Exhibit 10.1

JOINT DEFENSE, AND INDEMNIFICATION AGREEMENT

THIS AGREEMENT is entered into between Wyeth Ayerst Laboratories Division of American Home Products Corporation ("AHP") and NutriSystem L.P. ("NutriSystem").

WHEREAS NutriSystem has been sued in numerous lawsuits alleging injury arising from the promotion, advertising, sale, prescription, use, recommended use or ingestion of Pondimin and/or Redux ("the Products"), either alone or in combination with phentermine; and

WHEREAS AHP manufactured the Products and has a longstanding policy to defend and indemnify retailers that are sued as a result of dispensing AHP products; and

WHEREAS NutriSystem has requested defense and indemnification for itself and the NutriSystem parties (i.e., NutriSystem's present and former affiliates, subsidiaries, officers, directors, general partners, limited partners, attorneys, agents, servants, employees, successors and assigns), pursuant to AHP's policy and state law; and

WHEREAS AHP and NutriSystem desires to enter into this Agreement for their joint defense and the indemnification of NutriSystem and the NutriSystem parties against claims arising from the use or ingestion of the Products;

NOW THEREFORE, it is agreed as follows:

1. This Agreement is entered into between AHP and NutriSystem as a joint defense and indemnification agreement.

2. This Agreement shall apply to all claims arising from ingestion of the Products (including claims arising from the ingestion of phentermines in combination with the Products) ("Claims") that have been or may he asserted against NutriSystem and

the NutriSystem parties as a result of the promotion, advertising, sale, use, recommended use or ingestion of the Products.

3. AHP agrees to defend, indemnify and hold harmless NutriSystem and the NutriSystem parties from or against all Claims; except that if a court/jury apportions fault and determines that a pharmaceutical product other than the Products was a proximate/producing cause of the injuries giving rise to liability, then AHP shall indemnify only that portion of the judgment against NutriSystem equal to that portion of liability assigned to the Products as compared to the total liability assigned to the Products and to the other pharmaceutical product (such that, for example, if a court/jury determines that the Products are responsible for 50 percent of the harm, that a phentermine product is responsible for 40 percent of the harm, and that NutriSystem is responsible for 10 percent of the harm, then ATOP shall be obligated to indemnify NutriSystem to the extent of 50/90 of its liability). As to Claims where both AHP and phentermine manufacturer(s) are defendants and where the court/jury will not apportion liability between the claims subject to this paragraph and covered Claims, AHP and NutriSystem shall confer in good faith to determine an appropriate apportionment of liability based on the evidence in the case. If AHP and NutriSystem are unable is reach agreement on an appropriate apportionment, the dispute shall be submitted to arbitration pursuant to the arbitration agreement attached as Exhibit D.

4. NutriSystem shall promptly communicate to AHP all demands for settlement or settlement proposals.

5. If NutriSystem receives a separate demand or proposal for settlement from plaintiff, NutriSystem and AHP shall consult in good faith to determine whether AHP

will negotiate and/or settle on behalf of NutriSystern only. In the event AHP determines not to settle on behalf of NutriSystem only, NutriSystem shall have the right to negotiate and settle on its own behalf. In the event that NutriSystem settles a claim under this paragraph after AHP has determined not to do so:

(a) NutriSystem shall pay the first $5,000.00 of such settlement;

(b) AHP and NutriSystern will immediately negotiate in good faith to attempt to agree upon the percentage of said settlement above the amount of $5,000.00 that will be paid by AHP;

(c) If the parties cannot agree on an appropriate apportionment of the settlement amount, then AHP and NutriSystem shall each pay 50 percent of the settlement amount above $5,000; provided that AHP shall not be required to pay more than $25,000 pursuant to this paragraph.

6. AHP may settle any Claims against NutriSystem by paying the amount of such settlement to the plaintiff/claimant; provided that;

(a) Such settlement be conditioned on dismissal with prejudice of all Claims by the plaintiff/claimant against NutriSystem, including any claims arising from the dispensing of phentermines in combination with the Products;

(b) AHP gives notice of the proposed settlement and obtains the approval of NutriSystem with respect to any admissions or acknowledgment of liability on the part of NutriSystem.

7. If AHP settles any claim against itself in any case in which there are also Claims against NutriSystem, AHP shall make all reasonable efforts also to settle such Claims, subject to paragraph 5, above.

8. Counsel for NutriSystem ("Counsel") shall be selected by AHP after consultation with NutriSystem, provided that:

(a) Counsel shall not also represent Wyeth and/or AHP in any case involving the Products, but may represent pharmacies who have been sued as a result of dispensing the Products;

(b) Counsel shall agree, as a condition of their retention, that their sole recourse regarding any dispute over the payment of fees shall be against AHP.

(c) The reasonable legal fees and expenses of Counsel shall be payable directly by AHP;

(d) Counsel shall have an attorney-client relationship with NutriSystem, but not AHP. Counsel shall not share the attorney-client confidences or confidential information of NutriSystem with pharmacy defendants or AHP without written consent, and such confidences and information shall be shared only to the extent explicitly authorized.

(e) Nothing in this Agreement shall be construed to prohibit NutriSystem from retaining counsel in addition to Counsel ("additional counsel") at their expense, which additional counsel shall be subject to the obligations of paragraph 10 below; except that AHP shall reimburse NutriSystem for such work of additional counsel as may be agreed upon in a particular case (possibly including, for example, preparation of NutriSystem officers and employees for deposition and trial testimony; production of company documents; preparation of responses to generic interrogatories; preparation of responses to generic requests for admissions; selection of experts; consultation on generic legal issues).

