company shall have the right (but not an obligation) to purchase Shares of Grantee at a price equal to the Original Value. Such right of the Company to purchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Grantee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. Termination of employment [ or service as a director/consultant ] " for cause " means (i) as to employees or consultants, termination for cause, or as defined in the Plan, this Agreement or in any employment [ or consulting ] agreement between the Company and Grantee, or (ii) as to directors, removal pursuant to the Nevada Revised Statutes. In the event the Company elects to purchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c)   Exercise of Repurchase Right.   Any Repurchase Right under Paragraphs 4(a) or 4(b) shall be exercised by giving notice of exercise as provided herein to Grantee or the estate of Grantee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination or cessation of services as director, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Grantee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada Revised Statutes, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 5.
 
 
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(d)   Right of First Refusal.   In the event Grantee desires to transfer any Shares during his or her lifetime, Grantee shall first offer to sell such Shares to the Company. Grantee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Grantee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Grantee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Grantee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e)   Acceptance of Restrictions.   Acceptance of the Shares shall constitute the Grantee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Grantee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f)   Permitted Transfers.   Notwithstanding any provisions in this Section 5 to the contrary, the Grantee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Grantee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Grantee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 5(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Grantee and the Company.

 
(g)   Release of Restrictions on Shares.   All rights and restrictions under this Section 5 shall terminate five (5) years following the date of this Agreement, or when the Company's securities are publicly traded, whichever occurs earlier.
 
 
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6.   Representations and Warranties of the Grantee.   This Agreement and the issuance and grant of the Shares hereunder is made by the Company in reliance upon the express representations and warranties of the Grantee, which by acceptance hereof the Grantee confirms that:

 
(a)  The Shares granted to him pursuant to this Agreement are being acquired by him for his own account, for investment purposes, and not with a view to, or for sale in connection with, any distribution of the Shares. It is understood that the Shares have not been registered under the Act by reason of a specific exemption from the registration provisions of the Act which depends, among other things, upon the bona fide nature of his representations as expressed herein;

 
(b)  The Shares must be held by him indefinitely unless they are subsequently registered under the Act and any applicable state securities laws, or an exemption from such registration is available. The Company is under no obligation to register the Shares or to make available any such exemption; and

 
(c)  Grantee further represents that Grantee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition and to obtain additional information reasonably necessary to verify the accuracy of such information,

 
(d)  Unless and until the Shares represented by this Grant are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN STOCK AWARD AGREEMENT DATED ____________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

 
and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.
 
 
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(e)  Grantee understands that he or she will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, as of the date of grant, exceeds the price paid by Grantee, if any. The acceptance of the Shares by Grantee shall constitute an agreement by Grantee to report such income in accordance with then applicable law. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Grantee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Grantee to make a cash payment to cover such liability.

7.   Stand-off Agreement.   Grantee agrees that, in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Grantee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering. This Section 8 shall survive any termination of this Agreement.

8.   Termination of Agreement.   This Agreement shall terminate on the occurrence of any one of the following events: (a) written agreement of all parties to that effect; (b) a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company; (c) the closing of any public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act; or (d) dissolution, bankruptcy, or insolvency of the Company.

9.   Agreement Subject to Plan; Applicable Law.   This Grant is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Grantee, at no charge, at the principal office of the Company. Any provision of this Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan. This Grant shall be governed by the laws of the State of Nevada and subject to the exclusive jurisdiction of the courts located in the State of New York.

10.   Miscellaneous.
 
 
(a)   Notices.   Any notice required to be given pursuant to this Agreement or the Plan shall be in writing and shall be deemed to have been duly delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Grantee at the last address provided by Grantee for use in the Company's records.

 
(b)   Entire Agreement.   This instrument constitutes the sole agreement of the parties hereto with respect to the Shares. Any prior agreements, promises or representations concerning the Shares not included or reference herein shall be of no force or effect. This Agreement shall be binding on, and shall inure to the benefit of, the Parties hereto and their respective transferees, heirs, legal representatives, successors, and assigns.

 
(c)   Enforcement.   This Agreement shall be construed in accordance with, and governed by, the laws of the State of Nevada and subject to the exclusive jurisdiction of the courts located in the State of New York.  If Grantee attempts to transfer any of the Shares subject to this Agreement, or any interest in them in violation of the terms of this Agreement, the Company may apply to any court for an injunctive order prohibiting such proposed transaction, and the Company may institute and maintain proceedings against Grantee to compel specific performance of this Agreement without the necessity of proving the existence or extent of any damages to the Company. Any such attempted transaction shares in violation of this Agreement shall be null and void.
 
 
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(d)   Validity of Agreement.   The provisions of this Agreement may be waived, altered, amended, or repealed, in whole or in part, only on the written consent of all parties hereto. It is intended that each Section of this Agreement shall be viewed as separate and divisible, and in the event that any Section shall be held to be invalid, the remaining Sections shall continue to be in full force and effect.

In Witness Whereof , the parties have executed this Agreement as of the date first above written.
 
COMPANY:
SURGE COMPON ETNS, INC.
 
 
a Nevada corporation
 
       
 
By:
/s/   
  Name:     
  Title:    
       
GRANTEE:
     
  By:    
   
( signature )
 
  Name:     

 
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EXHIBIT D

SURGE COMPOINENTS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
     
     
This Restricted Stock Purchase Agreement (" Agreement ") is made and entered into as of the date set forth below, by and between Surge Components Inc., a Nevada corporation (the " Company "), and the employee, director or consultant of the Company named in Section 1(b). (" Grantee "):

In consideration of the covenants herein set forth, the parties hereto agree as follows:

1.   Stock Purchase Information.
 
  (a) Date of Agreement:    
       
  (b) Grantee:    
       
  (c) Number of Shares:    
       
 
(d)  Purchase Price:
   
2.   Acknowledgements.
 
 
(a)  Grantee is a [ employee/director/consultant ] of the Company.

 
(b)  The Company has adopted the Surge Components Inc.  2010 Incentive Stock Plan (the " Plan ") under which the Company's common stock (" Stock ") may be offered to officers, employees, directors and consultants pursuant to an exemption from registration under the Securities Act of 1933, as amended (the " Securities Act ") provided by Rule 701 thereunder.

 
(c)  The Grantee desires to purchase shares of the Company's common stock on the terms and conditions set forth herein.

3.   Purchase of Shares. The Company hereby agrees to sell and Grantee hereby agrees to purchase, upon and subject to the terms and conditions herein stated, the number of shares of Stock set forth in Section 1(c) (the " Shares "), at the price per Share set forth in Section 1(d) (the " Price "). For the purpose of this Agreement, the terms " Share " or " Shares " shall include the original Shares plus any shares derived therefrom, regardless of the fact that the number, attributes or par value of such Shares may have been altered by reason of any recapitalization, subdivision, consolidation, stock dividend or amendment of the corporate charter of the Company.  The number of Shares covered by this Agreement shall be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a recapitalization, subdivision or consolidation of shares or the payment of a stock dividend, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company.  The manner and form of payment of consideration shall be mutually agreed to by the parties at the time of purchase.
 
 
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4.   Investment Intent. Grantee represents and agrees that Grantee is accepting the Shares for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof; and that, if requested, Grantee shall furnish to the Company a written statement to such effect, satisfactory to the Company in form and substance. If the Shares are registered under the Securities Act, Grantee shall be relieved of the foregoing investment representation and agreement and shall not be required to furnish the Company with the foregoing written statement.

5.   Restriction Upon Transfer.   The Shares may not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated by the Grantee except as hereinafter provided.
 
 
(a)  Repurchase Right on Termination Other Than for Cause. For the purposes of this Section, a " Repurchase Event " shall mean an occurrence of one of (i) termination of Grantee's employment [ or ser vice as a director/consultant ] by the Company, voluntary or involuntary and with or without cause; (ii) retirement or death of Grantee; (iii) bankruptcy of Grantee, which shall be deemed to have occurred as of the date on which a voluntary or involuntary petition in bankruptcy is filed with a court of competent jurisdiction; (iv) dissolution of the marriage of Grantee, to the extent that any of the Shares are allocated as the sole and separate property of Grantee's spouse pursuant thereto (in which case, this Section shall only apply to the Shares so affected); or (v) any attempted transfer by the Grantee of Shares, or any interest therein, in violation of this Agreement. Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to repurchase all or any portion of the Shares of Grantee at a price equal to the fair value of the Shares as of the date of the Repurchase Event.

 
(b) Repurchase Right on Termination for Cause. In the event Grantee's employment [ or service as a director/consultant ] is terminated by the Company " for cause " (as defined below), then the Company shall have the right (but not an obligation) to repurchase Shares of Grantee at a price equal to the Price. Such right of the Company to repurchase Shares shall apply to 100% of the Shares for one (1) year from the date of this Agreement; and shall thereafter lapse at the rate of twenty percent (20%) of the Shares on each anniversary of the date of this Agreement. In addition, the Company shall have the right, in the sole discretion of the Board and without obligation, to repurchase upon termination for cause all or any portion of the Shares of Grantee, at a price equal to the fair value of the Shares as of the date of termination, which right is not subject to the foregoing lapsing of rights. Termination of employment [ or service as a director/consultant ] " for cause " means (i) as to employees and consultants, termination for cause, or as defined in the Plan, this Agreement or in any employment [ or consulting ] agreement between the Company and Grantee, or (ii) as to directors, removal pursuant to the Nevada Revised Statutes  In the event the Company elects to repurchase the Shares, the stock certificates representing the same shall forthwith be returned to the Company for cancellation.

 
(c) Exercise of Repurchase Right.   Any Repurchase Right under Paragraphs 4(a) or 4(b) shall be exercised by giving notice of exercise as provided herein to Grantee or the estate of Grantee, as applicable. Such right shall be exercised, and the repurchase price thereunder shall be paid, by the Company within a ninety (90) day period beginning on the date of notice to the Company of the occurrence of such Repurchase Event (except in the case of termination of employment or retirement, where such option period shall begin upon the occurrence of the Repurchase Event). Such repurchase price shall be payable only in the form of cash (including a check drafted on immediately available funds) or cancellation of purchase money indebtedness of the Grantee for the Shares. If the Company can not purchase all such Shares because it is unable to meet the financial tests set forth in the Nevada Revised Statutes, the Company shall have the right to purchase as many Shares as it is permitted to purchase under such sections. Any Shares not purchased by the Company hereunder shall no longer be subject to the provisions of this Section 5.
 
 
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(d)   Right of First Refusal. In the event Grantee desires to transfer any Shares during his or her lifetime, Grantee shall first offer to sell such Shares to the Company. Grantee shall deliver to the Company written notice of the intended sale, such notice to specify the number of Shares to be sold, the proposed purchase price and terms of payment, and grant the Company an option for a period of thirty days following receipt of such notice to purchase the offered Shares upon the same terms and conditions. To exercise such option, the Company shall give notice of that fact to Grantee within the thirty (30) day notice period and agree to pay the purchase price in the manner provided in the notice. If the Company does not purchase all of the Shares so offered during foregoing option period, Grantee shall be under no obligation to sell any of the offered Shares to the Company, but may dispose of such Shares in any lawful manner during a period of one hundred and eighty (180) days following the end of such notice period, except that Grantee shall not sell any such Shares to any other person at a lower price or upon more favorable terms than those offered to the Company.

 
(e)   Acceptance of Restrictions. Acceptance of the Shares shall constitute the Grantee's agreement to such restrictions and the legending of his certificates with respect thereto. Notwithstanding such restrictions, however, so long as the Grantee is the holder of the Shares, or any portion thereof, he shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a shareholder with respect thereto.

 
(f)   Permitted Transfers. Notwithstanding any provisions in this Section 5 to the contrary, the Grantee may transfer Shares subject to this Agreement to his or her parents, spouse, children, or grandchildren, or a trust for the benefit of the Grantee or any such transferee(s); provided, that such permitted transferee(s) shall hold the Shares subject to all the provisions of this Agreement (all references to the Grantee herein shall in such cases refer mutatis mutandis to the permitted transferee, except in the case of clause (iv) of Section 5(a) wherein the permitted transfer shall be deemed to be rescinded); and provided further, that notwithstanding any other provisions in this Agreement, a permitted transferee may not, in turn, make permitted transfers without the written consent of the Grantee and the Company.

 
(g)   Release of Restrictions on Shares. All rights and restrictions under this Section 5 shall terminate five (5) years following the date upon which the Company receives the full Price as set forth in Section 3, or when the Company's securities are publicly traded, whichever occurs earlier.
 
 
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5.   Representations and Warranties of the Grantee. This Agreement and the issuance and grant of the Shares hereunder is made by the Company in reliance upon the express representations and warranties of the Grantee, which by acceptance hereof the Grantee confirms that:
 
 
(a)  The Shares granted to him pursuant to this Agreement are being acquired by him for his own account, for investment purposes, and not with a view to, or for sale in connection with, any distribution of the Shares. It is understood that the Shares have not been registered under the Act by reason of a specific exemption from the registration provisions of the Act which depends, among other things, upon the bona fide nature of his representations as expressed herein;

 
(b)  The Shares must be held by him indefinitely unless they are subsequently registered under the Act and any applicable state securities laws, or an exemption from such registration is available. The Company is under no obligation to register the Shares or to make available any such exemption; and

 
(c)  Grantee further represents that Grantee has had access to the financial statements or books and records of the Company, has had the opportunity to ask questions of the Company concerning its business, operations and financial condition and to obtain additional information reasonably necessary to verify the accuracy of such information;

 
(d)  Unless and until the Shares represented by this Grant are registered under the Securities Act, all certificates representing the Shares and any certificates subsequently issued in substitution therefor and any certificate for any securities issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear legends in substantially the following form:

 
THESE SECURITIES HAVE NOT BEEN REGISTERED OR OTHERWISE QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE 'SECURITIES ACT') OR UNDER THE APPLICABLE OR SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES NOR ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE SECURITIES LAWS OF ANY STATE, UNLESS PURSUANT TO EXEMPTIONS THEREFROM.

 
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT TO THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT DATED ____________ BETWEEN THE COMPANY AND THE ISSUEE WHICH RESTRICTS THE TRANSFER OF THESE SHARES WHICH ARE SUBJECT TO REPURCHASE BY THE COMPANY UNDER CERTAIN CONDITIONS.

 
and/or such other legend or legends as the Company and its counsel deem necessary or appropriate. Appropriate stop transfer instructions with respect to the Shares have been placed with the Company's transfer agent.
 
 
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(e)  Grantee understands that he or she will recognize income, for Federal and state income tax purposes, in an amount equal to the amount by which the fair market value of the Shares, as of the date of Grant, exceeds the price paid by Grantee. The acceptance of the Shares by Grantee shall constitute an agreement by Grantee to report such income in accordance with then applicable law. Withholding for federal or state income and employment tax purposes will be made, if and as required by law, from Grantee's then current compensation, or, if such current compensation is insufficient to satisfy withholding tax liability, the Company may require Grantee to make a cash payment to cover such liability.

7.   Stand-off Agreement. Grantee agrees that, in connection with any registration of the Company's securities under the Securities Act, and upon the request of the Company or any underwriter managing an underwritten offering of the Company's securities, Grantee shall not sell, short any sale of, loan, grant an option for, or otherwise dispose of any of the Shares (other than Shares included in the offering) without the prior written consent of the Company or such managing underwriter, as applicable, for a period of at least one year following the effective date of registration of such offering. This Section 8 shall survive any termination of this Agreement.

8.   Termination of Agreement. This Agreement shall terminate on the occurrence of any one of the following events: (a) written agreement of all parties to that effect; (b) a proposed dissolution or liquidation of the Company, a merger or consolidation in which the Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company; (c) the closing of any public offering of common stock of the Company pursuant to an effective registration statement under the Act; or (d) dissolution, bankruptcy, or insolvency of the Company.

9.   Agreement Subject to Plan; Applicable Law. This Grant is made pursuant to the Plan and shall be interpreted to comply therewith. A copy of such Plan is available to Grantee, at no charge, at the principal office of the Company. Any provision of this Agreement inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan.  This Grant shall be governed by the laws of the State of  Nevada and subject to the exclusive jurisdiction of the courts located in the State of New York.

10.   Miscellaneous.
 
 
(a)   Notices.   Any notice required to be given pursuant to this Agreement or the Plan shall be in writing and shall be deemed to have been duly delivered upon receipt or, in the case of notices by the Company, five (5) days after deposit in the U.S. mail, postage prepaid, addressed to Grantee at the last address provided by Grantee for use in the Company's records.

 
(b)   Entire Agreement.   This instrument constitutes the sole agreement of the parties hereto with respect to the Shares. Any prior agreements, promises or representations concerning the Shares not included or reference herein shall be of no force or effect. This Agreement shall be binding on, and shall inure to the benefit of, the Parties hereto and their respective transferees, heirs, legal representatives, successors, and assigns.

 
(c)   Enforcement.   This Agreement shall be construed in accordance with, and governed by, the laws of the State of Nevada and subject to the exclusive jurisdiction of the courts located in the State of New York. If Grantee attempts to transfer any of the Shares subject to this Agreement, or any interest in them in violation of the terms of this Agreement, the Company may apply to any court for an injunctive order prohibiting such proposed transaction, and the Company may institute and maintain proceedings against Grantee to compel specific performance of this Agreement without the necessity of proving the existence or extent of any damages to the Company. Any such attempted transaction shares in violation of this Agreement shall be null and void.
 
 
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(d)   Validity of Agreement. The provisions of this Agreement may be waived, altered, amended, or repealed, in whole or in part, only on the written consent of all parties hereto. It is intended that each Section of this Agreement shall be viewed as separate and divisible, and in the event that any Section shall be held to be invalid, the remaining Sections shall continue to be in full force and effect.

In Witness Whereof, the parties have executed this Agreement as of the date first above written.
 
COMPANY:
SURGE COMPONENTS INC.
 
 
a Nevada corporation
 
       
 
By:
/s/   
  Name:    
  Title:    
       
GRANTEE:
     
  By:    
   
( signature )
 
  Name:    
 
 
 
 
 
 
 
 
 
 
 
 
 
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Exhibit 10.21
 
 
LEASE AGREEMENT
 
AGREEMENT OF LEASE, dated as of October 1 st , 2010 (the "Lease"), between GREAT AMERICAN REALTY OF JEFRYN BOULEVARD, LLC, a New York limited liability company with offices at 2131 Newbridge Road, Bellmore, New York 11710 ("Owner") and SURGE COMPONENTS, INC., a New York company with offices at 95 Jefryn Boulevard, Unit 1, Deer Park, New York 11729 ("Tenant - ).
 
WHEREAS, Owner is owner of the land (the "Property") and the building commonly known as 95 Jefryn Boulevard, Deer Park, New York (the "Building"); and
 
WHEREAS, Owner desires to lease to Tenant, and Tenant desires to hire from Owner that portion of the Building more particularly described on the floor plan annexed hereto as Exhibit A and made a part hereof (the "Premises "); and
 
NOW, THEREFORE, in consideration of the foregoing and of the covenants, conditions and agreements hereinafter set forth, the parties agree as follows:
 
1.               Premises.
 
Subject to the terms, covenants and conditions hereof, Owner hereby leases and demises the Premises to Tenant and Tenant hereby hires and rents the Premises from Owner. The Premises are hereby demised subject to all present and future zoning ordinances, laws, regulations, requirements and orders, including building restrictions and regulations (collectively. "Legal Requirements"); Taxes (defined below); all covenants, easements and restrictions affecting the Property.
 