9. Nothing in this Agreement shall be construed to limit the duty of loyalty owed to NutriSystem by Counsel. Consistent with that duty, it is the expectation of the parties that Counsel will take all reasonable steps to limit attorneys' fees and costs. As a general rule, absent prior consultation and agreement with AHP, which agreement will not be unreasonably withheld, Counsel will not (i) attend depositions other than those of the plaintiff, the prescribing physician, NutriSystem employees, and experts designated to render opinions about NutriSystem's conduct, (ii) prepare and file memoranda in response to motions other than those directed against NutriSystem, or (iii) retain more than one expert in each state. Nothing herein shall he construed to limit the ability of Counsel to follow instructions from, and to defend effectively, NutriSystem.

10. AHP and NutriSystem shall claim, urge, assert and defend the joint defense privilege and all other privileges for confidential communication among the parties or for the joint development of information relevant to defense of the Claims.

11. AHP, NutriSystem and Counsel shall cooperate fully in the investigation and defense of the Claims. Such cooperation will include, but not be limited to:
(a) making available to AHP NutriSystem's records as to any plaintiff/claimant and providing NutriSystem witnesses for interview or to present testimony at trial or any proceeding upon request; (b) making available to Counsel a summary of all materials reasonably necessary to defend NutriSystem in a particular case, including but not limited to deposition transcripts and medical records and other summaries. AHP shall have the right to control the joint defense, including settlement, of the Claims.

12. NutriSystem shall file in each case in which a phentermine manufacturer(s) is a defendant(s) a cross-claim against the phentermine manufacturer(s)

and/or its insurer(s), seeking recovery of amounts due and owing NutriSystem in connection with the Claims. It is further agreed that:

(a) the cross-claims against the phentermine manufacturers and/or their insurers shall be coordinated by and between AHP and NutriSystem;

(b) with respect to their claims for indemnification of legal fees and expenses incurred in the underlying litigation, NutriSystem shall pay any recovery to AHP as reimbursement for legal fees and expenses paid pursuant to this Agreement;

(c) with respect to their claims for indemnification of liability judgments, where the court/jury has apportioned fault, NutriSystem shall be entitled to retain that portion of the recovery;

(d) with respect to their claims for indemnification of liability judgments, where the court/jury has not apportioned fault, NutriSystem shall pay any recovery to AHP as reimbursement for the indemnification paid pursuant to paragraph 3;

(e) this Paragraph 12 shall not apply to any Claim where AHP withdraws its defense and indemnity of NutriSystem under Paragraph 13 of this Agreement;

(f) NutriSystem may only settle the cross-claims against the phentermine manufacturers after consultation with AHP.

13. Notwithstanding the provisions of paragraphs 8 and 8(b), AHP will not indemnify NutriSystem for Claims that it dispensed or recommended the use of the Products despite clear indication in its records that use by the plaintiff/claimant was contraindicated per the contraindications section of the Prescribing Information for the Products (as reproduced at Exhibit B); formulated and dispensed a compounded product; provided warranties not authorized by AHP; or provided warnings other than those

attached as Exhibit C. AHP shall notify NutriSystem of any claim to which this paragraph applies and for which it declines to provide indemnification under this Agreement; provided that:

(a) Such notice shall be provided not less than 30 days before the close of discovery, or 120 days after provision to AHP of NutriSystem's records per paragraph 11(a), whichever date is first;

(b) AHP shall support a request by NutriSystem for severance and/or an extension of the discovery cut-off or deadline for amending pleadings.

14. Should NutriSystem receive a demand for, or be subject to a cross-claim or third-party claim for, indemnification by a physician retained as an independent contractor by NutriSystem in connection with Claims, AHP will promptly evaluate the physician pursuant to AHP's program of indemnification for physicians.

15. AHP and NutriSystem shall not during the term of this Agreement sue or assert any cross-claim, third party claim or other claim against the other or against any parent, subsidiary or affiliate of the other with respect to any Claim. If such claims have been filed already, the parties shall withdraw them forthwith. NutriSystem shall execute an unconditional release of all claims that it may have against AHP for alleged injury to its business as a result of prescribing and/or dispensing the Products,

16. A party may terminate this Agreement only for material breach. AHP may not terminate this Agreement by reason of the bankruptcy of NutriSystem. In the event of such termination;

(a) The parties waive any right they may have to disqualify Counsel or counsel for AHP by reason of participation in the joint defense.

(b) The parties will have all rights to contribution or indemnification, and any claim which it had against the other, which it may have had prior to this Agreement, with respect to Claims that have not at the time of termination been the subject of judgment, other final court action or settlement;

(c) The Agreement shall govern Claims that have been the subject of judgment, other final court action or settlement.

17. Without waiving any pre-existing rights with regard to NutriSystem's or the NutriSystem parties' insurers, including Federal Insurance Company ("Federal") and Chubb Custom Insurance Company ("Chubb"), Federal and Chubb shall be deemed to be NutriSystem parties with respect to any Claim premised upon the conduct of NutriSystem or a NutriSystem party for which Federal or Chubb are sued directly, and for no other purpose. 1n addition, AHP shall not seek reimbursement from NutriSystem's or the NutriSystem parties' insurers of any monies paid pursuant to this Agreement.

18. This Agreement constitutes the entire agreement of AHP and NutriSystem with respect to the subject matter thereof. No modification of this Agreement shall be effective unless contained in a writing executed by each of the parties.

19. Notices with respect to this Agreement shall be provided by facsimile with confirming copy by mail or courier, addressed as follows:

For NutriSystem, L.P.          For American Home Products
Brian Haveson, President           Corporation
NutriSystem, L.P.              Louis L. Hoynes, Jr., Esq.
202 Welsh Road                 Senior Vice-President and
Horsham, PA 19044                  General Counsel
                               Five Giralda Farms
                               Madison, NJ 07940
                               (973) 660-6040

The parties may change address and/or facsimile number by giving 15 days prior written notice of such change.