2.               Term.
 
(a)The Premises are demised and leased to Tenant for a term (the "Term") commencing on October 1 st , 2010 (the "Commencement Date") and expiring at noon on September 30 th , 2020, (the "Expiration Date"), unless the Term shall be sooner terminated pursuant to any of the terms, covenants, conditions or agreements of this Lease or pursuant to law.
 
3.               Fixed Rent.
 
(a)During the Term, Tenant shall pay Owner annual fixed rent ("Fixed Rent "), as follows:
 
(i)   From October 1 st , 2010 through and including September 30 th , 2011, Fixed Rent shall be Seventy-Seven Thousand Eight Hundred Ninety-Five Dollars and Forty-Eight Cents ($77,895.48); payable in equal monthly installments of Six Thousand Four Hundred Ninety-One Dollars and Twenty-Nine Cents ($6,491.29); and
 
(ii)   From October 1 st , 2011 through and including September 30 th , 2012, Fixed Rent shall be Seventy-Nine Thousand Four Hundred Fifty-Three Dollars and Forty-
Four Cents ($79,453.44), payable in equal monthly installments of Six Thousand Six Hundred Twenty-One Dollars and Twelve Cents ($6,621.12); and
 
 
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(iii)   From October 1 st , 2012 through and including September 30 th , 2013, Fixed Rent shall be Eighty-One Thousand Forty-Two Dollars and Forty-Eight Cents ($81,042.48), payable in equal monthly installments of Six Thousand Seven Hundred Fifty-Three Dollars and Fifty-Four Cents ($6,753.54); and
 
(iv)   From October 1 st , 2013 through and including September 30 th , 2014, Fixed Rent shall be Eighty-Two Thousand Six Hundred Sixty-Three Dollars and Thirty-Two Cents ($82,663.32), payable in equal monthly installments of Six Thousand Eight Hundred Eighty-Eight Dollars and Sixty-One Cents ($6,888.61); and
 
(v)   From October 1 St , 2014 through and including September 30 th , 2015, Fixed Rent shall be Eighty-Four Thousand Three Hundred Sixteen Dollars and Fifty-Six Cents ($84,316.56), payable in equal monthly installments of Seven Thousand Twenty-Six Dollars and Thirty-Eight Cents ($7,026.38); and
 
(vi)   From October 1 st , 2015 through and including September 30 th , 2016, Fixed Rent shall be Eighty-Six Thousand Two Dollars and Ninety-Two Cents ($86,002.92), payable in equal monthly installments of Seven Thousand One Hundred Sixty-Six Dollars and Ninety-One Cents ($7,166.91); and
 
(vii)   From October 1 St , 2016 through and including September 30 th , 2017, Fixed Rent shall be Eighty-Seven Thousand Seven Hundred Twenty-Three Dollars and Zero Cents ($87,723.00), payable in equal monthly installments of Seven Thousand Three Hundred Ten Dollars and Twenty-Five Cents ($7,310.25); and
 
(viii)   From October 1 St , 2017 through and including September 30 th , 2018, Fixed Rent shall be Eighty-Nine Thousand Four Hundred Seventy-Seven Dollars and Forty Cents ($89,477.40), payable in equal monthly installments of Seven Thousand Four Hundred Fifty-Six Dollars and Forty-Five Cents ($7,456.45); and
 
(ix)   From October 1 st , 2018 through and including September 30 th , 2019, Fixed Rent shall be Ninety-One Thousand Two Hundred Sixty-Six Dollars and Ninety-Six Cents ($91,266.96), payable in equal monthly installments of Seven Thousand Six Hundred Five Dollars and Fifty-Eight Cents ($7,605.58); and
 
(x)   From October 1 St , 2019 through and including September 30 th , 2020, Fixed Rent shall be Ninety-Three Thousand Ninety-Two Dollars and Twenty-Eight Cents ($93,092.28), payable in equal monthly installments of Seven Thousand Seven Hundred Fifty-Seven Dollars and Sixty-Nine Cents ($7,757.69).
 
(b)Fixed Rent is payable, in advance, in equal monthly installments without demand or offset, on the first day of each calendar month throughout the Term and shall be payable at the Owner's address set forth above or to such other address or payee as Owner may designate in writing to Tenant from time to time, provided however, that if Fixed Rent shall be payable for any period prior to the first day of the first full month during the Term, then such Fixed Rent for such month shall be paid in a proportionate amount for the number of days in such period and paid as and when the first equal monthly installment is payable as aforesaid. Notwithstanding the foregoing, upon the execution of this Lease, Tenant shall pay Owner the first monthly installment of Fixed Rent.
 
 
 
 
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(c)   Tenant shall also pay Owner, as additional rent, without abatement, deduction or set off, all sums, costs, expenses and other payments which Tenant assumes or agrees to pay under any of the provisions of this Lease (collectively, "Additional Rent") and, in the event of any nonpayment thereof, Owner shall have all of the rights and remedies provided for herein or by law in the case of nonpayment of the Fixed Rent, in addition to all other rights and remedies.
 
(d)   If Tenant shall fail to pay any installment of Fixed Rent or Additional Rent (collectively, "Rent") within five (5) business days after the due date therefore, Tenant shall pay Owner a late charge equal to five percent (5%) of the unpaid amount of such installment.
 
(e)   Tenant shall pay the Rent in lawful money of the United States of America which shall be legal tender for all debts, public and private, at the time of payment. Any obligation of Tenant for payment of Rent which shall have accrued with respect to any period during or prior to the Term shall survive the expiration or termination of this Lease.
 
4.  Real Estate Taxes.
 
(a)   Tenant shall pay to Owner, as Additional Rent, Fifty Percent (50%) ("Tenant's Proportionate Share") of all Taxes which may now or hereafter be levied or assessed against the Property or the Building during the Term of the Lease.
 
(b)   For purposes hereof, "Taxes" shall mean all taxes, assessments and all such other charges, taxes, levies and sums of every kind or nature whatsoever, general and special, extraordinary as well as ordinary, as shall or may during or in respect of the Term be assessed, levied, charged or imposed upon or become a lien on the Property or Building or any part thereof, or anything appurtenant thereto, or the sidewalks, streets; provided, however, Taxes shall not include federal, state or local income taxes, franchise, excise, gift, transfer, capital stock, estate, succession or inheritance taxes. If, at any time during the Term, the methods of taxation prevailing at the commencement of the Term shall be altered so that, in lieu of or as a substitution in whole or in part for the taxes, assessments, levies, impositions or charges now or hereafter levied, assessed or imposed on real estate and the improvements thereon, shall be levied, assessed or imposed any tax or other charge on or in respect of the Property and/or the Building or the rents, income or gross receipts of Owner therefrom (including any county, town, municipal, state or federal levy), then such taxes or charges shall be deemed Taxes, but only to the extent that such Taxes would be payable if the Property or the Building, or the rent, income or gross receipts received therefrom, were the only property of Owner subject to such Taxes, and Tenant shall pay and discharge the same as herein provided in respect of the payment of Taxes. Reasonable fees and expenses, if any, incurred by Owner in obtaining any reduction of the Taxes shall also be considered Taxes for the purpose of this Section.
 
 
(c)Any amount payable to Owner under the provisions of this Section shall be paid by Tenant within ten (10) days after Owner shall have submitted a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. In addition, Owner shall have the right to reasonably estimate the amount payable by Tenant under the provisions of this Section for each applicable fiscal tax year, and Tenant shall pay one-twelfth (1/12) of such amount each month at the time each installment of Fixed Rent is due. As soon as practicable after the end of an applicable fiscal tax year, Owner shall furnish Tenant with a statement prepared showing the actual amount payable by Tenant under the provisions of this Section for such fiscal tax year. If Tenant's Proportionate Share of such amount exceeds the amount paid by Tenant on account thereof, Tenant shall pay Owner, as Additional Rent, an amount equal to such excess in a lump sum within ten (10) days after delivery by Owner of the statement provided herein. If Tenant's Proportionate Share of such amount is less than the amount paid by Tenant on account thereof, such excess shall be applied as a credit against Additional Rent due from Tenant under this Section for the next fiscal tax year.
 
5.  Operating Expenses.
 
(a)   Tenant shall pay to Owner, as Additional Rent, Tenant's Proportionate Share of all Common Area Charges (defined below) which may be incurred by Owner or Owner's agents during the Term of the Lease.
 
(b)   For the purposes hereof, "Common Area Charges" shall mean all costs and expenses which are incurred by Owner or Owner's agents in connection with the use, operation, repair or maintenance of the Building and/or the Property, including but not limited to, the following: (i) premiums and other charges for insurance which Owner maintains, including without limitation, general comprehensive liability insurance covering bodily injury, personal injury (including death), property damage, public liability, or plate glass; (ii) costs and expenses of performing repairs in or to the Building and/or the Property, including without limitation, the sidewalks and curbs adjacent thereto, the sprinkler, lighting, plumbing, alarm, heating, air-conditioning, sanitary and storm sewer lines or other systems servicing the Building or the Property; (iii) costs and expenses of performing repairs or resurfacing of the parking lots and any adjacent facilities; (iv) costs and expenses of landscaping and maintaining the grounds of the Building and/or the Property; (v) costs and expenses of snow and ice removal; (vi) costs and expense of rubbish, garbage and other refuse removal; (vii) fees and disbursements payable to any person to furnish repair or other services regarding the Building and/or the Property, except that, in the case of any such person who is affiliated with Owner, such fees shall not exceed that which is customary or reasonable in the industry for similar buildings in the area; (viii) costs and expenses of utilities, such as electricity, oil, gas, water and sewer, water and other meter charges; (ix) costs and expenses of providing and maintaining security, if any; (x) cost and expense of providing and performing cleaning and related services; (xi) cost and expense of all supplies; (xii) cost and expenses of all sales, utility and use taxes and other taxes of like import now in effect or hereinafter imposed; and (xiii) cost and expense of all maintenance and service contracts for the Building and/or Property; provided, however, that the following items shall be excluded from Common Area Charges: (i) leasing commissions; (ii) cost of repairs or replacements incurred by reason of fire or other casualty (to the extent the same is or would have been covered by insurance required to be maintained by Owner herein), or caused by the exercise of the right of eminent domain (to the extent same is covered by any condemnation award) less any cost incurred by Owner in obtaining such insurance proceeds or condemnation award; (iii) costs incurred in performing work or furnishing services to or for individual tenants (including Tenant) at such tenant's expense; (iv) debt service on any mortgages now or hereafter encumbering the Building and/or Property; (v) interest or penalties due to Owner's violation of law; (vi) advertising and promotional expenses; (vii) depreciation; (viii) leasehold improvements made for other tenants; (ix) Taxes; (x) costs and expenses which are the responsibility of other tenants of the Building; and (xi) costs and expenses of refurbishing the common areas and modernizing and replacing equipment servicing the common areas.
 
 
 
 
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(c)   Any amount payable to Owner under the provisions of this Section shall be paid within ten (10) days after Owner shall have delivered a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. In addition, Owner shall have the right to reasonably estimate the amount payable by Tenant under the provisions of this Section for each calendar year, and Tenant shall pay one-twelfth (1/12) of such amount each month at the time each installment of Fixed Rent is due. As soon as practicable after each calendar year, Owner shall furnish Tenant with a statement prepared showing the actual amount payable by Tenant under the provisions of this Section for such calendar year. If Tenant's Proportionate Share of such amount exceeds the amount paid by Tenant on account thereof, Tenant shall pay Owner, as Additional Rent, an amount equal to such excess in a lump sum within ten (10) days after delivery by Owner to Tenant of the statement provided herein. If Tenant's Proportionate Share of such amount is less than the amount paid by Tenant on account thereof, such excess shall be applied as a credit against Additional Rent due from Tenant under this Section for the next calendar year.
 
6.  Condition and Possession of the Premises.
 
(a)   Promptly following the execution of this Lease, Owner shall, at its cost and expense, perform the work set forth on Exhibit B attached hereto and made a part hereof (the "Owner's Work") to the Premises.
 
(b)   Except for the Owner's Work, Tenant shall accept the Premises in its "as is" condition and state of repair as of the Commencement Date without representation or warranty, express or implied, in fact or by law, by Owner, and without recourse to Owner, as to title thereto, the nature, condition or usability thereof or as to the use or occupancy which may be made thereof or the condition thereof. Except as specifically set forth herein, Owner shall not be responsible for any defect in or to the Premises or any changes therein and the Rent shall in no event be withheld, abated or diminished on account of any defect, change or damage to the Premises.
 
(c)   If delivery of possession to the Premises to Tenant is delayed for any reason, then this Lease and the validity thereof shall not be affected thereby and Tenant shall not be entitled to terminate this Lease, to claim actual or constructive eviction, partial or total, or to be compensated for loss or injury suffered as a result thereof, nor shall the same be construed in any way to extend the Term. The provisions of this Section shall be considered an express provision to the contrary pursuant to New York Real Property Law Section 223-(a) governing delivery of possession of the Premises.
 
7.  Use of the Premises.
 
(a)               Tenant shall occupy and use the Premises as a Storage Warehouse and Office Space and for no other purpose.
 
(b)   Tenant may use those parking spaces designated by Owner in the parking lot located on the Property on a first come basis for a period coterminous with the Term. Owner shall have the right, in its sole and absolute discretion to change the location of any parking spaces located on the Property, the right to impose reasonable rules and regulations respecting the use of the parking facilities, including without limitation, the right to temporarily restrict and/or close all or any portion of said parking areas or facilities. The license and privilege hereby granted shall apply only to those duly registered and operating private passenger vehicle(s) operated by Tenant or Tenant's employees, invitees and contractors and shall not be transferable to any other person or used for any other purpose other than as herein provided. Tenant and its employees, officers, partners, directors, agents, and contractors, covenant and agree that they shall park their vehicles in legal parking spaces designated by Owner on the Property and shall not park their vehicles in any other location on the Property, or on any roadway or property adjacent to the Property.
 
(c)   Tenant shall not do or permit anything to be done upon the Premises or any part thereof which would: (i) impair or tend to impair the appearance of the Property, the Building or the Premises; (ii) impair or interfere with or tend to impair or interfere with any services for the proper and economic heating, cleaning, air conditioning or other servicing of the Property, the Building or the Premises; (iii) occasion discomfort or inconvenience to the occupants of the Building; (iv) make void or voidable any insurance in force upon the Property, the Building or the Premises; (v) increase the cost of any insurance upon the Property, the Building or the Premises; (vi) make it difficult or impossible to obtain fire or other insurance upon the Property, the Building or the Premises at a commercially reasonable cost; (vii) cause damage to the Property, the Building or the Premises or any part hereof; (viii) constitute a public or private nuisance; (ix) violate the certificate of occupancy or any present or future Legal Requirements applicable to the Tenant, the Property, the Building or the Premises; or (x) violate the Rules and Regulations attached hereto and made a part hereof as Exhibit C and such reasonable additions and/or changes to the Rules and Regulations adopted by Owner from time to time.
 
(d)   Tenant shall not place, or suffer, or permit anyone to place a load upon any floor of the Building that exceeds the floor load per square foot that such floor was designed to carry, nor shall Tenant overload, or suffer, or permit anyone to overload any wall, roof, land surface, pavement, landing or equipment on the Premises.
 
(e)   Tenant shall not release, discharge, manufacture, generate, store, dispose of, permit or suffer any release, discharge or disposal of any Hazardous Material (defined below) at or from the Premises in violation of any Environmental Law (defined below). Tenant shall: (1) promptly notify Owner of any violation of, or non-compliance with, potential violation of or non-compliance with, or liability or potential liability under, any Environmental Law concerning the Premises; (ii) promptly make (and deliver to Owner copies of) all reports or notices that Tenant is required to make under any Environmental Law concerning the Premises and maintain in current status all permits and licenses required under any Environmental Law concerning the Premises; (iii) immediately comply with any orders, actions or demands of any governmental authority respecting any Hazardous Materials; (iv) keep the Premises free of any lien imposed pursuant to any Environmental Law; and (v) otherwise comply with all Environmental Laws concerning the Premises.
 
(f)   If any license or permit shall be required for the proper and lawful conduct of Tenant's business in the Premises or any part thereof, Tenant, at its sole cost and expense, shall duly procure and thereafter maintain such license or permit and submit the same to inspection by Owner. Tenant shall, at all times, comply with the terms and conditions of each such license or permit, but in no event shall failure to procure and maintain same by Tenant impair Tenant's obligations hereunder.
 
(g)   In no event shall Owner be liable for any loss, injury, death or damage to persons or property, which at any time may be suffered or sustained by Tenant or by any person who may at any time be using or occupying or visiting the Premises or may be in, on or about the same, and Tenant shall indemnify Owner from and against all claims, liability, loss or damage whatsoever, including reasonable attorney's fees, on account of any such loss, injury, death or damage. Tenant hereby expressly waives all claims against Owner for damages to the Premises that are now on or are hereafter placed or built on the Premises and to the property of Tenant in, on or about the Premises from any cause arising at any time. Owner shall not be liable for any defect in the Premises and Tenant expressly assumes any and all liabilities in connection therewith.
 
 
 
 
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(h)For purposes hereof, the following definitions shall apply:
 
(i)               "Environmental Laws" shall mean any and all federal, state, local, or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental conditions at the Premises, the Building or the Property as now or may at any time hereafter be in effect, including without limiting, The Clean Water Act also known as the Federal Water Pollution Control Act, 88 U.S.C. §§1251 et seq., the Toxic Substance Control Act, 15 U.S.C. §§2601 et seq., the Clean Air Act, 42 U.S.C. §§7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§186 et seq., the Safe Drinking Water Act, 42 U.S.C. §§300f et seq., the Surface Mining Control and Reclamation Act, § 1201 et seq., 80 U.S.C. § 1201 et seq., the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§9601 et seq., the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. § 1818, the Emergency Planning and Community Right to Know Act, 42 U.S.C. §§1101 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. §§6901 et seq., and the Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C. §655 and §657, together with any amendments thereto, regulations promulgated thereunder and all substitutions thereof; and
 
(ii)               "Hazardous Material" shall mean: (A) any hazardous, toxic or dangerous waste, substance or material defined as such in (or for the purpose of) CERCLA, SARA, RCRA, or any other Environmental Law as now or at any time hereafter in effect; (B) any other waste, substance or material that exhibits any of the characteristics enumerated in 40 C.F.R. §§261.20 through 261.24, inclusive, and those extremely hazardous substances listed under Section 902 of SARA that are present in threshold planning or reportable quantities as defined under SARA and toxic or hazardous chemical substances that are present in quantities that exceed exposure standards as those terms are defined under Section 6 and 8 of OSHA and 29 C.F.R. Part 1910; (C) any asbestos or asbestos containing substances whether or not the same are defined as hazardous, toxic, dangerous waste, a dangerous substance or dangerous material in any Environmental Law; (D) "red label" flammable materials; (E) all laboratory waste and by­products; and (F) all biohazardous materials.
 