20. The signatures below constitute the representation by each representative that s/he is duly authorized to enter into the Agreement on behalf of AHP and NutriSystem, respectively.

21. This Agreement shall be governed by the laws of the State of New Jersey, provided that if application of federal law would result in upholding a claim of attorney-client privilege, work production protection, trade secret privilege or other applicable privilege or protective doctrine that would not be recognized under New Jersey law, then federal law shall govern this Agreement insofar as such privilege or protection is concerned.

22. This Agreement may be executed in one or more counterparts each of which shall be deemed an original.

AGREED AS TO SUBSTANCE AND FORM:

BY: /s/ Brian Haveson
    ------------------------------
    Brian Haveson                                 Date: Sept. 27, 1999
    President, Nutri/System, L.P.                       --------------

Exhibit D

ARBITRATION AGREEMENT

THIS AGREEMENT is entered into between Wyeth Ayerst Laboratories Division of American Home Products Corporation ("AHP") and NutriSystem L.P. ("NutriSystem").

WHEREAS the parties have agreed to confer in good faith to determine an appropriate apportionment of liability between AHP and NutriSystem as to Claims where both AHP and NutriSystem. are defendants and where the court/jury will not apportion liability between the claims subject to paragraph 3 of the Joint Defense and Indemnification Agreement and covered Claims; and

WHEREAS the parties have further agreed, if they are unable to reach agreement on an appropriate apportionment, to submit the dispute to arbitration;

NOW, THEREFORE, it is agreed as follows: according to the following guidelines, which guidelines may be amended or supplemented by further agreement of the parties:

1. The parties will submit the question of how liability should be apportioned to a former federal judge, who shall be selected by mutual agreement of the parties.

2. The proceedings shall be governed by the Federal Rules of Civil Procedure and Federal Rules of Evidence as far as practicable.

3. Fact discovery shall be permitted, but the number of witnesses and the number of hours of deposition discovery per side shall be limited.

If the parties cannot agree on these issues, the arbitrator will establish the limits.

4. Expert disclosures shall be made in accordance with Rule 26 of the Federal Rules of Civil Procedure; each side shall be limited to the same number of experts pursuant to the direction of the arbitrator; and the deposition of each expert shall not exceed one day.

5. There shall not be a separate Daubert hearing, but Daubert challenges, if any, shall be heard and considered as part of a single hearing to adjudicate an appropriate apportionment of liability.

6. At the close of discovery, the parties shall confer to determine an appropriate limit on the number of hours each side shall have to present its case at the hearing. If parties cannot reach agreement, the issue shall be submitted to the judge, who shall establish an equal limit for each side.

7. Evidence presented for the first time at the hearing shall be given no greater or lesser weight than evidence presented by the parties at trial and offered at the hearing.

8. The judge shall render a decision within 30 days of the completion of the hearing.

9. The judge shall determine an apportionment of liability between AHP (for fenfluramine or dexfenfluramine) and NutriSystem (for phentermine).

Exhibit 10.2

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the "Amendment") is entered into this 28th day of October, 1999, between TEACHERS INSURANCE AND ANNUITY ASSOCIATION ("Landlord"), and NUTRI/SYSTEM LP ("Tenant").

Background

Landlord and Tenant are parties to a Lease dated December 11, 1997 (the "Lease"), between Landlord's predecessor-in-interest, Teachers Pennsylvania Realty, Inc. ("TPR"), and Tenant, pursuant to which Landlord agreed to lease to Tenant and Tenant agreed to lease from Landlord premises described in the Lease (the "Existing Space") located in that certain building known as 202 Welsh Road, Horsham, Pennsylvania (the "Building"), as more particularly described in the Lease, upon the terms and conditions set forth in the Lease. Landlord has succeeded to the interests of TPR as landlord under the Lease.

Landlord and Tenant desire to extend the term of the Lease and for Tenant to lease from Landlord additional space located in the Building in accordance with the terms and conditions of the Lease and this Amendment.

Agreement

In consideration of the foregoing and of the mutual promises contained in this Amendment, and for other good and valuable consideration the receipt and sufficiency of which is acknowledged by Landlord and Tenant, and intending to be legally bound hereby, Landlord and Tenant agree as follows:

l. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, in addition to the Existing Space currently leased by Tenant under the Lease, the portion of the Building shown by cross-hatching on the Building floor plan attached to this Amendment as Exhibit A (the "Expansion Space"), in accordance with the terms and conditions of this Amendment. The Expansion Space shall be deemed to consist of 15,855 square feet of rentable floor area.

2. Tenant is fully familiar with the Expansion Space, and shall accept possession of the Expansion Space under this Amendment as of the date of execution of this Amendment by Landlord and Tenant in their then-current "as is" condition. Notwithstanding the foregoing, promptly after the execution of this Amendment by Landlord and Tenant, Landlord shall, at Landlord's sole cost and expense, perform all work necessary to cause the electricity (including but not limited to the electricity used to power the heating, ventilation and air conditioning equipment ("HVAC") serving the Expansion Space) and gas consumed in the Expansion Space separately metered. In performing such work, Landlord shall make reasonable efforts not to cause undue interference with Tenant's business operations in the Expansion Space. Except for the work described in this Section 2, Landlord shall not be required to make any improvements in the Expansion Space.

3. The term of the Lease (currently scheduled to expire under the Lease on December 31, 2000), is hereby extended so as to run through the last day of the month in which the fifth (5th) anniversary of the date of execution of this Amendment by Landlord and Tenant occurs. All references in the Lease to the "Original Term" shall be deemed to be references to the term of the Lease as extended pursuant to the immediately preceding sentence.

4. As of the date of execution of this Amendment by Landlord and Tenant (the "Expansion Commencement Date"), the Expansion Space shall be deemed to be a part of the Demised Premises under the Lease, and all provisions of the Lease relating to the Demised Premises generally (but not any provisions of the Lease applicable specifically to the Existing Space or any portion thereof), except as modified by this Amendment (and except with respect to Landlord's obligation to perform or pay for any alterations or improvements in the Demised Premises, other than as provided under this Amendment), shall thereafter be applicable to the Existing Space and the Expansion Space. As of the Expansion Commencement Date, the Demised Premises (i.e., the Existing Space and the Expansion Space) shall be deemed to consist of 48,555 square feet of rentable floor area.

5. Effective as of the Expansion Commencement Date, Tenant shall pay to Landlord during the remainder of the term of the Lease (as amended by this Amendment) Annual Base Rent (as defined in the Lease) for the Demised Premises (i.e., the Existing Space and, as of the Expansion Commencement Date, the Expansion Space) in the following amounts for the following Lease Years (as defined in the Lease):

(i) for the period from the Expansion Commencement Date through the day immediately preceding the first (1st) anniversary of the Expansion Commencement Date, Annual Base Rent shall equal $305,947.56 per annum payable in monthly installments of $25,495.63;

(ii) for the period from the first (1st) anniversary of the Expansion Commencement Date through December 31, 2000, Annual Base Rent shall equal $313,875.00 per annum payable in monthly installments of $26,156.25;

(iii) for the period from January 1, 2001, through the day immediately preceding the second (2nd) anniversary of the Expansion Commencement Date, Annual Base Rent shall equal $333,495.00 per annum payable in monthly installments of $27,791.25;

(iv) for the period from second (2nd) anniversary of the Expansion Commencement Date through December 31, 2001, Annual Base Rent shall equal $341,422.56 per annum payable in monthly installments of $28,451.88;

(v) for the period from January 1, 2002, through the day immediately preceding the third (3rd) anniversary of the Expansion Commencement Date, Annual Base Rent shall equal $348,289.56 per annum payable in monthly installments of $29,024.13;

(vi) for the period from the third (3rd) anniversary of the Expansion Commencement Date through December 31, 2002, Annual Base Rent shall equal $356,217.00 per annum payable in monthly installments of $29,684.75;

(vii) for the period from January 1, 2003, through the day immediately preceding the fourth (4th) anniversary of the Expansion Commencement Date, Annual Base Rent shall equal $364,065.00 per annum payable in monthly installments of $30,338.75; and

(viii) for the period from the fourth (4th) anniversary of the Expansion Commencement Date through the last day of the term, as extended by this Amendment, Annual Base Rent shall equal $371,992.56 per annum payable in monthly installments of $30,999.38.

6. Effective as of the Expansion Commencement Date, Lessee's Pro Rata Share, as referred to in the Lease, for all periods from and after the Expansion Commencement Date, shall equal 31.5292%.

7. The Security Deposit (as defined in the Lease) is hereby increased to $50,991.26. Upon the execution of this Amendment, Tenant shall deliver to Landlord funds in the amount of $25,103.76 to increase the Security Deposit to such amount.

8. Section 1 of Article XXV of the Lease is deleted in its entirety.

9. Tenant represents and warrants to Landlord that Tenant has not dealt with any party to whom a commission might be owing in connection with this Amendment, except for The Flynn Company ("Broker"), and shall indemnify, defend and hold harmless Landlord from and against the claim of any party other than Broker claiming a commission owing due to its dealings with Tenant in connection with this Amendment. Landlord shall pay any commission payable to Broker in connection with this Amendment under a separate agreement or agreements.

10. If there is any conflict between the terms and provisions of the Lease and the terms and provisions of this Amendment, the terms and provisions of this Amendment shall prevail. Landlord and Tenant ratify and affirm the Lease as modified by this Amendment. Except as modified by this Amendment, the Lease shall remain unmodified, in full force and effect.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment on the day and year first above written.

WITNESS/ATTEST:                      TEACHERS INSURANCE AND ANNUITY ASSOCIATION


/s/ Ronette A. Blissett                  BY: /s/ Arend W. Taal
---------------------------------            ---------------------------------
    RONETTE A. BLISSETT                          AREND W. TAAL
                                         ITS: ASSOCIATE DIRECTOR
                                             ---------------------------------


                                         NUTRI/SYSTEM LP

/s/ Barbara D. Hart                      BY: /s/ Brian D. Haveson
----------------------------------           ---------------------------------

                                         ITS: PRESIDENT
                                             ---------------------------------

EXHIBIT A

[GRAPHIC]

In the printed version of the document a floor plan appears.

LEASE SUMMARY

This summary shall not be construed as a part of the subject Lease, but rather is intended as a guide to essential terms of the subject Lease for the convenience and reference of Lessor and Lessee.

1. BUILDING AND LOCATION:

202 Welsh Road
Horsham, PA

2. LESSOR:

Teachers Pennsylvania Realty, Inc.
730 Third Avenue
New York, New York 10017

3. LESSEE:

Nutri/System LP

4. USE OF PREMISES: QUIET ENJOYMENT:

The premises may only be used for offices, and for the warehousing, distribution and storage of non-hazardous and nonflammable materials. Lessee shall procure any government licenses and permits from time to time required for such permitted uses, and Lessor, at no expense to itself, shall cooperate in procuring such licenses or permits. Without limiting the generality of the foregoing, it is agreed that Lessee, and not Lessor, shall be responsible for ascertaining whether Lessee's proposed use of the Premises complies with the local zoning ordinance. The Premises may not be used for any use that would cause the Demised Premises to be deemed a "place of public accommodation" under the Americans with Disabilities Act (ADA) of 1990.