8. Utilities and Services.
 
(a)   Tenant shall obtain and pay for all electric current, heating oil, gas, water and other fuels and utilities supplied to, used in connection with or servicing the Premises and all mechanical systems therein, including without limitation the heating, ventilation and air-conditioning system (HVAC System) and lighting equipment and systems, by direct application to and arrangement with the utility company or companies providing such servicing and utilities to the Premises. Tenant shall not use or install any fixtures, equipment or machines the use of which in conjunction with other fixtures, equipment or machines in the Premises that would result in an overload of the electrical equipment supplying electric current to the Premises or exceed the capacity of the then existing risers, feeders, the electrical service panel or bus ducts to the Premises.
 
(b)   Owner shall not be required to furnish to Tenant with any services of any kind whatsoever such as, but not limited to, water, steam, heat, gas, hot water, electricity, light and power to the Premises and Owner shall not be held liable for: (i) any failure of water supply, electric current or any services by any utility; (ii) injury to person (including death) or damage to property resulting from steam, gas, electricity, water, rain or snow which may flow or leak from any part of the Premises or from any pipes, appliances, plumbing works from the street or subsurface or from any other place; (iii) temporary interference with lights or other easements; and (iv) maintenance or repair work conducted by or for Owner. Interruption or curtailment of any utility services shall not constitute constructive eviction or partial eviction, nor entitle Tenant to any compensation or abatement of Rent.
 
(c)   Tenant shall, at Tenant's sole cost and expense, maintain in good working order all meters relating to any services and/or utilities provided to the Premises. Owner and Tenant acknowledge that, as of the Commencement Date, the meter that measuring water supplied to the Premises also measures the water supplied to other premises in the Building. Accordingly, Tenant shall pay Owner Tenant's Proportionate Share of all water charges reflected on such meter within ten (10) days after Owner shall have delivered a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. Owner reserves the right, at its cost and expense, install a separate meter to measure only the water used and consumed at the Premises, in which event, Tenant shall be responsible for and shall pay, as and when due, any and all water charges for water supplied to or used in connection with the Premises by direct appliance to the utility company providing such services.
 
(d)   Tenant shall, at its sole cost and expense, keep the Premises neat, clean and in a sanitary condition and shall remove all refuse from the Premises on a daily basis and deposit same in a sealed exterior container to be maintained by Tenant, in good order and condition, and which shall be located in an area on the Property designated by Owner. Tenant shall engage the services of a reputable carting company approved by Owner to empty Tenant's exterior container and remove all refuse therefrom on a regular basis, but no less than once a week.
 
(e)   Owner reserves the right to stop, interrupt and/or suspend utility services when necessary by reason of accident or for repairs, alterations, replacements or improvements necessary or desirable in the judgment of Owner for as long as may be reasonably required by reason thereof. The repairs, alterations, replacements or improvements shall be done with a minimum of inconvenience to Tenant and upon reasonable notice to Tenant (except that no notice shall be required in the event of an emergency) and Owner shall pursue same with due diligence.
 
9.  Maintenance of the Premises.
 
(a)   Tenant shall, at its sole cost and expense, take good care of, maintain and make all repairs, in and to the Premises, and the fixtures and equipment therein and appurtenances thereto, including without limitation, all doors and entrances, signs, floor covering, walls, columns, partitions, lighting fixtures, HVAC System and other heating and air-conditioning equipment, hot water systems, plumbing and sewerage facilities, sprinkler systems and sprinkler heads, if any, located within or serving the Premises. Tenant shall also maintain a service contract for the HVAC System reasonably acceptable to Owner. Tenant shall also, at its own cost and expense, keep the sidewalks and parking areas in front of the Premises free from snow, ice and other obstructions or encumbrances. If Tenant refuses or neglects to clean maintain or make repairs or otherwise fails to perform any of Tenant's repairs or maintenance obligations hereunder, Owner shall have the right, but shall not be obligated, to perform such maintenance, make such repairs or perform same on behalf of and for the account of Tenant. All sums so paid by Owner in connection with the payment or performance by it or any of the obligations of Tenant hereunder and all actual and reasonable costs, expenses and disbursements paid in connection therewith or enforcing or endeavoring to enforce any right under or in connection with this Lease, or pursuant to law, together with interest thereon at the maximum legal rate from the respective dates of the making of such payment, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Owner upon demand by Owner. For purposes hereof, "repairs" shall mean all repairs, replacements, renewals, alterations, additions and betterments. All contracts between Tenant and others for installations, maintenance, and repairs and alterations involving the Premises, including maintenance agreements, shall be subject to the prior written approval of Owner, which approval shall not be unreasonably withheld or delayed.
 
 
 
 
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(b)   Owner shall maintain and make necessary repairs to the Building and the Property (to the extent such maintenance and repairs are not the responsibility of a tenant) and keep the same, in good condition, order and repair, reasonable wear and tear, fire and other casualty, and damage by Tenant excluded. There shall be no abatement of Rent and no liability of Owner to Tenant by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Premises, the Building or the Property, the appurtenances thereto or the fixtures and equipment therein. Owner shall not be responsible for maintenance, repair or replacement of trade fixtures or floor or wall coverings or Tenant's personal property within the Premises. In fulfilling its responsibilities under this Section 9(b), Owner shall use commercially reasonable efforts to minimize any interference with Tenant's use and enjoyment of the Premises and shall repair any material damage to the Premises caused by Owner in performing such responsibilities.
 
10.  Alterations.
 
(a)   Tenant shall not execute or perform any alterations, additions or improvements to the Premises (each an "Alteration"), without the prior written consent of Owner, in each instance. Before commencing any Alteration, Tenant shall furnish Owner for Owner's review and approval: (i) all plans and specifications for the Alteration; (ii) the names and addresses of all proposed contractors, subcontractors and material men providing goods or services in connection with such Alteration; (iii) copies of all contracts and certificates of insurance (in form and amount reasonably satisfactory to Owner) from all contractors and subcontractors performing labor or providing materials in connection with such Alteration. Tenant shall not execute any contract for any Alteration or commence any Alteration without Owner's prior written approval of the plans, and each such contractor and subject to Owner's right at any time to deny access to any contractor that does not work harmoniously with other contractors or laborers engaged in the construction, maintenance or operation of the Property and the Building. All Alterations shall, upon installation become the property of Owner and be surrendered on the Expiration Date or sooner termination of the Term hereof.
 
(b)   All Alternations shall be performed: (i) at Tenant's sole cost and expense; (ii) in a good and workmanlike manner; (iii) in full compliance with all building, zoning and other Legal Requirements; (iv) only after Tenant shall have obtained and delivered to Owner all permits and approvals as may be required under applicable Legal Requirements; and (v) in compliance with Owner's reasonable insurance requirements.
 
(c)   Promptly following completion of any Alteration, Tenant shall furnish Owner with: (i) full and final waivers of lien and receipted bills covering all labor and materials expended and used in connection with the Alteration; (ii) "as-built" drawings showing in detail the full extent and nature of the Alteration; (iii) a certificate of completion issued by the architect who supervised the Alteration which shall state that all work has been completed in accordance with the approved plans and specifications; and (iv) a certificate of occupancy or an equivalent permit or certificate which may be required by applicable Legal Requirements.
 
(d)   Owner, in its sole discretion and expense, reserves the right to supervise any Alteration and/or engage an independent architect or engineer to supervise such Alteration and/or to review Tenant's plans or specifications therefore. All Alterations shall become the property of Owner except as otherwise agreed in writing by Owner and Tenant. Owner may, at its option, require Tenant to remove any Alteration at the end of the Term, provided Owner notifies Tenant of such requirement at the time Owner consents to such Alteration. In such event, Tenant will restore the Premises to the condition they were in prior to such Alteration.
 
1 1 .  Signs.
 
Tenant shall not place or suffer to be placed or maintain any sign, awning, canopy, decoration, lettering or advertising matter of any kind (collectively, a - Sign") upon or outside the Property, the Building or the Premises, without first obtaining Owner's written consent in each instance. In the event that Owner gives its consent hereunder, all Signs shall be installed where designated by Owner and maintained in good condition, repair and appearance at all times, according to Owner's standards and all Legal Requirements. If Owner shall deem it necessary to remove any Sign in order to paint or to make any repairs, alterations or improvements in or upon the Property, the Building or the Premises or any part thereof, Owner shall have the right to do so, provided the same be removed and replaced at Owner's cost and expense unless such repair, alteration or improvement was occasioned by the acts or omissions of Tenant. Owner shall have the right, with or without notice to Tenant, to remove any Signs installed by Tenant in violation of this Section and to charge Tenant the cost of such removal without liability to Tenant for such removal. Owner shall, at its cost and expense, include Tenant's name on the exterior Building directory located on the Property.
 
12.  Insurance.
 
(a)At all times during the Term, Tenant shall, at its own cost and expense, provide and keep in full force and effect the following insurance coverage:
 
(i)   property insurance for all of Tenant's equipment and personality located at the Premises, insuring same against loss or damage due to all risks of direct physical loss or damage; and
 
(ii)   comprehensive general liability insurance (occurrence form) for all accidents or occurrences involving bodily injury (including death) and/or property damage with a combined single limit of not less than $1,000,000.00/$2,000,000.00 and naming Owner as an "additional insured"; and
 
(iii)   Worker's compensation insurance as required by the laws of the State of New York.
 
(b)All such insurance is to be written in form and substance reasonably satisfactory to Owner by an insurance company, licensed to do business in the State of New York, which shall be rated by Best's Insurance Rating Service with at least a rating equal to A. Tenant shall procure, maintain and place such insurance and pay all premiums and charges therefore. If Tenant has other locations that it owns or leases, said policy shall include an aggregate per location endorsement. Tenant shall cause to be included in all such insurance policies a provision to the effect that the same will not be canceled or modified except upon not less than thirty (30) days prior written notice to the Owner. Each of Tenant's fire (casualty) insurance policies shall contain an agreement by the insurer that the act or omission of one insured will not invalidate the policy as to any other insured. Prior to taking possession of the Premises, Tenant shall deliver to Owner the original insurance policies or appropriate certificates and paid receipts therefore, (together with a photocopy of the policy, if Owner shall so request). Any renewals or endorsements thereto shall also be deposited with Owner, not less than thirty (30) days prior to the expiration date of the policy being renewed, replaced or endorsed, to the end that said insurance shall be in full force and effect at all times during the Term.
 
(c)Tenant agrees to cause each of its insurance policies (insuring the Premises and Owner's property therein, against loss occasioned by fire or other casualty) to include a waiver of the insurer's right of subrogation against the Owner and Owner shall be named as an "additional insured" on all general liability policies.
 
13.  Indemnification.
 
(a)To the fullest extent permitted by law, Tenant shall and does hereby indemnify and hold Owner and its agents, members, officers, directors, and employees, harmless from and against any and all loss, liability, fines, suits, claims, obligations, damages, penalties, demands and actions, and costs and reasonable expenses of any kind or nature (including reasonable attorneys' fees) due to or arising out of any of the following, which obligations of Tenant shall survive the expiration or termination of this Lease:
 
(i)   any work or thing done in, on or about the Premises, the Building or the Property or any part thereof or any use, possession, occupation, condition, operation, maintenance, repair or management of the Premises, the Building or the Property or any part thereof, by Tenant or anyone claiming through or under Tenant or the respective employees, agents, licensees, contractors, servants or subtenants of Tenant or any such person; and/or
 
 
 
 
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(ii)   any act or omission on the part of Tenant or any person claiming through or under Tenant, or the respective employees, agents, licensees, invitees, contractors, servants or subtenants of Tenant or any such person; and/or
 
(iii)   any accident or injury to any person (including death) or damage to property (including loss of property) occurring in, on, or about the Premises, Building or the Property or any part thereof.
 
(b)Owner and Owner's agents, officers, directors, and employees shall not be liable for any of the following, however caused (i) failure of any utility service; (ii) damage to Tenant's property on the Premises caused by or resulting from any cause whatsoever, including, without limitation, explosion, falling plaster, vermin, smoke, gasoline, oil, Hazardous Materials, steam, gas. electricity, earthquake, hurricane, tornado, flood, wind or similar storms or disturbances, water, rain, ice or snow which may be upon, or leak or flow from, any street, road, parking lot, sewer, gas main or subsurface area, or from any part of the Property, or from any other place; (iii) interference with light or other incorporeal hereditaments; or (iv) loss by theft or otherwise of Tenant's property or the property of any person claiming through or under Tenant. Any employees of Owner to whom any property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agents with respect to such property and neither Owner nor Owner's agents shall be liable for any loss or for damage to any such property by theft or otherwise.
 
14.  Rights of Owner.
 
(a)Owner shall have all of the following rights, which shall be in addition to and not in limitation of all other rights of Owner, and which shall be subject to exercise without notice except as specifically provided, and which shall not be deemed to constitute an eviction or disturbance of Tenant's use or possession of the Premises or to give rise to any claim for set-off or reduction or abatement of Rent or other charges:
 
(i)to install, affix and maintain signs on the exterior and interior of the Property and/or the Building; and/or
 
(ii)   to temporarily close the Building or the Property and deny access thereto to all persons, including Tenant and its employees; and/or
 
(iii)   to take any and all reasonable measures, including inspections and repairs, as may be necessary or desirable in the operation and protection of the Property, the Building and the Premises, provided, however, Owner shall take reasonable measures to minimize interference with the conduct of Tenant's business in the Premises; and/or
 
(iv)   to install and maintain pipes, ducts, conduits, wires and structural elements located in the Premises that serve other parts or other tenants or occupants of the Building and/or other areas on the Property, provided, however, Owner shall take reasonable measures to minimize interferences with the conduct of Tenant's business in the Premises.
 
(b)Owner, its employees, contractors and agents, shall have the right to enter the Premises at all reasonable times on reasonable notice to Tenant (except in the event of an emergency when no notice shall be required) to examine the Premises, to make repairs, alterations, improvements or additions and to show the Premises to prospective tenants (within the last six months of the Term), purchasers and lenders. Owner shall be permitted to take all material into and upon the Premises that may be required by Owner without same constituting an eviction of Tenant in whole or in part. Owner shall at all times have and retain a key with which to unlock all of the doors, in, upon and about the Premises, excluding Tenant's safes, files and other secure areas and Owner shall have the right to use any and all means which Owner may deem proper to open said doors in an emergency in order to obtain entry to the Premises without liability to Tenant. Entry upon the Premises by Owner by any of said means or otherwise shall under not circumstances be construed or deemed to be a forcible or unlawful entry into the Premises or a detainer of or an eviction of Tenant from the Premises.
 
15. Assignments and Subletting.
 
(a)Tenant, for itself, its legal representatives, successors and assigns, covenants that it shall not assign, mortgage or encumber this Lease, nor underlet, or suffer or permit the Premises or any part thereof to be used or occupied by others, without the prior written consent of Owner in each instance, which consent shall not be unreasonably withheld, provided that prior to the effective date of such assignment or subletting, Tenant shall deposit with Owner an amount equal to Zero (0) months Fixed Rent as security subject to Section 25, below, and the Security Deposit shall be deemed increased by such amount; and (iii) as of the effective date of such assignment or subletting, and continuing throughout the balance of the Term, the Fixed Rent shall be increased by Two Percent (2%). If this Lease be assigned, or if the Premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the Rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the covenants herein contained on the part of Tenant to be performed. The consent by Owner to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. In no event shall any permitted subtenant assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Owner's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. Notwithstanding anything contained herein to the contrary, a transfer (including any issuance of stock, partnership or other equity interests) of an aggregate of fifty (50%) percent or more of the equity interests in Tenant by any party or parties in interest (whether in a single or a series of transactions) shall be deemed an assignment of this Lease requiring the consent of Owner.
 
(b)   If Tenant requests Owner's consent to a specific assignment or subletting, it shall submit in writing to Owner: (i) the name and address of the proposed assignee or subtenant: (ii) a duly executed counterpart of a letter of intent setting forth the material terms of the proposed agreement of assignment or sublease; (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or subtenant, and as to the nature of its proposed use of the space; and (iv) banking, financial or other credit information relating to the proposed assignee or subtenant reasonably sufficient to enable Owner to determine the financial responsibility and character of the proposed assignee or subtenant.
 
 
 
 
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(c)   Tenant understands and agrees that no assignment or subletting shall be effective unless and until Tenant, upon receiving any necessary Owner's written consent (and unless it was theretofore delivered to Owner) causes a duly executed copy of the sublease or assignment to be delivered to Owner within ten (10) days after execution thereof. Any such sublease shall provide that the subtenant shall comply with all applicable terms and conditions of this Lease to be performed by the Tenant hereunder. Any such assignment of lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant.
 
(d)   Anything herein contained to the contrary notwithstanding: (i) Tenant shall not advertise (but may list with brokers) its space for assignment or subletting at a rental rate lower than the greater of the then Building rental rate for such space or the rental rate payable under this Lease; and (ii) no assignment or subletting shall be made to any person or entity which shall at that time be a tenant, subtenant or other occupant of any part of the Building, or who dealt with Owner or Owner's agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately preceding Tenant's request for Owner's consent.
 
16. Subordination.
 
(a)This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to: (i) all present and future ground leases, overriding leases and underlying leases and/or grants of term of the Property, the Building and/or any appurtenance thereto (collectively, the "Superior Lease"); (ii) all mortgages and building loan agreements, including leasehold mortgages, deeds of trust, and building loan agreements, which may now or hereafter affect the Property, the Building and/or any appurtenance thereto (collectively, the "Mortgage"), whether or not the Mortgage shall also cover other land and/or buildings; and (iii) each and every advance made or hereafter to be made under the Mortgage and to all renewals, modifications, replacements, substitutions and extensions of any Superior Lease and the Mortgage and spreaders and consolidations of the Mortgage. The provisions of this Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument in recordable form to evidence such subordination. If, in connection with the obtaining, continuing or renewing of financing, a bank, insurance company or other lender shall request reasonable modifications of this Lease as a condition of such financing, Tenant will not unreasonably withhold or delay its consent thereto, provided that such modifications do not increase the monetary obligations of Tenant under this Lease or materially increase the other obligations of Tenant hereunder or materially and adversely affect the rights of Tenant under this Lease.
 
(b)If at any time prior to the expiration of the Term, the holder of the Mortgage shall become the owner of the Premises as a result of foreclosure of its Mortgage or by reason of an assignment of the tenant's interest under the Superior Lease or by conveyance of the Premises, Tenant agrees, at the election and upon demand of any owner of the Premises, or of the holder of any Mortgage or Superior Lease (including a leasehold mortgage) in possession of the Premises, to attorn, from time to time, to any such owner, or tenant, upon the then executory terms and conditions of this Lease. No such owner, holder or tenant shall be liable for any previous acts or omission of Owner under this Lease (except that this provision shall not be construed to relieve such person from any obligation thereafter to be performed), nor shall such owner, holder or tenant be subject to any offset which shall have theretofore accrued to Tenant against Owner, or be bound by any previous modification of this Lease, not expressly provided for in this Lease, entered into after the date of the Mortgage, or Superior Lease, or by any previous prepayment of more than one month's Fixed Rent. The foregoing provisions of this Section shall enure to the benefit of any such owner, holder or tenant, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the termination of the Superior Lease, or the foreclosure (including judgment of foreclosure and sale) of the Mortgage, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Tenant, however, upon demand of any such owner, holder or tenant, agrees to execute, from time to time, instruments in confirmation of the foregoing provisions of this Section, acknowledging such attornment and setting forth the terms and conditions of its tenancy. Nothing contained in this Section shall be construed to impair any right otherwise exercisable by any such owner, holder or tenant.
 