5. LEASED AREA: 32,700 s.f.

6. LEASE TERM: 3 years

7. OPTIONS: One, 2 year option at a renewal rate of $5.35 s.f. triple net or annual rent of $174,945.00 Year 1 of option period and a rental rate of $5.56 s.f. triple net or an annual rent of $181,812.00 year 2 of option period.

8. NO. OF. DAYS' NOTICE REQUIRED TO EXERCISE OPTION(S):
180 days

9. ANTICIPATED LEASE COMMENCEMENT DATE: January 1, 1998

10. ANTICIPATED LEASE EXPIRATION DATE: December 31, 2000

11. ANTICIPATED RENT COMMENCEMENT DATE: January 1, 1998

                      Rate/S.F.         Annual            Monthly
        Period        Per Year         Base Rent         Base Rent
       --------       ---------       -----------       ----------
       Year 1-3       $4.75 NNN       $155,325.00       $12,943.75

13.  FREE RENT: None

14. LESSEE'S PRO RATA SHARE OF BUILDING AREA: 22% - 32,700 s.f. premises in a 150,000 s.f. building.

15. LESSEE'S INITIAL MONTHLY ESTIMATED PAYMENT TOWARDS REAL ESTATE TAXES, OPERATING EXPENSES, AND INSURANCE ("ADDITIONAL RENT"):

Real Estate Taxes:          $1,771.25
Operating Expenses:         $1,607.75
Insurance:                  $  218.00

Total:                      $3,597.00

16. LESSEE'S CONTRIBUTION TO COST OF IMPROVEMENTS: Lessee is taking space "as is". Any improvements to the space are at Lessee's sole cost and responsibility including the certificate of occupancy.

17. LESSEE'S RIGHT OF TERMINATION: None.

18. RIGHT OF FIRST REFUSAL: None.

19. SECURITY DEPOSIT: $25,887.50 (Two months rent).

20. ADDITIONAL PROVISIONS: None.

21. SEWERAGE (MUNICIPAL SEWER, SEPTIC, MDC INDUSTRIAL USER PERMIT):
Building is on public water and sewer.

22. AUTHORIZED BROKER(S): The Flynn Company and Lotz Realty.

23. LESSEE'S REPRESENTATIVE TO BE CONTACTED IN AN EMERGENCY (NAME, ADDRESS, TELEPHONE NUMBER):
Joseph Boileau (215) 752-9111

STANDARD FORM INDUSTRIAL LEASE

Lease made this day of December, 1997 by and between Teachers Pennsylvania Realty, Inc., 730 Third Avenue, New York, New York 10017 (hereinafter with their successors and assigns called the "Lessor") and Nutri/System LP (hereinafter with its successors and permitted assigns called the "Lessee").

WITNESSETH:

Article I
Basic Lease Provisions

Section 1. The following sets forth basic data for this Lease. Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Section:

Lessor: Teachers Pennsylvania Realty, Inc. 730 Third Avenue
New York, NY 10017

Lessee: Nutri/System LP, 202 Welsh Road, Horsham, PA

Lessee's Address:

Demised Premises: Approximately 32,700 square feet of floor area on the first floor of the building (the "Building") thereon erected and situated at 202 Welsh Road in the Town of Horsham, Pennsylvania on the parcel of land (the "Land") described in Exhibit A attached hereto.

Original Term: Three (3) years from the "Commencement Date" of this Lease, as defined in Article II, Section 5 hereof; provided, however, if the Commencement Date is other than the first day of a calendar month then the Original Term shall expire three (3) years after the last day of the calendar month in which the term hereof commences.

Original Annual Base Rent:
YIELDING AND PAYING an Annual Base Rent during the Original Term hereof in the amount of: $155,325.00 payable in advance in equal monthly installments of $12,943.75.

All rates are triple net.

Anticipated Lease Commencement Date: January 1, 1998

Anticipated Rent Commencement Date: January 1, 1998

Anticipated Lease Expiration Date: December 31, 2000

Use of Premises: Quiet Enjoyment: The Premises will be used for general offices. Lessor shall procure any government licenses and permits from time to time required for such permitted uses, and Lessor, at no expense to itself, shall cooperate in procuring such licenses or permits. Without limiting the generality of the foregoing, it is agreed that Lessee, and not Lessor, shall be responsible for ascertaining whether Lessee's proposed use of the Premises complies with the local zoning ordinance. The Premises may not be used for any use that would cause the Demised Premises to be deemed a "place of public accommodation" under the Americans with Disabilities Act (ADA) of 1990.

Lessee's Pro Rata Share: 22%, based on 32,700 square feet of floor area in the Demised Premises and 150,000 square feet of total leasable area in the building.

Authorized Broker: The Flynn Company and Lotz Realty

Security Deposit: $25,887.50 (two months rent)

Section 2. The Exhibits listed below are incorporated this Lease by reference and are to be construed as part of this Lease:

Exhibit A - Description of the Land
B - Intentionally omitted
C - Floor Plan of the Demised Premises D - Lessor's Initial Estimate of Lessee's Monthly Pro Rata Share of Real Estate Taxes, Operating Expenses and Insurance
E - HVAC Maintenance Schedule
F - Signage Standards
G - Subordination Agreement
H - Approved Hazardous Substances

Article II Demised Premises; Term and Commencement

Section 1. In consideration of the rents and covenants herein contained on the part of the Lessee to be paid, performed and observed, the Lessor hereby leases to the Lessee and the Lessee hereby leases from the Lessor, subject to the terms and provisions hereinafter set forth, the Demised Premises; together with the nonexclusive right to use, in common with others lawfully entitled thereto, the common areas of the Building, the parking areas on the Land as same may exist from time to time, for parking purposes only, and the driveways and walkways on the Land, as same may exist from time to time, for roadway and walkway purposes only. The Demised Premises shall be constructed substantially in accordance with the outline specification attached hereto as Exhibit B and the floor plan attached hereto as Exhibit C.

Section 2. The Demised Premises are leased subject to the reservation to the Lessor of the roof and exterior walls of the Demised Premises and of the Building, and subject to the Lessor's reservation of the right (without thereby assuming the obligation) to install, maintain, use, repair and replace (in such manner as to reduce to a minimum to the extent reasonably practicable the interference with Lessee's use of the Demised Premises) all pipes, ducts, wires, meters, utility lines and the like which are in the judgment of the Lessor, required to be in the Demised Premises. The Lessor reserves the right to alter, reduce, increase and relocate such parking areas, driveways and walkways from time to time and any common facilities within the Building. The Lessor reserves the right to make additions to the Building, to erect additional buildings and structures on the Land, and to continue to do construction work on the Building and the Land following delivery of the Demised Premises to Lessee.

Section 3. TO HAVE AND TO HOLD the Demised Premises for the original term unless sooner terminated as herein provided.

Section 4. Lessor shall engage an architect or engineer to prepare a detailed plan of improvements (the "Engineered Plan", which term shall also be deemed to include the improvements specified in Exhibits B and C to this Lease) to be made to prepare the Demised Premises for Lessee's occupancy. Lessor shall submit the Engineered Plan for Lessee's approval and Lessee shall respond within five (5) business days. Upon Lessee's written approval of the Engineered Plan, Lessor shall promptly commence and shall use diligent efforts to complete all work ("Lessor's Work") specified in the Engineered Plan by the Lessor's Work

Completion Date provided in Article I, Section 1 of this Lease.

Section 5. The term "Commencement Date" as used in this Lease shall be deemed to refer to the earlier to occur of (i) the date on which Lessor has completed Lessor's work (except for punch-list items), or (ii) the date on which the demised premises or any portion thereof are first used for the conduct of Lessee's business. Lessor shall complete all punch-list items as soon as conditions permit and Lessee shall afford Lessor reasonable access to the Demised Premises for such purposes. "Punch-list" items shall mean minor items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after Lessee has taken occupancy of the Demised Premises without causing undue interference with Lessee's use of the Demised Premises. At any time after the Commencement Date is determined as aforesaid, Lessee agrees upon demand of Lessor to execute, acknowledge and deliver a written statement in recordable form satisfactory to Lessor stating the Commencement Date hereunder.

Section 6. Lessor shall have no obligation to change the Engineered Plan of the Demised Premises as approved by Lessee, but shall use good faith efforts to accommodate any requests by Lessee for modifications thereof ("Changes"), provided (i) each such Change shall be described in a written Change Order signed by Lessor and Lessee and any additional cost shall be payable by Lessee in full upon the execution of such Change Order, and (ii) there shall be no delay or extension of the Commencement Date on account of Lessor's failure to complete any work described in a Change Order, although Lessor shall use diligent efforts to complete such work as soon as practicable.

Article III Rent

Section 1. YIELDING AND PAYING an annual base rent during the Original Term hereof in the amount of the Original Annual Base Rent. All such rent shall be payable in advance on the first day of each calendar month during the term hereof commencing on the Rent Commencement Date. If the Rent Commencement Date is other than the first day of a calendar month, base rent for the first incomplete month, prorated at the rate set forth above, shall be paid on the Rent Commencement Date.

Section 2. The Original Annual Base Rent shall, during the Original Term, be

Section 3. The Lessee shall pay, as additional rent hereunder, during the Original Term hereof and any extension hereof, Lessee's Pro Rata Share of any and all real estate taxes and betterments and other assessments (ordinary and extraordinary), water rents, sewer and other charges which shall be imposed, assessed or levied upon the Building and the Land. In addition, the Lessee shall pay 100% of real estate taxes, betterments and other assessments due to any alterations or improvements made by the Lessee to the Demised Premises. If any betterment assessment is payable in installments, Lessee shall only be obligated to pay its Pro Rata Share of the installments (including interest) which are allocable to the term of this Lease or any extension of the term hereof. If this Lease shall commence on a date other than the first day of a tax year, or terminate on a date other than the last day of a tax year, the Lessee for that tax year shall pay to the Lessor only such portion of such additional rent for the whole tax year as shall be proportionate to the portion of the tax year contained within the term of this Lease.

Section 4. The term "real estate taxes" shall mean all taxes and special assessments of every kind and nature assessed by a governmental authority on the Land or the Building which the Lessor shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Land or Building. The foregoing provisions are predicated upon the present system of taxation in the Commonwealth of Pennsylvania. If taxes upon rentals or otherwise pertaining to the Demised Premises shall be substituted, in whole or in part, for the present ad valorem real estate taxes or assessed in addition thereto, then Lessee's obligation to pay such taxes shall be based upon such substituted taxes, to the extent to which the same shall be a substitute for present ad valorem real estate taxes, together with such additional taxes, and such substitute or additional taxes shall be deemed to be included within the term "real estate taxes." Except as hereinabove provided, nothing herein contained shall otherwise require or be construed to require Lessee to reimburse Lessor for any inheritance, estate, succession, transfer, gift, franchise, income or earnings, profit, excess profit tax, capital stock, capital levy or corporate or other similar tax which is or may be imposed upon Lessor or upon Lessor's business.