17.               Quiet Enjoyment.
 
If and so long as no Event of Default (defined below) shall have occurred and be continuing, Owner covenants and agrees that Tenant may peaceably and quietly enjoy the Premises and Tenant's possession of the Premises will not be disturbed by Owner, its successors and assigns, subject, however, to the terms of this Lease, the Mortgage, the Superior Lease and any and/or all other agreements and any amendments thereto, to which this Lease is subordinated.
 
18.               Liens.
 
Tenant has no authority to incur any debt or make any charge against Owner or create any lien upon this Lease, the Property, the Building or the Premises for work or materials furnished to or at the request of Tenant. In the event a mechanic's, materialmen's or other lien is
filed against same, Tenant shall pay, when due, all sums of money that may become due for any such labor, materials or equipment and shall cause such lien to be fully discharged and released or bonded in accordance with the Lien Law of the State of New York promptly after notice thereof. Tenant shall also notify Owner in writing immediately upon learning of the existence of such lien. If Tenant has not obtained the discharge of any such lien within thirty (30) days after the filing thereof, Owner may pay the amount of such lien or otherwise discharge or bond such lien and the amount so paid shall be deemed Additional Rent reserved under this Lease and shall be payable by Tenant to Owner on demand.
 
19.               Compliance with Laws, Rules and Regulations.
 
Throughout the Term, Tenant shall, at its sole cost and expense, comply with any law, ordinance and regulation, Federal, state, county or municipal, including without limitation, all Legal Requirements, now or hereafter enforced or applicable to the Premises, Tenant's use or manner of use of the Premises and any improvements thereon. Tenant shall comply with any and all rules and regulations issued by the Board of Fire Underwriters or by any other body hereinafter constituted, exercising similar functions, and by insurance companies writing policies which insure the improvements located on the Premises. Tenant shall pay all costs, expenses, claims, fines, penalties and damages that may be imposed because of the failure of the Tenant to comply with this Section and shall indemnify and hold harmless Owner from and against any and all liability arising from each non-compliance. Tenant shall promptly notify Owner of any violation. Tenant shall not contest the application or validity of any such requirements without the prior written consent of Owner in each such instance. Any repair or change required under this Section shall be deemed a repair for the purposes of Section 10, above.
 
20.               Fire or Casualty Loss.
 
(a)   If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Owner and this Lease shall continue in full force and effect except as provided in this Section.
 
 
 
 
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(b)   If the Building shall be damaged by fire or other casualty and if such damage renders the Premises untenantable, in whole or in part, or if the Premises is not rendered untenantable but the Building is substantially damaged, Owner shall have the right to cancel and terminate this Lease as of the date of such damage. Owner shall notify Tenant in writing within ninety (90) days after such damage of its election to either terminate this Lease or to rebuild the Premises. If this Lease shall not be terminated by Owner due to such damage, Owner agrees to repair and restore the Premises (but not Tenant's improvements, furniture, fixtures, equipment or personalty located at or attached to the Premises) and, at such time as Owner repairs and restores the Premises, Tenant shall repair and restore all improvements, furniture, fixtures, equipment or personalty of Tenant's that existed prior to such damage. Notwithstanding anything contained herein to the contrary, Owner shall have no duty to repair or restore the Premises or the Building. In the event Owner shall not rebuild the Premises within twelve (12) months after notice of its election to so rebuild, Tenant shall have the right to terminate this Lease on thirty (30) day prior written notice to Owner and if Owner shall fail to rebuild the Premises within said thirty (30) day period this Lease shall terminate at the end of said thirty (30) day period.
 
(c)   In the event only an insubstantial portion of the Building (other than the Premises) is so damaged by fire or other casualty, Owner shall repair such damage at its cost and expense, subject, however, to the a sufficient amount of insurance proceeds being paid to Owner on account of such damage.
 
(d)   In the event of termination of this Lease pursuant to this Section, the Rent shall be apportioned on a per diem basis and paid to the date of the fire or other casualty. In the event that the Premises are damaged by fire or other casualty and made wholly or partially untenantable and if this Lease is not canceled as provided in this Section, then, except in case of damage caused Tenant, the Rent shall abate in the amount bearing the same ratio to total Rent as the rentable area of the portion of the Premises remaining untenantable bears to the total rentable area of the Premises.
 
(e)   This Section shall be considered an express agreement to the contrary pursuant to New York Real Property Law Section 227 governing any case of damage to or destruction of the Premises or any part thereof by fire or other casualty.
 
2l .  Eminent Domain.
 
If the Building or any portion thereof (including the Premises) shall be appropriated under the power of the eminent domain or conveyance in lieu thereof, Owner shall have the right to terminate this Lease as of the effective date of the appropriation and the Rent shall be apportioned to that date. If the Premises or any portion thereof shall be appropriated under the power of the eminent domain or conveyance in lieu thereof, Tenant shall have the right to terminate this Lease as of the effective date of the appropriation and the Rent shall be apportioned to that date. All compensation awarded upon any appropriation of the Building (including the Premises) or any part thereof shall belong solely and exclusively to Owner without any participation therein by Tenant, provided, however, nothing herein shall prohibit Tenant from prosecuting a separate claim directly against the appropriating authority for loss of business, moving expenses, damage to or cost of removing its furnishings, movable trade fixtures and other personal property belonging to Tenant so long as such claim shall not diminish or otherwise adversely affect Owner's compensation.
 
22.               Broker.
 
Tenant represents that in connection with this Lease it dealt with no broker other than the Landlord (collectively, the "Broker"), nor has Tenant had any correspondence or other communication in connection with this Lease with any other person who is a broker, and that so far as Tenant is aware the Broker is the only broker who negotiated this Lease. Tenant hereby indemnifies Owner and agrees to hold Owner harmless from any and all loss, cost, liability, claim, damage, or expense (including court costs and attorneys' fees) arising out of any inaccuracy of the above representation. Owner agrees to pay the Broker all commissions due for its services pursuant to a separate written agreement.
 
23.               Holding Over.
 
(a)On the last day of the Term or on the earlier termination of the Term, Tenant shall peaceably and quietly leave, surrender and deliver the Premises to Owner, together
with: (i) all Alterations; and (ii) except for Tenant's property (which Tenant may remove at its own cost and expense), all fixtures and articles of personal property of any kind or nature which Tenant may have installed or affixed on, in, or to the Premises for use in connection with the operation and maintenance of the Premises (unless Owner shall have notified Tenant that it was to remove same at the time it consented to the installation thereof pursuant to Section 10, above), all of the foregoing to be surrendered in good, substantial and sufficient repair, order and condition, reasonable use, wear and tear, and damage by fire or other casualty, excepted, and free of occupants and subtenants.
 
(b)   Tenant shall pay or cause to be paid the cost of repairing or remedying any damage caused by the removal of its property, provided that no item of Tenant's property may be removed if its removal would impair the structural integrity of the Building or Building's equipment. All property not so removed shall be deemed abandoned and may either be retained by Owner as its property or disposed of, without accountability, at Tenant's sole cost, expense and risk, in such manner as Owner may see fit.
 
(c)   If the Premises are not surrendered in accordance with the provisions of this Section upon the expiration or termination of this Lease, Owner shall have all rights given at law or in equity, in the case of holdovers, to remove Tenant and anyone claiming through or under Tenant. In any event, Tenant shall and does hereby indemnify Owner against all loss or liability arising from delay by Tenant in so surrendering the Premises, including any claims made by any succeeding tenants founded on such delay. Tenant expressly waives, for itself and for any person claiming through or under Tenant (including creditors), any rights which Tenant or any such person may have under the provisions of any law in connection with any holdover summary proceedings which Owner may institute to enforce the provisions of this Section. Tenant's obligations under this Section shall survive the expiration or termination of this Lease.
 
(d)   Tenant acknowledges the importance to Owner that possession of the Premises be surrendered at the expiration or sooner termination of this Lease. In the event that Tenant fails to vacate the Premises at the expiration or sooner termination of this Lease, Tenant shall be obligated to pay Owner damages in an amount equal to twice the annual Fixed Rent and Additional Rent provided for on the day preceding the Expiration Date for such period of time that Tenant holds over on a per diem basis.
 
24.  Default and Termination.
 
 
(a)Any of the following events shall be deemed an "Event of Default" under this Lease:
 
 
 
 
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(i)   if Tenant fails to make any payment of Rent when due, and such failure continues for five (5) days after written notice from Owner to Tenant; and/or
 
(ii)   if Tenant fails to perform any other term, covenant or condition of this Lease on its part to be performed (other than the covenant for the payment of Rent) and Tenant fails to cure such failure within twenty (20) days after written notice thereof has been sent by Owner to Tenant, unless same is not capable of being cured within said twenty (20) day period, then such longer time as is required to cure same provided Tenant commences curing same within said twenty (20) day period and diligently prosecutes curing until completion and provided further said failure is cured within ninety (90) days; and/or
 
(iii)   if Tenant shall file a voluntary petition seeking an order or relief under Title 11 of the United States Code or similar law of any jurisdiction applicable to Tenant, or Tenant shall be adjudicated a debtor, bankrupt or insolvent, or shall file any petition or answer seeking, consenting to or acquiescing in any order for relief, reorganization, arrangement, composition, adjustment, winding-up, liquidation, dissolution or similar relief with respect to Tenant or its debts under the present or any future bankruptcy act or any other present or future applicable Federal, state or other statute or law, or shall file an answer admitting or failing to deny the material allegations of a petition against it for any such relief or shall generally not, or shall admit in writing its insolvency or its inability to pay its debts as they become due, or shall make a general assignment for the benefit of creditors or shall seek or consent or acquiesce in the appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian or liquidator or similar official of Tenant or of all or any part of Tenant's property or if Tenant shall take any action in furtherance of or authorizing any of the foregoing; and/or
 
(iv)   if any case, proceeding or other action shall be commenced or instituted against Tenant, seeking to adjudicate Tenant a bankrupt or insolvent, or seeking an order for relief against Tenant as debtor, or reorganization, arrangement, composition, adjustment, winding-up, liquidation, dissolution or similar relief with respect to Tenant or its debts under the present or any future bankruptcy act or any other present or future applicable Federal, state or other statute or law, or seeking appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian or liquidator or similar official of Tenant or of all or part of Tenant's property, which either (A) results in the entry of an order for relief, adjudication of bankruptcy or insolvency or such an appointment or the issuance or entry of any other order having similar effect or (B) remains undismissed for a period of sixty (60) days; or if any case, proceeding or other action shall be commenced or instituted against Tenant seeking issuance of a warrant of execution, attachment restraint or similar process against Tenant or any of Tenant's property which results in the taking or occupancy of the Premises or an attempt to take or occupy the Premises which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days after the entry thereof; and/or
 
(v)   If Tenant vacates the Premises and permits them to remain vacant for a period of ninety (90) days and such default is not corrected or cured within thirty (30) days after written notice thereof has been sent by Owner to Tenant.
 
(b)   Upon the occurrence of any one or more Events of Default, Owner may serve a written three (3) day notice of cancellation of this Lease upon Tenant, and upon the expiration of said three (3) day period, this Lease and the term hereunder shall end and expire as fully and completely as if the expiration of said three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the Term and Tenant shall then quit and surrender the Premises to Owner, but Tenant shall remain liable as hereinafter provided.
 
(c)   If the notice provided for under Section 24(b), above, shall be given, and the Term shall expire as aforesaid, then and in any such event, Owner may, without notice, re­enter the Premises either by force or otherwise and dispossess Tenant by summary proceeding or otherwise, and may remove all persons, fixtures and chattels therefrom and Owner shall not be liable for any damages resulting therefrom and Tenant hereby waives the service of notice of intention to re-enter or commence legal proceeding to that end. Such re-entry and repossession shall not work a forfeiture of the Rent to be paid and the covenants to be performed by Tenant during the full Term of this Lease. Upon such repossession of the Premises, Owner shall be entitled to recover, as liquidated damages and not as a penalty, a sum of money equal to the present value of the Rent provided herein to be paid by Tenant to Owner for the remainder of the Term, less the present value of the fair rental value of the Premises for said period, such present value to be computed in each case on the basis of a five (5%) percent per annum discount. Upon the happening of any one or more of the Events of Default, Owner may repossess the Premises by detainer suit or other lawful means, without demand or notice of any kind to Tenant (except as hereinabove expressly provided for) and without terminating this Lease, in which event Owner may relet all or any part of the Premises for such rent and upon such terms as shall be satisfactory to Owner (including the right to relet the Premises for a term greater or lesser than that remaining under the Term, and the right to relet the Premises as part of a larger area, and the right to change the character or use made of the Premises). For the purpose of such reletting, Owner may decorate or make any repairs, changes, alterations or additions in or to the Premises that may be necessary or convenient. If Owner does not relet the Premises, Tenant shall pay to Owner on demand, as liquidated damages and not as a penalty, a sum equal to the amount of Rent herein to be paid by Tenant for the remainder of the Term. If the Premises are relet and a sufficient sum shall not be realized from such reletting after paying all of the expenses of such decorations, repairs, changes, alterations, or additions the expenses of therefrom (including but not by way of limitation, reasonable attorney's fees and brokers' commissions), to pay the remainder of the Rent to be paid by Tenant over the Lease term, Tenant shall pay to Owner on demand any deficiency. Owner shall in not way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting. Owner shall not in any event be required to pay Tenant (but shall credit Tenant, to the extent set forth herein with) any sums received by Owner on a reletting of the Premises, or any part thereof, whether or not in excess of the Rent reserved in this Lease.
 
(d)   Notwithstanding any contrary provision contained herein, if there shall be an Event of Default at any time or from time to time, Owner may, in lieu of giving a notice under Section 24(b), above, at any time after the occurrence of any such Event of Default and during the continuance thereof, institute an action for the recovery of the Fixed Rent and/or Additional Rent in respect of which an Event of Default shall have occurred and be continuing. Neither the commencement of any such action for the recovery of Fixed Rent and/or Additional Rent nor the prosecution thereof shall be deemed a waiver of Owner's right to give a notice under Section 24(b), above, in respect of any such Event of Default.
 
 
 
 
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(e)   Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Owner from time to time at its election, and nothing contained herein shall be deemed to require Owner to postpone suit until the date when the Term would have expired or limit or preclude recovery by Owner against Tenant of any sums or damages which, in addition to the damages particularly provided above, Owner may lawfully be entitled by reason of any default hereunder on the part of Tenant. All remedies hereinbefore given to Owner and all rights and remedies given to it at law and in equity shall be cumulative and concurrent.
 
  25. Security Deposit.
 
(a)   Upon the execution hereof, Tenant shall deposit with Owner the sum of Zero Dollars (the "Security Deposit") as security for the full and faithful performance by Tenant of all the terms, covenants and conditions of this Lease upon Tenant's part to be performed, which Security Deposit shall be promptly returned to Tenant after the expiration hereof provided Tenant has fully and faithfully carried out all of the terms, covenants and conditions on its part to be performed under this Lease. If Owner applies all or any part of the Security Deposit to cure any default of Tenant, or as the Fixed Rent escalates pursuant to Sections 3, above, Tenant shall, upon demand, deposit with Owner the amount necessary so that Owner shall have on hand at all times during the term of this Lease as the Security Deposit an amount equal to Zero (0) month's Fixed Rent.
 
(b)   In the event of a sale of the Property, or Owner's interest therein, or of a leasing of the Property, Owner shall have the right to transfer the Security Deposit hereunder to the vendee or tenant and, upon such transfer, Owner shall thereupon be released by Tenant from all liability for the return of such Security Deposit.
 
(c)   Tenant covenants that it will not assign or encumber, or attempt to assign or encumber the Security Deposit and that neither Owner nor its successors and/or assigns shall be bound by any such assignment, or attempted encumbrance.
 
  26. Estoppel Certificates.
 
Tenant shall, at any time and from time to time, within ten (10) business days after receipt of notice from Owner, execute, acknowledge and deliver to Owner a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect as modified, and setting forth the modifications), the dates to which the Rent has been paid, and stating whether or not, to the best knowledge of Tenant, any party is in default in keeping, observing or performing any term, covenant, agreement, provision, condition or limitation contained in this Lease, and if in default, specifying each such default, it being intended that any such statement delivered pursuant to this section may be relied upon by Owner, or any prospective purchaser, assignee or mortgagee.
 
  27. Owner's Expenses.
 
Tenant shall pay, on demand, all cost and expenses, including reasonable attorneys' fees, incurred either directly or indirectly by Owner in enforcing any obligation or curing any default by Tenant under this Lease or otherwise participating in any action or proceeding arising from the filing, imposition, contesting, discharging or satisfaction of any lien or claim of lien, in defending or otherwise participating in any legal proceedings initiated by or on behalf of Tenant, or in connection with any investigation or review of any conditions or documents in the event Tenant requests Owner's approval or consent to any action of Tenant which may be desired by Tenant or required of Tenant hereunder. All such expenses shall be deemed to be Additional Rent and shall be payable on demand.
 
28.    Authorization.
 
Each party shall furnish to the other, within ten (10) business days after written request therefore, certified resolution authorizing the execution and delivery of this Lease and the performance by such party of its obligations hereunder, and evidencing that the person who executed this Lease was duly authorized to do so.
 
29.    General Provisions.
 
(a)             Captions. The captions or titles to the various sections of this Lease are for convenience and ease of reference only and do not define, limit, augment or describe the scope, content or intent of this Lease or of any parts thereof.
 
(b)              Successors and Assigns. Each and every covenant and condition of this Lease shall be binding upon and shall inure to the benefit of the heirs, successors, personal representatives and permitted assigns of the Owner and Tenant; but this section shall in no way validate an assignment of all or any part of this Lease which is invalid under other provisions hereof.
 
(c)              Severability. The invalidity or illegality of any provisions of this Lease shall not affect the remaining provisions thereof.
 
(d)           Number and Gender. When used in this Lease, the singular number includes the plural, and the plural the singular, unless the context otherwise requires; the neuter gender includes the feminine and masculine, and masculine includes the feminine and neuter, and the feminine includes the masculine and neuter, and each includes a corporation, partnership, or other legal entity when the context so requires; and the word "person" means an individual or individuals, a partnership or partnerships, a corporation or corporations, or any combination thereof; when the context so requires.
 
(e)           Notices. Any notice or demand provided for in this Lease shall be in writing and shall be deemed delivered either: (i) when delivered in person to the recipient thereof; or (ii) on the date shown on the return receipt after deposit, or the date recipient failed or refused to sign the return receipt; or (iii) two (2) days after deposit with a nationally recognized overnight carrier, and in the case of (ii) or (iii), above, postage prepaid, and addressed to the party to whom notice is hereby given at the address listed above or to such other address as may be supplied by such party in writing.
 
Situs. The Lease shall be construed and interpreted according to the laws of the State of New York.
 
(g)          Recording of Lease. This Lease shall not be recorded by Tenant.
 
(h)          Force Majeure. If circumstances beyond the control of Owner (such as acts of God, fires, strikes, power shortages, etc., - financial inability excepted) shall temporarily make it impossible for Owner to perform under this Lease, then the principles of force majeure will apply and the rights and obligations of the parties will be temporarily suspended during the force majeure period.
 