Section 5. During the Original Term and any extensions or renewals thereof, Lessee shall pay to Lessor, as additional rent, Lessee's Pro Rata Share of the costs paid or incurred

by Lessor in managing, operating, maintaining and repairing the Building, and any additions to the Building (except only for structural repairs set forth in Article VI, Section 2) and in maintaining and repairing the Land, including, without limitation, parking areas, driveways, walkways, and landscaping thereon. Such costs shall include, without limitation: (1) all costs of providing utilities, (including, without limitation, where applicable, heat, cooling, and light), for maintaining and repairing the common areas of the Building, the parking areas, driveways and walkways on the Land (including, without limitation, resurfacing, striping and sweeping) and removing snow and ice from the parking areas, driveways and walkways on the Land and from the roof of the Building; (2) all costs of maintaining and repairing all drainage, sewage and/or septic systems and utility facilities and equipment on the Land whether above or underground; (3) all costs of operating, maintaining and repairing the Building and any additions thereto (structural repairs set forth in Article VI, Section 2 excepted), including without limitation, security and traffic control, maintenance and repair of all fixtures and equipment and utility facilities, including sewer and/or septic systems not serving exclusively the Demised Premises nor serving exclusively any other tenant; (4) reasonable management, legal, accounting and other professional fees (including management fees) incurred in connection with the operation, maintenance and management of the Building and the Land. The Tenant's cost of legal, accounting, or professional fees shall not exceed five cents ($.05) per square foot in any given year.

Section 6. During the Original Term and any extensions or renewals thereof, Lessee shall pay Lessor, as additional rent hereunder, Lessee's Pro Rata Share of Lessor's cost of the following insurance on the Building and the Land: fire, extended coverage, flood, earthquake, boiler and machinery, and such other insurance covering all hazards included within customary "all risks" coverage, including without limitation insurance covering fire, lightning, vandalism, malicious mischief, and sprinkler leakage, said insurance to be on a full value, repair, or replacement basis as determined by Lessor; loss of rents insurance; and such other insurance as may be requested by Lessor's mortgagee. In addition, notwithstanding the foregoing, Lessee shall pay as additional rent, 100% of Lessor's cost of any insurance with respect to the Building or the Land which is attributable solely to Lessee's particular use of the Demised Premises.

Section 7. During the original term and any extensions or renewals thereof, Lessee shall pay Lessor, as additional rent hereunder, Lessee's Pro Rata Share of Lessor's cost for comprehensive liability insurance indemnifying the Lessor against all claims and demands for any injury to persons or property which may be claimed to have occurred in or upon the Building or the Land in such amounts as Lessor shall from time to time determine.

Section 8. Lessee's Pro Rata Share of Lessor's costs relating to real estate taxes, operating expenses and insurance, referred to in Sections 3 through 7 of this Article III, shall be paid in advance in 12 equal monthly estimated installments (based on an amount estimated by Lessor) due and payable on the same dates as the monthly installments of annual base rent payable hereunder. Lessee's obligation to pay its Pro Rata Share of Lessor's costs relating to real estate taxes, operating expenses, and insurance (and ail other charges in the nature of additional rent provided in this Lease) shall begin as of the Commencement Date of this Lease and shall not be affected by any "free rent" or other concessions relating to Lessee's obligation to pay the Original Annual Base Rent provided in Section 1 of this Article III. As of the end of each fiscal year of Lessor (meaning the twelve-month period used by the Lessor preparing its annual financial statements), Lessor shall furnish to Lessee a statement in reasonable detail setting forth the computation of such costs; thereupon Lessee shall pay any deficiency, and any overpayment shall be refunded to Lessee. If the Lease shall commence on a date other than the first day of Lessor's fiscal year, or terminate on a date other than the last day of Lessor's fiscal year, the Lessee for that respective fiscal year shall pay to the Lessor only a proportionate share of Lessor's costs for the whole fiscal year as shall be proportionate to the portion of the fiscal year contained within the term (as extended or renewed) of this Lease. Lessor's initial estimate of the monthly installments payable by Lessee hereunder is attached hereto as Exhibit D.

Section 9. This is, and is intended to be, a NET LEASE, and accordingly, except as expressly otherwise provided for herein, all charges, assessments and impositions made upon the Land and the Building and all costs, expenses and other obligations paid or incurred by Lessor of any kind or nature whatsoever in insuring, maintaining and/or repairing the Demised Premises or the Building or the Land or any additions to the Building, (other than costs of maintaining or repairing the interior of space leased to others or available for lease to others and other than structural

repairs set forth in Article VI, Section 2 hereof) shall be included in determining Lessor's costs of which Lessee is obligated to pay a pro rata share or the entirety, as the case may be, as provided hereinabove.

Section 10. All payments of base rent and additional rent hereunder shall be mailed or delivered to the Lessor, when due as set forth herein without offset or deduction and without previous demand therefore and if other than cash be made payable to the order of Teachers Pennsylvania Realty, Inc. (Lessor), c/o The Flynn Company (Rental Agent for Lessor) at 1621 Wood Street, Philadelphia, PA 19103, or otherwise as Lessor may notify Lessee from time to time.

Article IV Covenants

Lessee covenants and agrees as follows:

(a) To pay when due the said base rent and additional rent at the times and in the manner set forth herein.

(b) To procure any and all licenses and permits required for any use to be made of the Demised Premises by Lessee, to keep the Demised Premises equipped with all safety appliances required by law or ordinance because of any use of the Demised Premises by Lessee and to make any alterations or changes which may be necessary to meet the obligations and standards promulgated under the Occupational Safety and Health Act of 1970 which are related to Lessee's use and occupation of the Demised Premises.