(i)         No Recourse. Notwithstanding anything to the contrary in this Lease, Tenant shall look solely to the interest of Owner in the Property for satisfaction of any remedy it may have hereunder or in connection herewith and shall not look to any other assets of Owner or of any other person, firm or corporation. There shall be absolutely no personal liability on the part of any present or future officer, director, trustee, employee, member or affiliate of such Owner with respect to any obligation hereunder or in connection herewith.
 
 
 
 
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(j)        Waiver of Counterclaim and Jury Trial. In the event that Owner shall commence any summary or other proceedings or action for non-payment of rent hereunder, Tenant shall not interpose any counterclaim of any nature or description in such proceeding or action, unless such non-interposition would effect a waiver of Tenant's right to assert such claim against Owner in a separate action or proceeding. The parties hereto waive a trial by jury on any and all issues arising in any action or proceeding between them or their successors under or in any way connected with this Lease or any of its provisions, any negotiations in connection therewith, the relationship of Owner and Tenant, or Tenant's use or occupation of the Premises, including any claim of injury or any emergency or other statutory remedy with respect thereto. The provisions of this Section shall survive the expiration or other termination of this Lease.
 
(k)        Waivers and Surrenders to Be in Writing. The receipt of full or partial Rent by Owner with knowledge of any breach of this Lease by Tenant or of any default on the part of the Tenant in the observance or performance of any of the provisions or covenants of this Lease shall not be deemed to be a waiver of any such provision, covenant or breach of this Lease provided, however, that acceptance of a payment of Rent shall be valid pro tanto. No waiver or modification by Owner, unless in writing, and signed by Owner, shall discharge or invalidate any provision or covenant or affect the right of Owner to enforce the same in the event of any subsequent breach or default. The failure on the part of Owner to insist in any one or more instances upon the strict performance of any of the provisions or covenants of this Lease, or to enforce any covenant or provision herein contained or to exercise any right, remedy or election herein contained consequent upon a breach of any provision of this Lease, shall not affect or alter this Lease or be construed as a waiver or relinquishment for the future of such one or more provisions or covenants or of the right to insist upon strict performance or to exercise such right, remedy or election, but the same shall continue and remain in full force and effect with respect to any existing or subsequent breach, act or omission, whether of a similar nature or otherwise. The receipt by Owner of any rent or any other sum of money or any other consideration hereunder paid by Tenant after the termination, in any manner, of the Term, or after the giving by Owner of the notice under Section 24(b), above, shall not reinstate, continue or extend the Term, or destroy, or in any manner impair the efficacy of any such notice, as may have been given hereunder by Owner to Tenant prior to the receipt of any such Rent, or other sum of money or other consideration, unless so agreed to in writing and signed by Owner. Neither acceptance of the keys or any other act or thing done by Owner or any agent or employee shall be deemed to be an acceptance of a surrender of the Premises, or any part thereof, excepting only an agreement in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check, as distinguished from any letter accompanying such check or payment, be deemed to effect or evidence an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance or pursue any other remedy in this Lease provided. The payment of Rent by Tenant shall not be deemed a waiver of any rights of Tenant.
 
(l)            Rights Cumulative. Each right and remedy of Owner shall be cumulative and to the extent permitted by law, the exercise or beginning of the exercise by Owner of any one or more of the rights or remedies of such party shall not preclude the simultaneous or later exercise by Owner of any or all other rights or remedies. In the event of any breach or threatened breach by Tenant or any persons claiming through or under Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, Owner shall be entitled to enjoin such breach or threatened breach (if entitled to do so at law or in equity or by statue or otherwise) and shall have the right to invoke any right or remedy allowed by law or in equity or by statute or otherwise as if re-entry, summary proceedings or other specific remedies were not provided for in this Lease.
 
(m)               Conveyance of the Property. The term "Owner" as used herein shall mean and include only the owner or owners at the time in question of the Owner's interest in this Lease so that in the event of any transfer or transfers (by operation of law or otherwise) of Owner's entire interest in this Lease, Owner herein named (and in the case of any subsequent transfers or conveyances, the then transferor) shall be and hereby is automatically freed and relieved, from and after the date of such transfer or conveyance, of all liability in respect of the performance of any covenants or obligations on the part of the Owner contained in this Lease thereafter to be performed. Tenant shall have recourse against the Property for the satisfaction of any remedy it may have against Owner under this Lease.
 
(n)               Entire Agreement. This Lease contains the entire agreement between the parties regarding the Premises and shall not be modified in any manner except by an instrument in writing executed by the parties or their respective successors in interest. No waiver or modification by either party or any provision or covenant of this Lease shall be deemed to have been made unless such waiver is expressed in writing and signed by the party against whom such waiver or modification is sought.
 
(o)               Guaranty from Tenant's Principals. The principal(s) of Tenant, on behalf of themselves and their heirs, executors and administrators, do hereby unconditionally guarantee to Owner the full and timely payment, performance and observance of, and compliance by Tenant of all of Tenant's obligations under Sections 3, 4 and 5 hereof (but only until that date which is one hundred twenty (120) days after Tenant has surrendered possession of the Premises to Owner in accordance with the terms hereof) and under Sections 7(e), 8(a), 8(d), 18 and 23(c) hereof. Owner, in its sole discretion, may proceed against any or all of the principals of Tenant for the full performance of Tenant's obligations to Owner under said Sections of the Lease, with or without Owner taking any action against Tenant and whether or not Owner has proceeded against Tenant.
 
 
 
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IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written.
 
 Owner: GREAT AMERICAN REALTY 0F  
  JEFRYN BOULEVARD, LLC  
     
     
     
     
     
       
 
By: 
/s/ Mark Siegel  
    Mark Siegel, member  
       
       
 
Tenant: SURGE COMPONENTS, INC  
       
 
By:
/s/ Ira Levy  
    Name: Ira Levy  
    Title: President  
       
 
Section 29(o) is hereby agreed to by the following principals of Tenant:
 
 
       
Name:
     
       
       
Home Address:      
       
       
Name:
     
       
       
  Home Address:      
 
 
 
 
13

 
 
EXHIBIT A
The Premises
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14

 
 
 
EXHIBIT B
Owner's Work
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15

 
 
EXHIBIT C
Rules and Regulations
 
1.   Nothing shall be hung from the outside of the windows or placed outside the window sills of any window in the Building and Tenant shall not affix any wires, aerials or attachments of any kind to the exterior walls or windows of the Building. Tenant shall not throw or allow any objects to fall from the windows.
 
2.   The entrance, halls and corridors of the Building shall not be obstructed or used under any circumstances as a waiting area, and no articles of any kind to will be allowed therein.
 
3.   Tenant and Tenant's employees shall not: (i) make disturbing noises, shall not use the Premises for cooking, lodging or sleeping purposes or any improper or unlawful purpose; (ii) keep no animals in the Premises or in the Building; (iii) commit any act in or upon the Premises which tends to create a nuisance or which Owner reasonably determines will disturb, interfere with or endanger the rights, comfort and convenience of other tenants or occupants or of the general public use the Building.
 
4.   Tenant shall be responsible for the proper closing and locking of all doors and windows of the Premises, and will be responsible for any damage resulting from its failure to so lock all such doors and windows.
 
5.   No utilities may be installed without the prior consent of the Owner, which consent shall not be unreasonably withheld or delayed.
 
6.   No garbage cans, supplies or any other articles shall be placed in the halls or on staircase landings or in any other common areas, nor shall dirt or other substances be swept into or placed in the corridors, stairs or other common areas.
 
7.   The water closets, basins and other plumbing fixtures shall not be used for any purpose other than those for which they were designed, nor shall any sweeping, rubbish, rags or other improper articles be thrown into the same. Any repairs required from the misuse of such facilities shall be paid for by Tenant.
 
8.   In the event that Tenant attaches or fastens any objects to the walls or other portions of the Building and removes such objects at the termination of the Lease, Tenant shall repair any damage caused by such removal and shall restore the Premises to their original condition.
 
9.   Tenant shall give the Owner notice of the number, weight, location and position of any and all heavy objects and safely distribute the weight thereof. Tenant shall give Owner Ten (10) day prior written notice of the delivery, removal and/or installation of bulky and heavy objects.
 
10.   Tenant shall provide Owner with the keys to all doors to the Premises or located therein. If Tenant shall change any of the locks or install any other locks or bolts on doors or windows of the Premises, Tenant shall immediately provide Owner with a key thereto.
 
1 I.The Building, including the all common areas, lobbies, entrance ways, corridors, restrooms, elevators and connectors, shall be designated as "non-smoking." Tenant and its employees, agents, licensees and invitees shall faithfully observe this smoking restriction.
 
 
16
Exhibit 10.22
 
 
 
LEASE AGREEMENT
 
AGREEMENT OF LEASE, dated as of October 1 st , 2010 (the "Lease"), between GREAT AMERICAN REALTY OF JEFRYN BOULEVARD, LLC, a New York limited liability company with offices at 2131 Newbridge Road, Bellmore, New York 11710 ("Owner") and CHALLENGE ELECTRONICS, INC., a New York company with offices at 95 Jefryn Boulevard, Unit 2, Deer Park, New York 11729 ("Tenant").
 
WHEREAS, Owner is owner of the land (the "Property") and the building commonly known as 95 Jefryn Boulevard, Deer Park, New York (the "Building"); and
 
WHEREAS, Owner desires to lease to Tenant, and Tenant desires to hire from Owner that portion of the Building more particularly described on the floor plan annexed hereto as Exhibit A and made a part hereof (the "Premises "); and
 
NOW, THEREFORE, in consideration of the foregoing and of the covenants, conditions and agreements hereinafter set forth, the parties agree as follows:
 
1.               Premises.
 
Subject to the terms, covenants and conditions hereof, Owner hereby leases and demises the Premises to Tenant and Tenant hereby hires and rents the Premises from Owner. The Premises are hereby demised subject to all present and future zoning ordinances, laws, regulations, requirements and orders, including building restrictions and regulations (collectively, "Legal Requirements"); Taxes (defined below); all covenants, easements and restrictions affecting the Property.
 
2.               Term.
 
(a)The Premises are demised and leased to Tenant for a term (the "Term") commencing on October 1 st , 2010 (the "Commencement Date") and expiring at noon on September 30 th , 2020, (the "Expiration Date"), unless the Term shall be sooner terminated pursuant to any of the terms, covenants, conditions or agreements of this Lease or pursuant to law.
 
3.               Fixed Rent.
 
(a)During the Term, Tenant shall pay Owner annual fixed rent ("Fixed Rent"), as follows:
 
(i)   From October 1 st , 2010 through and including September 30 th , 2011, Fixed Rent shall be Seventy-Seven Thousand Eight Hundred Ninety-Five Dollars and Forty-Eight Cents ($77,895.48); payable in equal monthly installments of Six Thousand Four Hundred Ninety-One Dollars and Twenty-Nine Cents ($6,491.29); and
 
(ii)   From October 1 st , 2011 through and including September 30 th , 2012, Fixed Rent shall be Seventy-Nine Thousand Four Hundred Fifty-Three Dollars and Forty-
Four Cents ($79,453.44), payable in equal monthly installments of Six Thousand Six Hundred Twenty-One Dollars and Twelve Cents ($6,621.12); and
 
 
 
 
 

 
 
(iii)   From October 1 st , 2012 through and including September 30 th , 2013, Fixed Rent shall be Eighty-One Thousand Forty-Two Dollars and Forty-Eight Cents ($81,042.48), payable in equal monthly installments of Six Thousand Seven Hundred Fifty-Three Dollars and Fifty-Four Cents ($6,753.54); and
 
(iv)   From October 1 st , 2013 through and including September 30 th , 2014, Fixed Rent shall be Eighty-Two Thousand Six Hundred Sixty-Three Dollars and Thirty-Two Cents ($82,663.32), payable in equal monthly installments of Six Thousand Eight Hundred Eighty-Eight Dollars and Sixty-One Cents ($6,888.61); and
 
(v)   From October 1 st , 2014 through and including September 30 th , 2015, Fixed Rent shall be Eighty-Four Thousand Three Hundred Sixteen Dollars and Fifty-Six Cents ($84,316.56), payable in equal monthly installments of Seven Thousand Twenty-Six Dollars and Thirty-Eight Cents ($7,026.38); and
 
(vi)   From October 1 st , 2015 through and including September 30 th , 2016, Fixed Rent shall be Eighty-Six Thousand Two Dollars and Ninety-Two Cents ($86,002.92), payable in equal monthly installments of Seven Thousand One Hundred Sixty-Six Dollars and Ninety-One Cents ($7,166.91); and
 
(vii)   From October 1 st , 2016 through and including September 30 th , 2017, Fixed Rent shall be Eighty-Seven Thousand Seven Hundred Twenty-Three Dollars and Zero Cents ($87,723.00), payable in equal monthly installments of Seven Thousand Three Hundred Ten Dollars and Twenty-Five Cents ($7,310.25); and
 
(viii)   From October 1 st , 2017 through and including September 30 th , 2018, Fixed Rent shall be Eighty-Nine Thousand Four Hundred Seventy-Seven Dollars and Forty Cents ($89,477.40), payable in equal monthly installments of Seven Thousand Four Hundred Fifty-Six Dollars and Forty-Five Cents ($7,456.45); and
 
(ix)   From October 1 5t , 2018 through and including September 30 th , 2019, Fixed Rent shall be Ninety-One Thousand Two Hundred Sixty-Six Dollars and Ninety-Six Cents ($91.266.96), payable in equal monthly installments of Seven Thousand Six Hundred Five Dollars and Fifty-Eight Cents ($7,605.58); and
 
(x)   From October 1 st , 2019 through and including September 30 th , 2020, Fixed Rent shall be Ninety-Three Thousand Ninety-Two Dollars and Twenty-Eight Cents ($93,092.28), payable in equal monthly installments of Seven Thousand Seven Hundred Fifty-Seven Dollars and Sixty-Nine Cents ($7,757.69).
 
(b)Fixed Rent is payable, in advance, in equal monthly installments without demand or offset, on the first day of each calendar month throughout the Term and shall be payable at the Owner's address set forth above or to such other address or payee as Owner may designate in writing to Tenant from time to time, provided however, that if Fixed Rent shall be payable for any period prior to the first day of the first full month during the Term, then such Fixed Rent for such month shall be paid in a proportionate amount for the number of days in such period and paid as and when the first equal monthly installment is payable as aforesaid. Notwithstanding the foregoing, upon the execution of this Lease, Tenant shall pay Owner the first monthly installment of Fixed Rent.
 
                               (c)   Tenant shall also pay Owner, as additional rent, without abatement, deduction or set off, all sums, costs, expenses and other payments which Tenant assumes or agrees to pay under any of the provisions of this Lease (collectively, "Additional Rent") and, in the event of any nonpayment thereof, Owner shall have all of the rights and remedies provided for herein or by law in the case of nonpayment of the Fixed Rent, in addition to all other rights and remedies.
 
                                (d)   If Tenant shall fail to pay any installment of Fixed Rent or Additional Rent (collectively, "Rent") within five (5) business days after the due date therefore, Tenant shall pay Owner a late charge equal to five percent (5%) of the unpaid amount of such installment.
 
                                (e)   Tenant shall pay the Rent in lawful money of the United States of America which shall be legal tender for all debts, public and private, at the time of payment. Any obligation of Tenant for payment of Rent which shall have accrued with respect to any period during or prior to the Term shall survive the expiration or termination of this Lease.
 
4.  Real Estate Taxes.
 
                                (a)   Tenant shall pay to Owner, as Additional Rent, Fifty Percent (50%) ( "Tenant's Proportionate Share") of all Taxes which may now or hereafter be levied or assessed against the Property or the Building during the Term of the Lease.
 
                                (b)   For purposes hereof, "Taxes" shall mean all taxes, assessments and all such other charges, taxes, levies and sums of every kind or nature whatsoever, general and special, extraordinary as well as ordinary, as shall or may during or in respect of the Term be assessed, levied, charged or imposed upon or become a lien on the Property or Building or any part thereof, or anything appurtenant thereto, or the sidewalks, streets; provided, however, Taxes shall not include federal, state or local income taxes, franchise, excise, gift, transfer, capital stock, estate, succession or inheritance taxes. If, at any time during the Term, the methods of taxation prevailing at the commencement of the Term shall be altered so that, in lieu of or as a substitution in whole or in part for the taxes, assessments, levies, impositions or charges now or hereafter levied, assessed or imposed on real estate and the improvements thereon, shall be levied, assessed or imposed any tax or other charge on or in respect of the Property andlor the Building or the rents, income or gross receipts of Owner therefrom (including any county, town, municipal, state or federal levy), then such taxes or charges shall be deemed Taxes, but only to the extent that such Taxes would be payable if the Property or the Building, or the rent, income or gross receipts received therefrom, were the only property of Owner subject to such Taxes, and Tenant shall pay and discharge the same as herein provided in respect of the payment of Taxes. Reasonable fees and expenses, if any, incurred by Owner in obtaining any reduction of the Taxes shall also be considered Taxes for the purpose of this Section.

 
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(c)Any amount payable to Owner under the provisions of this Section shall be paid by Tenant within ten (10) days after Owner shall have submitted a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. In addition, Owner shall have the right to reasonably estimate the amount payable by Tenant under the provisions of this Section for each applicable fiscal tax year, and Tenant shall pay one-twelfth (1/12) of such amount each month at the time each installment of Fixed Rent is due. As soon as practicable after the end of an applicable fiscal tax year, Owner shall furnish Tenant with a statement prepared showing the actual amount payable by Tenant under the provisions of this Section for such fiscal tax year. If Tenant's Proportionate Share of such amount exceeds the amount paid by Tenant on account thereof, Tenant shall pay Owner, as Additional Rent, an amount equal to such excess in a lump sum within ten (10) days after delivery by Owner of the statement provided herein. If Tenant's Proportionate Share of such amount is less than the amount paid by Tenant on account thereof, such excess shall be applied as a credit against Additional Rent due from Tenant under this Section for the next fiscal tax year.
 
5. Operating Expenses.
 
                                (a)   Tenant shall pay to Owner, as Additional Rent, Tenant's Proportionate Share of all Common Area Charges (defined below) which may be incurred by Owner or Owner's agents during the Term of the Lease.
 
                                (b)   For the purposes hereof, "Common Area Charges" shall mean all costs and expenses which are incurred by Owner or Owner's agents in connection with the use, operation, repair or maintenance of the Building and/or the Property, including but not limited to, the following: (i) premiums and other charges for insurance which Owner maintains, including without limitation, general comprehensive liability insurance covering bodily injury, personal injury (including death), property damage, public liability, or plate glass; (ii) costs and expenses of performing repairs in or to the Building and/or the Property, including without limitation, the sidewalks and curbs adjacent thereto, the sprinkler, lighting, plumbing, alarm, heating, air-conditioning, sanitary and storm sewer lines or other systems servicing the Building or the Property; (iii) costs and expenses of performing repairs or resurfacing of the parking lots and any adjacent facilities; (iv) costs and expenses of landscaping and maintaining the grounds of the Building and/or the Property; (v) costs and expenses of snow and ice removal; (vi) costs and expense of rubbish, garbage and other refuse removal; (vii) fees and disbursements payable to any person to furnish repair or other services regarding the Building and/or the Property, except that, in the case of any such person who is affiliated with Owner, such fees shall not exceed that which is customary or reasonable in the industry for similar buildings in the area; (viii) costs and expenses of utilities, such as electricity, oil, gas, water and sewer, water and other meter charges; (ix) costs and expenses of providing and maintaining security, if any; (x) cost and expense of providing and performing cleaning and related services; (xi) cost and expense of all supplies; (xii) cost and expenses of all sales, utility and use taxes and other taxes of like import now in effect or hereinafter imposed; and (xiii) cost and expense of all maintenance and service contracts for the Building and/or Property; provided, however, that the following items shall be excluded from Common Area Charges: (i) leasing commissions; (ii) cost of repairs or replacements incurred by reason of fire or other casualty (to the extent the same is or would have been covered by insurance required to be maintained by Owner herein), or caused by the exercise of the right of eminent domain (to the extent same is covered by any condemnation award) less any cost incurred by Owner in obtaining such insurance proceeds or condemnation award; (iii) costs incurred in performing work or furnishing services to or for individual tenants (including Tenant) at such tenant's expense; (iv) debt service on any mortgages now or hereafter encumbering the Building and/or Property; (v) interest or penalties due to Owner's violation of law; (vi) advertising and promotional expenses; (vii) depreciation; (viii) leasehold improvements made for other tenants; (ix) Taxes; (x) costs and expenses which are the responsibility of other tenants of the Building; and (xi) costs and expenses of refurbishing the common areas and modernizing and replacing equipment servicing the common areas.
 
                                (c)   Any amount payable to Owner under the provisions of this Section shall be paid within ten (10) days after Owner shall have delivered a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. In addition, Owner shall have the right to reasonably estimate the amount payable by Tenant under the provisions of this Section for each calendar year, and Tenant shall pay one-twelfth (1/12) of such amount each month at the time each installment of Fixed Rent is due. As soon as practicable after each calendar year, Owner shall furnish Tenant with a statement prepared showing the actual amount payable by Tenant under the provisions of this Section for such calendar year. If Tenant's Proportionate Share of such amount exceeds the amount paid by Tenant on account thereof, Tenant shall pay Owner, as Additional Rent, an amount equal to such excess in a lump sum within ten (10) days after delivery by Owner to Tenant of the statement provided herein. If Tenant's Proportionate Share of such amount is less than the amount paid by Tenant on account thereof, such excess shall be applied as a credit against Additional Rent due from Tenant under this Section for the next calendar year.
 
                6.  Condition and Possession of the Premises.
 
                                (a)   Promptly following the execution of this Lease, Owner shall, at its cost and expense, perform the work set forth on Exhibit B attached hereto and made a part hereof (the "Owner's Work ") to the Premises.
 
                               (b)   Except for the Owner's Work, Tenant shall accept the Premises in its "as is" condition and state of repair as of the Commencement Date without representation or warranty, express or implied, in fact or by law, by Owner, and without recourse to Owner, as to title thereto, the nature, condition or usability thereof or as to the use or occupancy which may be made thereof or the condition thereof. Except as specifically set forth herein, Owner shall not be responsible for any defect in or to the Premises or any changes therein and the Rent shall in no event be withheld, abated or diminished on account of any defect, change or damage to the Premises.
 
                                (c)   If delivery of possession to the Premises to Tenant is delayed for any reason, then this Lease and the validity thereof shall not be affected thereby and Tenant shall not be entitled to terminate this Lease, to claim actual or constructive eviction, partial or total, or to be compensated for loss or injury suffered as a result thereof, nor shall the same be construed in any way to extend the Term. The provisions of this Section shall be considered an express provision to the contrary pursuant to New York Real Property Law Section 223-(a) governing delivery of possession of the Premises.
 
                7.  Use of the Premises.
 
                                (a )               Tenant shall occupy and use the Premises as a Storage Warehouse and Office Space and for no other purpose.
 
                                (b)   Tenant may use those parking spaces designated by Owner in the parking lot located on the Property on a first come basis for a period coterminous with the Term. Owner shall have the right, in its sole and absolute discretion to change the location of any parking spaces located on the Property, the right to impose reasonable rules and regulations respecting the use of the parking facilities, including without limitation, the right to temporarily restrict and/or close all or any portion of said parking areas or facilities. The license and privilege hereby granted shall apply only to those duly registered and operating private passenger vehicle(s) operated by Tenant or Tenant's employees, invitees and contractors and shall not be transferable to any other person or used for any other purpose other than as herein provided. Tenant and its employees, officers, partners, directors, agents, and contractors, covenant and agree that they shall park their vehicles in legal parking spaces designated by Owner on the Property and shall not park their vehicles in any other location on the Property, or on any roadway or property adjacent to the Property.

 
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                                (c)   Tenant shall not do or permit anything to be done upon the Premises or any part thereof which would: (i) impair or tend to impair the appearance of the Property, the Building or the Premises; (ii) impair or interfere with or tend to impair or interfere with any services for the proper and economic heating, cleaning, air conditioning or other servicing of the Property, the Building or the Premises; (iii) occasion discomfort or inconvenience to the occupants of the Building; (iv) make void or voidable any insurance in force upon the Property, the Building or the Premises; (v) increase the cost of any insurance upon the Property, the Building or the Premises; (vi) make it difficult or impossible to obtain fire or other insurance upon the Property, the Building or the Premises at a commercially reasonable cost; (vii) cause damage to the Property, the Building or the Premises or any part hereof; (viii) constitute a public or private nuisance; (ix) violate the certificate of occupancy or any present or future Legal Requirements applicable to the Tenant, the Property, the Building or the Premises; or (x) violate the Rules and Regulations attached hereto and made a part hereof as Exhibit C and such reasonable additions and/or changes to the Rules and Regulations adopted by Owner from time to time.
 
                                (d)   Tenant shall not place, or suffer, or permit anyone to place a load upon any floor of the Building that exceeds the floor load per square foot that such floor was designed to carry, nor shall Tenant overload, or suffer, or permit anyone to overload any wall, roof, land surface, pavement, landing or equipment on the Premises.
 
                                (e)   Tenant shall not release, discharge, manufacture, generate, store, dispose of, permit or suffer any release, discharge or disposal of any Hazardous Material (defined below) at or from the Premises in violation of any Environmental Law (defined below). Tenant shall: (i) promptly notify Owner of any violation of, or non-compliance with, potential violation of or non-compliance with, or liability or potential liability under, any Environmental Law concerning the Premises; (ii) promptly make (and deliver to Owner copies of) all reports or notices that Tenant is required to make under any Environmental Law concerning the Premises and maintain in current status all permits and licenses required under any Environmental Law concerning the Premises; (iii) immediately comply with any orders, actions or demands of any governmental authority respecting any Hazardous Materials; (iv) keep the Premises free of any lien imposed pursuant to any Environmental Law; and (v) otherwise comply with all Environmental Laws concerning the Premises.
 
                                 (f)   If any license or permit shall be required for the proper and lawful conduct of Tenant's business in the Premises or any part thereof, Tenant, at its sole cost and expense, shall duly procure and thereafter maintain such license or permit and submit the same to inspection by Owner. Tenant shall, at all times, comply with the terms and conditions of each such license or permit, but in no event shall failure to procure and maintain same by Tenant impair Tenant's obligations hereunder.
 
                                (g)   In no event shall Owner be liable for any loss, injury, death or damage to persons or property, which at any time may be suffered or sustained by Tenant or by any person who may at any time be using or occupying or visiting the Premises or may be in, on or about the same, and Tenant shall indemnify Owner from and against all claims, liability, loss or damage whatsoever, including reasonable attorney's fees, on account of any such loss, injury, death or damage. Tenant hereby expressly waives all claims against Owner for damages to the Premises that are now on or are hereafter placed or built on the Premises and to the property of Tenant in, on or about the Premises from any cause arising at any time. Owner shall not be liable for any defect in the Premises and Tenant expressly assumes any and all liabilities in connection therewith.
 
(h)For purposes hereof, the following definitions shall apply:
 
(i)               "Environmental Laws" shall mean any and all federal, state, local, or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental conditions at the Premises, the Building or the Property as now or may at any time hereafter be in effect, including without limiting, The Clean Water Act also known as the Federal Water Pollution Control Act, 88 U.S.C. §§1251 et seq., the Toxic Substance Control Act, 15 U.S.C. §§2601 et seq., the Clean Air Act, 42 U.S.C. §§7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. §§186 et seq., the Safe Drinking Water Act, 42 U.S.C. §§300f et seq., the Surface Mining Control and Reclamation Act, §1201 et seq., 80 U.S.C. § 1201 et seq., the Comprehensive Environmental Response, Compensation and Liability Act ( - CERCLA"), 42 U.S.C. §§9601 et seq., the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499, 100 Stat. §1818, the Emergency Planning and Community Right to Know Act, 42 U.S.C. §§1101 et seq., the Resource Conservation and Recovery Act ( - RCRA"), 42 U.S.C. §§6901 et seq., and the Occupational Safety and Health Act as amended ("OSHA"), 29 U.S.C. §655 and §657, together with any amendments thereto, regulations promulgated thereunder and all substitutions thereof; and
 
(ii)               "Hazardous Material" shall mean: (A) any hazardous, toxic or dangerous waste, substance or material defined as such in (or for the purpose of) CERCLA, SARA, RCRA, or any other Environmental Law as now or at any time hereafter in effect; (B) any other waste, substance or material that exhibits any of the characteristics enumerated in 40 C.F.R. §§261.20 through 261.24, inclusive, and those extremely hazardous substances listed under Section 902 of SARA that are present in threshold planning or reportable quantities as defined under SARA and toxic or hazardous chemical substances that are present in quantities that exceed exposure standards as those terms are defined under Section 6 and 8 of OSHA and 29 C.F.R. Part 1910; (C) any asbestos or asbestos containing substances whether or not the same are defined as hazardous, toxic, dangerous waste, a dangerous substance or dangerous material in any Environmental Law; (D) "red label" flammable materials; (E) all laboratory waste and by­products; and (F) all biohazardous materials.

 
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8.  Utilities and Services.
 
                                (a)   Tenant shall obtain and pay for all electric current, heating oil, gas, water and other fuels and utilities supplied to, used in connection with or servicing the Premises and all mechanical systems therein, including without limitation the heating, ventilation and air-conditioning system (HVAC System) and lighting equipment and systems, by direct application to and arrangement with the utility company or companies providing such servicing and utilities to the Premises. Tenant shall not use or install any fixtures, equipment or machines the use of which in conjunction with other fixtures, equipment or machines in the Premises that would result in an overload of the electrical equipment supplying electric current to the Premises or exceed the capacity of the then existing risers, feeders, the electrical service panel or bus ducts to the Premises.
 
                                (b)   Owner shall not be required to furnish to Tenant with any services of any kind whatsoever such as, but not limited to, water, steam, heat, gas, hot water, electricity, light and power to the Premises and Owner shall not be held liable for: (i) any failure of water supply, electric current or any services by any utility; (ii) injury to person (including death) or damage to property resulting from steam, gas, electricity, water, rain or snow which may flow or leak from any part of the Premises or from any pipes, appliances, plumbing works from the street or subsurface or from any other place; (iii) temporary interference with lights or other easements; and (iv) maintenance or repair work conducted by or for Owner. Interruption or curtailment of any utility services shall not constitute constructive eviction or partial eviction, nor entitle Tenant to any compensation or abatement of Rent.
 
                                (c)   Tenant shall, at Tenant's sole cost and expense, maintain in good working order all meters relating to any services and/or utilities provided to the Premises. Owner and Tenant acknowledge that, as of the Commencement Date, the meter that measuring water supplied to the Premises also measures the water supplied to other premises in the Building. Accordingly, Tenant shall pay Owner Tenant's Proportionate Share of all water charges reflected on such meter within ten (10) days after Owner shall have delivered a bill and statement to Tenant showing in reasonable detail the computation of the amounts due Owner hereunder. Owner reserves the right, at its cost and expense, install a separate meter to measure only the water used and consumed at the Premises, in which event, Tenant shall be responsible for and shall pay, as and when due, any and all water charges for water supplied to or used in connection with the Premises by direct appliance to the utility company providing such services.
 
                                (d)   Tenant shall, at its sole cost and expense, keep the Premises neat, clean and in a sanitary condition and shall remove all refuse from the Premises on a daily basis and deposit same in a sealed exterior container to be maintained by Tenant, in good order and condition, and which shall be located in an area on the Property designated by Owner. Tenant shall engage the services of a reputable carting company approved by Owner to empty Tenant's exterior container and remove all refuse therefrom on a regular basis, but no less than once a week.
 
                                (e)   Owner reserves the right to stop, interrupt and/or suspend utility services when necessary by reason of accident or for repairs, alterations, replacements or improvements necessary or desirable in the judgment of Owner for as long as may be reasonably required by reason thereof. The repairs, alterations, replacements or improvements shall he done with a minimum of inconvenience to Tenant and upon reasonable notice to Tenant (except that no notice shall be required in the event of an emergency) and Owner shall pursue same with due diligence.
 
9.  Maintenance of the Premises.
 
                                (a)   Tenant shall, at its sole cost and expense, take good care of, maintain and make all repairs, in and to the Premises, and the fixtures and equipment therein and appurtenances thereto, including without limitation, all doors and entrances, signs, floor covering. walls, columns, partitions, lighting fixtures, HVAC System and other heating and air-conditioning equipment, hot water systems, plumbing and sewerage facilities, sprinkler systems and sprinkler heads, if any, located within or serving the Premises. Tenant shall also maintain a service contract for the HVAC System reasonably acceptable to Owner. Tenant shall also, at its own cost and expense, keep the sidewalks and parking areas in front of the Premises free from snow, ice and other obstructions or encumbrances. If Tenant refuses or neglects to clean maintain or make repairs or otherwise fails to perform any of Tenant's repairs or maintenance obligations hereunder, Owner shall have the right, but shall not be obligated, to perform such maintenance, make such repairs or perform same on behalf of and for the account of Tenant. All sums so paid by Owner in connection with the payment or performance by it or any of the obligations of Tenant hereunder and all actual and reasonable costs, expenses and disbursements paid in connection therewith or enforcing or endeavoring to enforce any right under or in connection with this Lease, or pursuant to law, together with interest thereon at the maximum legal rate from the respective dates of the making of such payment, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Owner upon demand by Owner. For purposes hereof, "repairs" shall mean all repairs, replacements, renewals, alterations, additions and betterments. All contracts between Tenant and others for installations, maintenance, and repairs and alterations involving the Premises, including maintenance agreements, shall be subject to the prior written approval of Owner, which approval shall not be unreasonably withheld or delayed.
 
                               (b)   Owner shall maintain and make necessary repairs to the Building and the Property (to the extent such maintenance and repairs are not the responsibility of a tenant) and keep the same, in good condition, order and repair, reasonable wear and tear, fire and other casualty, and damage by Tenant excluded. There shall be no abatement of Rent and no liability of Owner to Tenant by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Premises, the Building or the Property, the appurtenances thereto or the fixtures and equipment therein. Owner shall not be responsible for maintenance, repair or replacement of trade fixtures or floor or wall coverings or Tenant's personal property within the Premises. In fulfilling its responsibilities under this Section 9(b), Owner shall use commercially reasonable efforts to minimize any interference with Tenant's use and enjoyment of the Premises and shall repair any material damage to the Premises caused by Owner in performing such responsibilities.

 
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10.  Alterations.
 
                                (a)   Tenant shall not execute or perform any alterations, additions or improvements to the Premises (each an "Alteration "), without the prior written consent of Owner, in each instance. Before commencing any Alteration, Tenant shall furnish Owner for Owner's review and approval: (i) all plans and specifications for the Alteration; (ii) the names and addresses of all proposed contractors, subcontractors and material men providing goods or services in connection with such Alteration; (iii) copies of all contracts and certificates of insurance (in form and amount reasonably satisfactory to Owner) from all contractors and subcontractors performing labor or providing materials in connection with such Alteration. Tenant shall not execute any contract for any Alteration or commence any Alteration without Owner's prior written approval of the plans, and each such contractor and subject to Owner's right at any time to deny access to any contractor that does not work harmoniously with other contractors or laborers engaged in the construction, maintenance or operation of the Property and the Building. All Alterations shall, upon installation become the property of Owner and be surrendered on the Expiration Date or sooner termination of the Term hereof.
 
                                (b)   All Alternations shall be performed: (i) at Tenant's sole cost and expense; (ii) in a good and workmanlike manner; (iii) in full compliance with all building, zoning and other Legal Requirements; (iv) only after Tenant shall have obtained and delivered to Owner all permits and approvals as may be required under applicable Legal Requirements; and (v) in compliance with Owner's reasonable insurance requirements.
 
                                (c)   Promptly following completion of any Alteration, Tenant shall furnish Owner with: (i) full and final waivers of lien and receipted bills covering all labor and materials expended and used in connection with the Alteration; (ii) "as-built" drawings showing in detail the full extent and nature of the Alteration; (iii) a certificate of completion issued by the architect who supervised the Alteration which shall state that all work has been completed in accordance with the approved plans and specifications; and (iv) a certificate of occupancy or an equivalent permit or certificate which may be required by applicable Legal Requirements.

                               (d)
  Owner, in its sole discretion and expense, reserves the right to supervise any Alteration and/or engage an independent architect or engineer to supervise such Alteration and/or to review Tenant's plans or specifications therefore. All Alterations shall become the property of Owner except as otherwise agreed in writing by Owner and Tenant. Owner may, at its option, require Tenant to remove any Alteration at the end of the Term, provided Owner notifies Tenant of such requirement at the time Owner consents to such Alteration. In such event, Tenant will restore the Premises to the condition they were in prior to such Alteration.
 
11.  Signs.
 
Tenant shall not place or suffer to be placed or maintain any sign, awning, canopy, decoration, lettering or advertising matter of any kind (collectively, a "Sign") upon or outside the Property, the Building or the Premises, without first obtaining Owner's written consent in each instance. In the event that Owner gives its consent hereunder, all Signs shall be installed where designated by Owner and maintained in good condition, repair and appearance at all times, according to Owner's standards and all Legal Requirements. If Owner shall deem it necessary to remove any Sign in order to paint or to make any repairs, alterations or improvements in or upon the Property, the Building or the Premises or any part thereof, Owner shall have the right to do so, provided the same be removed and replaced at Owner's cost and expense unless such repair, alteration or improvement was occasioned by the acts or omissions of Tenant. Owner shall have the right, with or without notice to Tenant, to remove any Signs installed by Tenant in violation of this Section and to charge Tenant the cost of such removal without liability to Tenant for such removal. Owner shall, at its cost and expense, include Tenant's name on the exterior Building directory located on the Property.
 
12. Insurance.
 
 
(a)At all times during the Term, Tenant shall, at its own cost and expense, provide and keep in full force and effect the following insurance coverage:
 
(i)   property insurance for all of Tenant's equipment and personality located at the Premises, insuring same against loss or damage due to all risks of direct physical loss or damage; and
 
(ii)   comprehensive general liability insurance (occurrence form) for all accidents or occurrences involving bodily injury (including death) and/or property damage with a combined single limit of not less than $1,000,000.00/$2,000,000.00 and naming Owner as an "additional insured"; and
 
(iii)   Worker's compensation insurance as required by the laws of the State of New York.
 
(b)All such insurance is to be written in form and substance reasonably satisfactory to Owner by an insurance company, licensed to do business in the State of New York, which shall be rated by Best's Insurance Rating Service with at least a rating equal to A. Tenant shall procure, maintain and place such insurance and pay all premiums and charges therefore. If Tenant has other locations that it owns or leases, said policy shall include an aggregate per location endorsement. Tenant shall cause to be included in all such insurance policies a provision to the effect that the same will not be canceled or modified except upon not less than thirty (30) days prior written notice to the Owner. Each of Tenant's fire (casualty) insurance policies shall contain an agreement by the insurer that the act or omission of one insured will not invalidate the policy as to any other insured. Prior to taking possession of the Premises, Tenant shall deliver to Owner the original insurance policies or appropriate certificates and paid receipts therefore, (together with a photocopy of the policy, if Owner shall so request). Any renewals or endorsements thereto shall also be deposited with Owner, not less than thirty (30) days prior to the expiration date of the policy being renewed, replaced or endorsed, to the end that said insurance shall be in full force and effect at all times during the Term.
 
(c)Tenant agrees to cause each of its insurance policies (insuring the Premises and Owner's property therein, against loss occasioned by fire or other casualty) to include a waiver of the insurer's right of subrogation against the Owner and Owner shall be named as an "additional insured" on all general liability policies.
 
13.  Indemnification.
 
(a)To the fullest extent permitted by law, Tenant shall and does hereby indemnify and hold Owner and its agents, members, officers, directors, and employees, harmless from and against any and all loss, liability, fines, suits, claims, obligations, damages, penalties, demands and actions, and costs and reasonable expenses of any kind or nature (including reasonable attorneys' fees) due to or arising out of any of the following, which obligations of Tenant shall survive the expiration or termination of this Lease:
 
(i)   any work or thing done in, on or about the Premises, the Building or the Property or any part thereof or any use, possession, occupation, condition, operation, maintenance, repair or management of the Premises, the Building or the Property or any part thereof, by Tenant or anyone claiming through or under Tenant or the respective employees, agents, licensees, contractors, servants or subtenants of Tenant or any such person; and/or
 
(ii)   any act or omission on the part of Tenant or any person claiming through or under Tenant, or the respective employees, agents, licensees, invitees, contractors, servants or subtenants of Tenant or any such person; and/or
 
(iii)   any accident or injury to any person (including death) or damage to property (including loss of property) occurring in, on, or about the Premises, Building or the Property or any part thereof.
 
(b)Owner and Owner's agents, officers, directors, and employees shall not be liable for any of the following, however caused (i) failure of any utility service; (ii) damage to Tenant's property on the Premises caused by or resulting from any cause whatsoever, including, without limitation, explosion, falling plaster, vermin, smoke, gasoline, oil, Hazardous Materials, steam, gas, electricity, earthquake, hurricane, tornado, flood, wind or similar storms or disturbances, water, rain, ice or snow which may be upon, or leak or flow from, any street, road, parking lot, sewer, gas main or subsurface area, or from any part of the Property, or from any other place; (iii) interference with light or other incorporeal hereditaments; or (iv) loss by theft or otherwise of Tenant's property or the property of any person claiming through or under Tenant. Any employees of Owner to whom any property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agents with respect to such property and neither Owner nor Owner's agents shall be liable for any loss or for damage to any such property by theft or otherwise.
 
                14.  Rights of Owner.
 
(a)Owner shall have all of the following rights, which shall be in addition to and not in limitation of all other rights of Owner, and which shall be subject to exercise without notice except as specifically provided, and which shall not be deemed to constitute an eviction or disturbance of Tenant's use or possession of the Premises or to give rise to any claim for set-off or reduction or abatement of Rent or other charges:
 
(i)to install, affix and maintain signs on the exterior and interior of the Property and/or the Building; and/or

 
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(ii)   to temporarily close the Building or the Property and deny access thereto to all persons, including Tenant and its employees; and/or
 
(iii)   to take any and all reasonable measures, including inspections and repairs, as may be necessary or desirable in the operation and protection of the Property, the Building and the Premises, provided, however, Owner shall take reasonable measures to minimize interference with the conduct of Tenant's business in the Premises; and/or
 
(iv)   to install and maintain pipes, ducts, conduits, wires and structural elements located in the Premises that serve other parts or other tenants or occupants of the Building and/or other areas on the Property, provided, however, Owner shall take reasonable measures to minimize interferences with the conduct of Tenant's business in the Premises.
 
(b)Owner, its employees, contractors and agents, shall have the right to enter the Premises at all reasonable times on reasonable notice to Tenant (except in the event of an emergency when no notice shall be required) to examine the Premises, to make repairs, alterations, improvements or additions and to show the Premises to prospective tenants (within the last six months of the Term), purchasers and lenders. Owner shall be permitted to take all material into and upon the Premises that may be required by Owner without same constituting an eviction of Tenant in whole or in part. Owner shall at all times have and retain a key with which to unlock all of the doors, in, upon and about the Premises, excluding Tenant's safes, files and other secure areas and Owner shall have the right to use any and all means which Owner may deem proper to open said doors in an emergency in order to obtain entry to the Premises without liability to Tenant. Entry upon the Premises by Owner by any of said means or otherwise shall under not circumstances be construed or deemed to be a forcible or unlawful entry into the Premises or a detainer of or an eviction of Tenant from the Premises.
 
15.  Assignments and Subletting.
 
(a)Tenant, for itself, its legal representatives, successors and assigns, covenants that it shall not assign, mortgage or encumber this Lease, nor underlet, or suffer or permit the Premises or any part thereof to be used or occupied by others, without the prior written consent of Owner in each instance, which consent shall not be unreasonably withheld, provided that prior to the effective date of such assignment or subletting, Tenant shall deposit with Owner an amount equal to Zero (0) months Fixed Rent as security subject to Section 25, below, and the Security Deposit shall be deemed increased by such amount; and (iii) as of the effective date of such assignment or subletting, and continuing throughout the balance of the Term, the Fixed Rent shall be increased by Two Percent (2%). If this Lease be assigned, or if the Premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the Rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the covenants herein contained on the part of Tenant to be performed. The consent by Owner to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Owner to any further assignment or underletting. In no event shall any permitted subtenant assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Owner's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. Not withstanding anything contained herein to the contrary, a transfer (including any issuance of stock, partnership or other equity interests) of an aggregate of fifty (50%) percent or more of the equity interests in Tenant by any party or parties in interest (whether in a single or a series of transactions) shall be deemed an assignment of this Lease requiring the consent of Owner.
 
                                  (b)   If Tenant requests Owner's consent to a specific assignment or subletting, it shall submit in writing to Owner: (i) the name and address of the proposed assignee or subtenant; (ii) a duly executed counterpart of a letter of intent setting forth the material terms of the proposed agreement of assignment or sublease; (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or subtenant, and as to the nature of its proposed use of the space; and (iv) banking, financial or other credit information relating to the proposed assignee or subtenant reasonably sufficient to enable Owner to determine the financial responsibility and character of the proposed assignee or subtenant.
 
                                  (c)   Tenant understands and agrees that no assignment or subletting shall be effective unless and until Tenant, upon receiving any necessary Owner's written consent (and unless it was theretofore delivered to Owner) causes a duly executed copy of the sublease or assignment to be delivered to Owner within ten (10) days after execution thereof Any such sublease shall provide that the subtenant shall comply with all applicable terms and conditions of this Lease to be performed by the Tenant hereunder. Any such assignment of lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant.
 
                                  (d)   Anything herein contained to the contrary notwithstanding: (i) Tenant shall not advertise (but may list with brokers) its space for assignment or subletting at a rental rate lower than the greater of the then Building rental rate for such space or the rental rate payable under this Lease; and (ii) no assignment or subletting shall be made to any person or entity which shall at that time be a tenant, subtenant or other occupant of any part of the Building, or who dealt with Owner or Owner's agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately preceding Tenant's request for Owner's consent.
 
16.  Subordination.
 
                                   (a)This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to: (i) all present and future ground leases, overriding leases and underlying leases and/or grants of term of the Property, the Building and/or any appurtenance thereto (collectively, the "Superior Lease"); (ii) all mortgages and building loan agreements, including leasehold mortgages, deeds of trust, and building loan agreements, which may now or hereafter affect the Property, the Building and/or any appurtenance thereto (collectively, the - Mortgage"), whether or not the Mortgage shall also cover other land and/or buildings; and (iii) each and every advance made or hereafter to be made under the Mortgage and to all renewals, modifications, replacements, substitutions and extensions of any Superior Lease and the Mortgage and spreaders and consolidations of the Mortgage. The provisions of this Section shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver, at its own cost and expense, an instrument in recordable form to evidence such subordination. If, in connection with the obtaining, continuing or renewing of financing, a bank, insurance company or other lender shall request reasonable modifications of this Lease as a condition of such financing, Tenant will not unreasonably withhold or delay its consent thereto, provided that such modifications do not increase the monetary obligations of Tenant under this Lease or materially increase the other obligations of Tenant hereunder or materially and adversely affect the rights of Tenant under this Lease.
 
 
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  (b)If at any time prior to the expiration of the Term, the holder of the Mortgage shall become the owner of the Premises as a result of foreclosure of its Mortgage or by reason of an assignment of the tenant's interest under the Superior Lease or by conveyance of the Premises, Tenant agrees, at the election and upon demand of any owner of the Premises, or of the holder of any Mortgage or Superior Lease (including a leasehold mortgage) in possession of the Premises, to attorn, from time to time, to any such owner, or tenant, upon the then executory terms and conditions of this Lease. No such owner, holder or tenant shall be liable for any previous acts or omission of Owner under this Lease (except that this provision shall not be construed to relieve such person from any obligation thereafter to be performed), nor shall such owner, holder or tenant be subject to any offset which shall have theretofore accrued to Tenant against Owner, or be bound by any previous modification of this Lease, not expressly provided for in this Lease, entered into after the date of the Mortgage, or Superior Lease, or by any previous prepayment of more than one month's Fixed Rent. The foregoing provisions of this Section shall enure to the benefit of any such owner, holder or tenant, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the termination of the Superior Lease, or the foreclosure (including judgment of foreclosure and sale) of the Mortgage, shall be self-operative upon any such demand, and no further instrument shall be required to give effect to said provisions. Tenant, however, upon demand of any such owner, holder or tenant, agrees to execute, from time to time, instruments in confirmation of the foregoing provisions of this Section, acknowledging such attornment and setting forth the terms and conditions of its tenancy. Nothing contained in this Section shall be construed to impair any right otherwise exercisable by any such owner, holder or tenant.
 
17.               Quiet Enjoyment.
 
If and so long as no Event of Default (defined below) shall have occurred and be continuing, Owner covenants and agrees that Tenant may peaceably and quietly enjoy the Premises and Tenant's possession of the Premises will not be disturbed by Owner, its successors and assigns, subject, however, to the terms of this Lease, the Mortgage, the Superior Lease and any and/or all other agreements and any amendments thereto, to which this Lease is subordinated.
 
18.               Liens.
 
Tenant has no authority to incur any debt or make any charge against Owner or create any lien upon this Lease, the Property, the Building or the Premises for work or materials furnished to or at the request of Tenant. In the event a mechanic's, materialmen's or other lien is filed against same, Tenant shall pay, when due, all sums of money that may become due for any such labor, materials or equipment and shall cause such lien to be fully discharged and released or bonded in accordance with the Lien Law of the State of New York promptly after notice thereof. Tenant shall also notify Owner in writing immediately upon learning of the existence of such lien. If Tenant has not obtained the discharge of any such lien within thirty (30) days after the filing thereof, Owner may pay the amount of such lien or otherwise discharge or bond such lien and the amount so paid shall be deemed Additional Rent reserved under this Lease and shall be payable by Tenant to Owner on demand.
 
19.               Compliance with Laws, Rules and Regulations.
 
Throughout the Term, Tenant shall, at its sole cost and expense, comply with any law, ordinance and regulation, Federal, state, county or municipal, including without limitation, all Legal Requirements, now or hereafter enforced or applicable to the Premises, Tenant's use or manner of use of the Premises and any improvements thereon. Tenant shall comply with any and all rules and regulations issued by the Board of Fire Underwriters or by any other body hereinafter constituted, exercising similar functions, and by insurance companies writing policies which insure the improvements located on the Premises. Tenant shall pay all costs, expenses, claims, fines, penalties and damages that may be imposed because of the failure of the Tenant to comply with this Section and shall indemnify and hold harmless Owner from and against any and all liability arising from each non-compliance. Tenant shall promptly notify Owner of any violation. Tenant shall not contest the application or validity of any such requirements without the prior written consent of Owner in each such instance. Any repair or change required under this Section shall be deemed a repair for the purposes of Section 10, above.
 
20 .               Fire or Casualty Loss.
 
                                   (a)   If the Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give prompt written notice thereof to Owner and this Lease shall continue in full force and effect except as provided in this Section.
 
                                  (b)   If the Building shall be damaged by fire or other casualty and if such damage renders the Premises untenantable, in whole or in part, or if the Premises is not rendered untenantable but the Building is substantially damaged, Owner shall have the right to cancel and terminate this Lease as of the date of such damage. Owner shall notify Tenant in writing within ninety (90) days after such damage of its election to either terminate this Lease or to rebuild the Premises. If this Lease shall not be terminated by Owner due to such damage, Owner agrees to repair and restore the Premises (but not Tenant's improvements, furniture, fixtures, equipment or personalty located at or attached to the Premises) and, at such time as Owner repairs and restores the Premises, Tenant shall repair and restore all improvements, furniture, fixtures, equipment or personalty of Tenant's that existed prior to such damage. Notwithstanding anything contained herein to the contrary, Owner shall have no duty to repair or restore the Premises or the Building. In the event Owner shall not rebuild the Premises within twelve (12) months after notice of its election to so rebuild, Tenant shall have the right to terminate this Lease on thirty (30) day prior written notice to Owner and if Owner shall fail to rebuild the Premises within said thirty (30) day period this Lease shall terminate at the end of said thirty (30) day period.
 
 
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                                    (c)   In the event only an insubstantial portion of the Building (other than the Premises) is so damaged by fire or other casualty, Owner shall repair such damage at its cost and expense, subject, however, to the a sufficient amount of insurance proceeds being paid to Owner on account of such damage.
 
                                  (d)   In the event of termination of this Lease pursuant to this Section, the Rent shall be apportioned on a per diem basis and paid to the date of the fire or other casualty. In the event that the Premises are damaged by fire or other casualty and made wholly or partially untenantable and if this Lease is not canceled as provided in this Section, then, except in case of damage caused Tenant, the Rent shall abate in the amount bearing the same ratio to total Rent as the rentable area of the portion of the Premises remaining untenantable bears to the total rentable area of the Premises.
 
                                   (e)   This Section shall be considered an express agreement to the contrary pursuant to New York Real Property Law Section 227 governing any case of damage to or destruction of the Premises or any part thereof by fire or other casualty.
 
2l .      Eminent Domain.
 
If the Building or any portion thereof (including the Premises) shall be appropriated under the power of the eminent domain or conveyance in lieu thereof, Owner shall have the right to terminate this Lease as of the effective date of the appropriation and the Rent shall be apportioned to that date. If the Premises or any portion thereof shall be appropriated under the power of the eminent domain or conveyance in lieu thereof, Tenant shall have the right to terminate this Lease as of the effective date of the appropriation and the Rent shall be apportioned to that date. All compensation awarded upon any appropriation of the Building (including the Premises) or any part thereof shall belong solely and exclusively to Owner without any participation therein by Tenant, provided, however, nothing herein shall prohibit Tenant from prosecuting a separate claim directly against the appropriating authority for loss of business, moving expenses, damage to or cost of removing its furnishings, movable trade fixtures and other personal property belonging to Tenant so long as such claim shall not diminish or otherwise adversely affect Owner's compensation.
 
                  22.     Broker.
 
Tenant represents that in connection with this Lease it dealt with no broker other than the Landlord (collectively, the "Broker"), nor has Tenant had any correspondence or other communication in connection with this Lease with any other person who is a broker, and that so far as Tenant is aware the Broker is the only broker who negotiated this Lease. Tenant hereby indemnifies Owner and agrees to hold Owner harmless from any and all loss, cost, liability, claim, damage, or expense (including court costs and attorneys' fees) arising out of any inaccuracy of the above representation. Owner agrees to pay the Broker all commissions due for its services pursuant to a separate written agreement.
 
                 23.               Holding Over.
 
(a)On the last day of the Term or on the earlier termination of the Term, Tenant shall peaceably and quietly leave, surrender and deliver the Premises to Owner, together with: (i) all Alterations; and (ii) except for Tenant's property (which Tenant may remove at its own cost and expense), all fixtures and articles of personal property of any kind or nature which Tenant may have installed or affixed on, in, or to the Premises for use in connection with the operation and maintenance of the Premises (unless Owner shall have notified Tenant that it was to remove same at the time it consented to the installation thereof pursuant to Section 10, above), all of the foregoing to be surrendered in good, substantial and sufficient repair, order and condition, reasonable use, wear and tear, and damage by fire or other casualty, excepted, and free of occupants and subtenants.
 
(b)   Tenant shall pay or cause to be paid the cost of repairing or remedying any damage caused by the removal of its property, provided that no item of Tenant's property may be removed if its removal would impair the structural integrity of the Building or Building's equipment. All property not so removed shall be deemed abandoned and may either be retained by Owner as its property or disposed of, without accountability, at Tenant's sole cost, expense and risk, in such manner as Owner may see fit.
 
(c)   If the Premises are not surrendered in accordance with the provisions of this Section upon the expiration or termination of this Lease, Owner shall have all rights given at law or in equity, in the case of holdovers, to remove Tenant and anyone claiming through or under Tenant. In any event, Tenant shall and does hereby indemnify Owner against all loss or liability arising from delay by Tenant in so surrendering the Premises, including any claims made by any succeeding tenants founded on such delay. Tenant expressly waives, for itself and for any person claiming through or under Tenant (including creditors), any rights which Tenant or any such person may have under the provisions of any law in connection with any holdover summary proceedings which Owner may institute to enforce the provisions of this Section. Tenant's obligations under this Section shall survive the expiration or termination of this Lease.
 
(d)   Tenant acknowledges the importance to Owner that possession of the Premises be surrendered at the expiration or sooner termination of this Lease. In the event that Tenant fails to vacate the Premises at the expiration or sooner termination of this Lease, Tenant shall be obligated to pay Owner damages in an amount equal to twice the annual Fixed Rent and Additional Rent provided for on the day preceding the Expiration Date for such period of time that Tenant holds over on a per diem basis.
 
24.      Default and Termination.
 
 
(a)Any of the following events shall be deemed an "Event of Default" under this Lease:
 
(i)   if Tenant fails to make any payment of Rent when due, and such failure continues for five (5) days after written notice from Owner to Tenant; and/or
 
(ii)   if Tenant fails to perform any other term, covenant or condition of this Lease on its part to be performed (other than the covenant for the payment of Rent) and Tenant fails to cure such failure within twenty (20) days after written notice thereof has been sent by Owner to Tenant, unless same is not capable of being cured within said twenty (20) day period, then such longer time as is required to cure same provided Tenant commences curing same within said twenty (20) day period and diligently prosecutes curing until completion and provided further said failure is cured within ninety (90) days; and/or

 
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(iii)   if Tenant shall file a voluntary petition seeking an order or relief under Title 11 of the United States Code or similar law of any jurisdiction applicable to Tenant, or Tenant shall be adjudicated a debtor, bankrupt or insolvent, or shall file any petition or answer seeking, consenting to or acquiescing in any order for relief, reorganization, arrangement, composition, adjustment, winding-up, liquidation, dissolution or similar relief with respect to Tenant or its debts under the present or any future bankruptcy act or any other present or future applicable Federal, state or other statute or law, or shall file an answer admitting or failing to deny the material allegations of a petition against it for any such relief or shall generally not, or shall admit in writing its insolvency or its inability to pay its debts as they become due, or shall make a general assignment for the benefit of creditors or shall seek or consent or acquiesce in the appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian or liquidator or similar official of Tenant or of all or any part of Tenant's property or if Tenant shall take any action in furtherance of or authorizing any of the foregoing; and/or
 
(iv)   if any case, proceeding or other action shall be commenced or instituted against Tenant, seeking to adjudicate Tenant a bankrupt or insolvent, or seeking an order for relief against Tenant as debtor, or reorganization, arrangement, composition, adjustment, winding-up, liquidation, dissolution or similar relief with respect to Tenant or its debts under the present or any future bankruptcy act or any other present or future applicable Federal, state or other statute or law, or seeking appointment of any trustee, receiver, examiner, assignee, sequestrator, custodian or liquidator or similar official of Tenant or of all or part of Tenant's property, which either (A) results in the entry of an order for relief, adjudication of bankruptcy or insolvency or such an appointment or the issuance or entry of any other order having similar effect or (B) remains undismissed for a period of sixty (60) days; or if any case, proceeding or other action shall be commenced or instituted against Tenant seeking issuance of a warrant of execution, attachment restraint or similar process against Tenant or any of Tenant's property which results in the taking or occupancy of the Premises or an attempt to take or occupy the Premises which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days after the entry thereof; and/or
 
(v)   If Tenant vacates the Premises and permits them to remain vacant for a period of ninety (90) days and such default is not corrected or cured within thirty (30) days after written notice thereof has been sent by Owner to Tenant.
 
(b)   Upon the occurrence of any one or more Events of Default, Owner may serve a written three (3) day notice of cancellation of this Lease upon Tenant, and upon the expiration of said three (3) day period, this Lease and the term hereunder shall end and expire as fully and completely as if the expiration of said three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the Term and Tenant shall then quit and surrender the Premises to Owner, but Tenant shall remain liable as hereinafter provided.
 
(c)   If the notice provided for under Section 24(b), above, shall be given, and the Term shall expire as aforesaid, then and in any such event, Owner may, without notice, re­enter the Premises either by force or otherwise and dispossess Tenant by summary proceeding or otherwise, and may remove all persons, fixtures and chattels therefrom and Owner shall not be liable for any damages resulting therefrom and Tenant hereby waives the service of notice of intention to re-enter or commence legal proceeding to that end. Such re-entry and repossession shall not work a forfeiture of the Rent to be paid and the covenants to be performed by Tenant during the full Term of this Lease. Upon such repossession of the Premises, Owner shall be entitled to recover, as liquidated damages and not as a penalty, a sum of money equal to the present value of the Rent provided herein to be paid by Tenant to Owner for the remainder of the Term, less the present value of the fair rental value of the Premises for said period, such present value to be computed in each case on the basis of a five (5%) percent per annum discount. Upon the happening of any one or more of the Events of Default, Owner may repossess the Premises by detainer suit or other lawful means, without demand or notice of any kind to Tenant (except as hereinabove expressly provided for) and without terminating this Lease, in which event Owner may relet all or any part of the Premises for such rent and upon such terms as shall be satisfactory to Owner (including the right to relet the Premises for a term greater or lesser than that remaining under the Term, and the right to relet the Premises as part of a larger area, and the right to change the character or use made of the Premises). For the purpose of such reletting, Owner may decorate or make any repairs, changes, alterations or additions in or to the Premises that may be necessary or convenient. If Owner does not relet the Premises, Tenant shall pay to Owner on demand, as liquidated damages and not as a penalty, a sum equal to the amount of Rent herein to be paid by Tenant for the remainder of the Term. If the Premises are relet and a sufficient sum shall not be realized from such reletting after paying all of the expenses of such decorations, repairs, changes, alterations, or additions the expenses of therefrom (including but not by way of limitation, reasonable attorney's fees and brokers' commissions), to pay the remainder of the Rent to be paid by Tenant over the Lease term, Tenant shall pay to Owner on demand any deficiency. Owner shall in not way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting. Owner shall not in any event be required to pay Tenant (but shall credit Tenant, to the extent set forth herein with) any sums received by Owner on a reletting of the Premises, or any part thereof, whether or not in excess of the Rent reserved in this Lease.
 
(d)   Notwithstanding any contrary provision contained herein, if there shall be an Event of Default at any time or from time to time, Owner may, in lieu of giving a notice under Section 24(b), above, at any time after the occurrence of any such Event of Default and during the continuance thereof, institute an action for the recovery of the Fixed Rent and/or Additional Rent in respect of which an Event of Default shall have occurred and be continuing. Neither the commencement of any such action for the recovery of Fixed Rent and/or Additional Rent nor the prosecution thereof shall be deemed a waiver of Owner's right to give a notice under Section 24(b), above, in respect of any such Event of Default.
 
(e)   Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Owner from time to time at its election, and nothing contained herein shall be deemed to require Owner to postpone suit until the date when the Term would have expired or limit or preclude recovery by Owner against Tenant of any sums or damages which, in addition to the damages particularly provided above, Owner may lawfully be entitled by reason of any default hereunder on the part of Tenant. All remedies hereinbefore given to Owner and all rights and remedies given to it at law and in equity shall be cumulative and concurrent.

 
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25.     Security Deposit.
 
(a)   Upon the execution hereof, Tenant shall deposit with Owner the sum of Zero Dollars (the "Security Deposit") as security for the full and faithful performance by Tenant of all the terms, covenants and conditions of this Lease upon Tenant's part to be performed, which Security Deposit shall be promptly returned to Tenant after the expiration hereof provided Tenant has fully and faithfully carried out all of the terms, covenants and conditions on its part to be performed under this Lease. If Owner applies all or any part of the Security Deposit to cure any default of Tenant, or as the Fixed Rent escalates pursuant to Sections 3, above, Tenant shall, upon demand, deposit with Owner the amount necessary so that Owner shall have on hand at all times during the term of this Lease as the Security Deposit an amount equal to Zero (0) month's Fixed Rent.
 
(b)   In the event of a sale of the Property, or Owner's interest therein, or of a leasing of the Property, Owner shall have the right to transfer the Security Deposit hereunder to the vendee or tenant and, upon such transfer, Owner shall thereupon be released by Tenant from all liability for the return of such Security Deposit.
 
(c)   Tenant covenants that it will not assign or encumber, or attempt to assign or encumber the Security Deposit and that neither Owner nor its successors and/or assigns shall be bound by any such assignment, or attempted encumbrance.
 
         26.     Estoppel Certificates.
 
Tenant shall, at any time and from time to time, within ten (10) business days after receipt of notice from Owner, execute, acknowledge and deliver to Owner a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect as modified, and setting forth the modifications), the dates to which the Rent has been paid, and stating whether or not, to the best knowledge of Tenant, any party is in default in keeping, observing or performing any term, covenant, agreement, provision, condition or limitation contained in this Lease, and if in default, specifying each such default, it being intended that any such statement delivered pursuant to this section may be relied upon by Owner, or any prospective purchaser, assignee or mortgagee.
 
27.     Owner's Expenses.
 
Tenant shall pay, on demand, all cost and expenses, including reasonable attorneys' fees, incurred either directly or indirectly by Owner in enforcing any obligation or curing any default by Tenant under this Lease or otherwise participating in any action or proceeding arising from the filing, imposition, contesting, discharging or satisfaction of any lien or claim of lien, in defending or otherwise participating in any legal proceedings initiated by or on behalf of Tenant, or in connection with any investigation or review of any conditions or documents in the event Tenant requests Owner's approval or consent to any action of Tenant which may be desired by Tenant or required of Tenant hereunder. All such expenses shall be deemed to be Additional Rent and shall be payable on demand.
 
28.             Authorization.
 
Each party shall furnish to the other, within ten (10) business days after written request therefore, certified resolution authorizing the execution and delivery of this Lease and the performance by such party of its obligations hereunder, and evidencing that the person who executed this Lease was duly authorized to do so.
 
                 29.               General Provisions.
 
(a)               Captions. The captions or titles to the various sections of this Lease are for convenience and ease of reference only and do not define, limit, augment or describe the scope, content or intent of this Lease or of any parts thereof.
 
(b)               Successors and Assigns. Each and every covenant and condition of this Lease shall be binding upon and shall inure to the benefit of the heirs, successors, personal representatives and permitted assigns of the Owner and Tenant; but this section shall in no way validate an assignment of all or any part of this Lease which is invalid under other provisions hereof.
 
(c)               Severability. The invalidity or illegality of any provisions of this Lease shall not affect the remaining provisions thereof.
 
(d)               Number and Gender. When used in this Lease, the singular number includes the plural, and the plural the singular, unless the context otherwise requires; the neuter gender includes the feminine and masculine, and masculine includes the feminine and neuter, and the feminine includes the masculine and neuter, and each includes a corporation, partnership, or other legal entity when the context so requires; and the word "person" means an individual or individuals, a partnership or partnerships, a corporation or corporations, or any combination thereof; when the context so requires.
 
(e)               Notices. Any notice or demand provided for in this Lease shall be in writing and shall be deemed delivered either: (i) when delivered in person to the recipient thereof; or (ii) on the date shown on the return receipt after deposit, or the date recipient failed or refused to sign the return receipt; or (iii) two (2) days after deposit with a nationally recognized overnight carrier, and in the case of (ii) or (iii), above, postage prepaid, and addressed to the party to whom notice is hereby given at the address listed above or to such other address as may be supplied by such party in writing.
 
Situs. The Lease shall be construed and interpreted according to the laws of the State of New York.
 
(g)               Recording of Lease. This Lease shall not be recorded by Tenant.
 
(h)               Force Majeure. If circumstances beyond the control of Owner (such as acts of God, fires, strikes, power shortages, etc., - financial inability excepted) shall temporarily make it impossible for Owner to perform under this Lease, then the principles of force majeure will apply and the rights and obligations of the parties will be temporarily suspended during the force majeure period.

 
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(i) No Recourse. Notwithstanding anything to the contrary in this Lease, Tenant shall look solely to the interest of Owner in the Property for satisfaction of any remedy it may have hereunder or in connection herewith and shall not look to any other assets of Owner or of any other person, firm or corporation. There shall be absolutely no personal liability on the part of any present or future officer, director, trustee, employee, member or affiliate of such Owner with respect to any obligation hereunder or in connection herewith.
 
(j) Waiver of Counterclaim and Jury Trial. In the event that Owner shall commence any summary or other proceedings or action for non-payment of rent hereunder, Tenant shall not interpose any counterclaim of any nature or description in such proceeding or action, unless such non-interposition would effect a waiver of Tenant's right to assert such claim against Owner in a separate action or proceeding. The parties hereto waive a trial by jury on any and all issues arising in any action or proceeding between them or their successors under or in any way connected with this Lease or any of its provisions, any negotiations in connection therewith, the relationship of Owner and Tenant, or Tenant's use or occupation of the Premises, including any claim of injury or any emergency or other statutory remedy with respect thereto. The provisions of this Section shall survive the expiration or other termination of this Lease.
 
(k) Waivers and Surrenders to Be in Writing. The receipt of full or partial Rent by Owner with knowledge of any breach of this Lease by Tenant or of any default on the part of the Tenant in the observance or performance of any of the provisions or covenants of this Lease shall not be deemed to be a waiver of any such provision, covenant or breach of this Lease provided, however, that acceptance of a payment of Rent shall be valid pro tanto. No waiver or modification by Owner, unless in writing, and signed by Owner, shall discharge or invalidate any provision or covenant or affect the right of Owner to enforce the same in the event of any subsequent breach or default. The failure on the part of Owner to insist in any one or more instances upon the strict performance of any of the provisions or covenants of this Lease, or to enforce any covenant or provision herein contained or to exercise any right, remedy or election herein contained consequent upon a breach of any provision of this Lease, shall not affect or alter this Lease or be construed as a waiver or relinquishment for the future of such one or more provisions or covenants or of the right to insist upon strict performance or to exercise such right, remedy or election, but the same shall continue and remain in full force and effect with respect to any existing or subsequent breach, act or omission, whether of a similar nature or otherwise. The receipt by Owner of any rent or any other sum of money or any other consideration hereunder paid by Tenant after the termination, in any manner, of the Term, or after the giving by Owner of the notice under Section 24(b), above, shall not reinstate, continue or extend the Term, or destroy, or in any manner impair the efficacy of any such notice, as may have been given hereunder by Owner to Tenant prior to the receipt of any such Rent, or other sum of money or other consideration, unless so agreed to in writing and signed by Owner. Neither acceptance of the keys or any other act or thing done by Owner or any agent or employee shall be deemed to be an acceptance of a surrender of the Premises, or any part thereof, excepting only an agreement in writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount than the correct Rent shall be deemed to be other than a payment on account, nor shall any endorsement or statement on any check, as distinguished from any letter accompanying such check or payment, be deemed to effect or evidence an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance or pursue any other remedy in this Lease provided. The payment of Rent by Tenant shall not be deemed a waiver of any rights of Tenant.
 
   ( 1 ) Rights Cumulative. Each right and remedy of Owner shall be cumulative and to the extent permitted by law, the exercise or beginning of the exercise by Owner of any one or more of the rights or remedies of such party shall not preclude the simultaneous or later exercise by Owner of any or all other rights or remedies. In the event of any breach or threatened breach by Tenant or any persons claiming through or under Tenant of any of the agreements, terms, covenants or conditions contained in this Lease, Owner shall be entitled to enjoin such breach or threatened breach (if entitled to do so at law or in equity or by statue or otherwise) and shall have the right to invoke any right or remedy allowed by law or in equity or by statute or otherwise as if re-entry, summary proceedings or other specific remedies were not provided for in this Lease.
 
(m)               Conveyance of the Property. The term "Owner" as used herein shall mean and include only the owner or owners at the time in question of the Owner's interest in this Lease so that in the event of any transfer or transfers (by operation of law or otherwise) of Owner's entire interest in this Lease, Owner herein named (and in the case of any subsequent transfers or conveyances, the then transferor) shall be and hereby is automatically freed and relieved, from and after the date of such transfer or conveyance, of all liability in respect of the performance of any covenants or obligations on the part of the Owner contained in this Lease thereafter to be performed. Tenant shall have recourse against the Property for the satisfaction of any remedy it may have against Owner under this Lease.
 
(n)               Entire Agreement. This Lease contains the entire agreement between the parties regarding the Premises and shall not be modified in any manner except by an instrument in writing executed by the parties or their respective successors in interest. No waiver or modification by either party or any provision or covenant of this Lease shall be deemed to have been made unless such waiver is expressed in writing and signed by the party against whom such waiver or modification is sought.
 
(o)               Guaranty from Tenant's Principals. The principal(s) of Tenant, on behalf of themselves and their heirs, executors and administrators, do hereby unconditionally guarantee to Owner the full and timely payment, performance and observance of, and compliance by Tenant of all of Tenant's obligations under Sections 3, 4 and 5 hereof (but only until that date which is one hundred twenty (120) days after Tenant has surrendered possession of the Premises to Owner in accordance with the terms hereof) and under Sections 7(e), 8(a), 8(d), 18 and 23(c) hereof. Owner, in its sole discretion, may proceed against any or all of the principals of Tenant for the full performance of Tenant's obligations to Owner under said Sections of the Lease, with or without Owner taking any action against Tenant and whether or not Owner has proceeded against Tenant.

 
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IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written.
 
 
 
Owner:  GREAT AMERICAN REALTY 0F JEFRYN BOULEVARD, LLC
   
  By: /s/ Mark Siegel
  Mark Siegel, member
   
   
   
Tenant: SURGE COMPONENTS INC,
  By: /s/ Ira Levy
  Name: Ira Levy
  Title: President
   
 Section 29(o) is hereby agreed to by the following principals of Tenant:  
 
 
Name:
 
Home Address:  ______________
                             _______________
                             _______________
 
Name:
 
Home Address:  ______________
                             _______________
                             _______________
 
 
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EXHIBIT A
The Premises
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
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EXHIBIT B
Owner's Work
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
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EXHIBIT C
Rules and Regulations
 
1.   Nothing shall be hung from the outside of the windows or placed outside the window sills of any window in the Building and Tenant shall not affix any wires, aerials or attachments of any kind to the exterior walls or windows of the Building. Tenant shall not throw or allow any objects to fall from the windows.
 
2.   The entrance, halls and corridors of the Building shall not be obstructed or used under any circumstances as a waiting area, and no articles of any kind to will be allowed therein.
 
3.   Tenant and Tenant's employees shall not: (i) make disturbing noises, shall not use the Premises for cooking, lodging or sleeping purposes or any improper or unlawful purpose; (ii) keep no animals in the Premises or in the Building; (iii) commit any act in or upon the Premises which tends to create a nuisance or which Owner reasonably determines will disturb, interfere with or endanger the rights, comfort and convenience of other tenants or occupants or of the general public use the Building.
 
4.   Tenant shall be responsible for the proper closing and locking of all doors and windows of the Premises, and will be responsible for any damage resulting from its failure to so lock all such doors and windows.
 
5.   No utilities may be installed without the prior consent of the Owner, which consent shall not be unreasonably withheld or delayed.
 
6.   No garbage cans, supplies or any other articles shall be placed in the halls or on staircase landings or in any other common areas, nor shall dirt or other substances be swept into or placed in the corridors, stairs or other common areas.
 
7.   The water closets, basins and other plumbing fixtures shall not be used for any purpose other than those for which they were designed, nor shall any sweeping, rubbish, rags or other improper articles be thrown into the same. Any repairs required from the misuse of such facilities shall be paid for by Tenant.
 
8.   In the event that Tenant attaches or fastens any objects to the walls or other portions of the Building and removes such objects at the termination of the Lease, Tenant shall repair any damage caused by such removal and shall restore the Premises to their original condition.
 
9.   Tenant shall give the Owner notice of the number, weight, location and position of any and all heavy objects and safely distribute the weight thereof. Tenant shall give Owner Ten (10) day prior written notice of the delivery, removal and/or installation of bulky and heavy objects.
 
10.   Tenant shall provide Owner with the keys to all doors to the Premises or located therein. If Tenant shall change any of the locks or install any other locks or bolts on doors or windows of the Premises, Tenant shall immediately provide Owner with a key thereto.
 
1 I.The Building, including the all common areas, lobbies, entrance ways, corridors, restrooms, elevators and connectors, shall be designated as "non-smoking." Tenant and its employees, agents, licensees and invitees shall faithfully observe this smoking restriction.
 
 
 
 
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