(c) To pay promptly when due the entire cost of any work to the Demised Premises undertaken by Lessee so that said premises shall at all times be free of liens for labor and materials; to procure all necessary permits before undertaking such work; to do all of such work in a good and workmanlike manner, employing new materials of good quality and complying with all governmental and insurance requirements; and to save Lessor harmless and indemnified from all injury, loss, claims or damage to any person or property occasioned by or growing out of such work including, without limitation, reasonable attorneys' fees. If so requested by Lessor, Lessee shall take over Lessor's defense in any action related to work undertaken by Lessee on the Demised Premises.

(d) To permit Lessor and anyone claiming under Lessor at reasonable times to enter into and examine the Demised

Premises and to show the Demised Premises to prospective purchasers or tenants, provided that Lessor shall not thereby unreasonably interfere with the conduct of Lessee's business; to permit Lessor to enter said premises to make such repairs, improvements, alterations or additions thereto as may be required in order to comply with the requirements of any public authority having jurisdiction of the Demised Premises, or as may be required of Lessor under the terms of this Lease, provided that such entry shall not unreasonably interfere with the conduct of Lessee's business; and to permit the affixing to any suitable part of the Demised Premises reasonable notice for letting or selling the Demised Premises or the Building; to permit Lessor to enter the Demised Premises at any time to make emergency repairs.

(e) To pay when due any and all State, Federal or local taxes based upon Lessee's personal property or resulting from any permitted alteration, additions or improvements made by Lessee to the Demised Premises.

(f) To conform to and comply with all laws, orders and regulations of any governmental authorities and any public body or officer having jurisdiction over the Demised Premises.

(g) To comply with any rules, regulations or recommendations of the National Board of Fire Underwriters, any rating bureau, or any similar association performing such function, and any insurance company insuring the Demised Premises with respect to the Demised Premises and/or Lessee's use and occupation thereof, so long as Lessee shall not be required to make structural changes unless required by Lessee's particular use of the premises.

(h) To keep the Demised Premises adequately heated for the protection of the plumbing herein.

(i) To permit no waste with respect to the Demised Premises.

(j) To permit no storage of materials outside of the Demised Premises except for such temporary storage as may be required for reasonable periods of time due to unforeseen circumstances or emergencies.

(k) To comply with such reasonable rules and regulations now or hereafter made by Lessor for and with respect to

the care and use of the Building, the Land and their facilities and approaches, it being understood that Lessor shall not be liable to Lessee for the failure of any other tenants of the Building to conform to such rules and regulations.

(1) Not to do, or suffer to be done, or to keep, or suffer to be kept, or omit to do anything in, upon or about the Demised Premises which may prevent the obtaining of any insurance on the Building or the Demised Premises or which may make void or voidable any insurance on the Building or the Demised Premises.

Article V Use of Demised Premises

Section 1. The Lessee shall have the right to use the Demised Premises only for Permitted Uses and for no other purpose whatsoever, but in no event shall Lessee conduct at the Demised Premises any use or do anything which is offensive, constitutes a nuisance or violates any provisions of any zoning, building or other applicable laws, ordinances or regulations.

Section 2. Lessee further agrees to conform to the following provisions during the entire term of this Lease or any extension thereof;

(a) Lessee shall always conduct its operations in the Demised Premises under its present trade name or any future trade name which is not offensive or in violation of law, unless Lessor shall otherwise consent in writing, which consent shall not be unreasonably withheld;

(b) Lessee shall not permit any auction, fire, going-out-of-business, or bankruptcy sales or any retail sales whatsoever to be conducted within the Demised Premises, without the prior written consent of the Lessor;

(c) Lessee shall not use the sidewalks, parking areas or other outside areas for advertising or business purposes or otherwise obstruct the same;

(d) Lessee shall, at its own cost and expense, be responsible for the prompt regular removal of all trash, refuse, and the like, from the Demised Premises and shall insure that same be kept in covered containers at all times;

(e) All curtains and other window treatments visible from the exterior of the Demised Premises shall be white in color;

(f) Lessee shall take whatever measures are necessary to insure that floor load limitations are not exceeded in the Demised Premises; and

(g) Lessee shall not cause any offensive odors or loud noise (including, but without limitation, the use of loudspeakers), nor take nor permit any action which constitutes a nuisance or menace to any other occupant of other premises in the Building, and in no event shall any loud noises or offensive odors be emitted from the Demised Premises.

Article VI Repairs and Alterations

Section l. The Lessee shall keep the Demised Premises in a neat, clean, sanitary condition and in good order and repair and in good working condition, including all electrical, plumbing, gas, sprinkler, and equipment within or serving the Demised Premises (including without limitation the maintenance, repair and/or replacement of the HVAC system serving the Demised Premises), and all fixtures and interior walls, floors, ceilings, signs (including exterior signs where permitted) and all interior building appliances and similar equipment and the exterior and the interior portions of all windows, window frames, doors, door frames, and all other glass or plateglass thereon. In connection therewith, and without limiting Lessee's obligations hereunder, Lessee shall perform the maintenance as set forth on the HVAC maintenance schedule attached hereto as Exhibit E and made a part hereof. Lessor shall use reasonable efforts to assign to Lessee or to enforce on Lessee's behalf any written warranties from contractors or manufacturers applicable to repairs and replacements to be performed by Lessee.

Section 2. The Lessor shall, at its own expense, promptly after receipt of written notice from the Lessee, make any necessary repairs to the roof, foundations, beams, girders, mullions and exterior walls of the Demised Premises only (exclusive of glass, window frames, windows, doors, door frames, and signs, which repairs shall be made by the Lessee) except where such repairs are required by reason of any act or negligence of the Lessee, its employees, agents, licensees, suppliers, contractors, or guests ("structural repairs"). The Lessor shall commence repairs to be made by it as promptly as practicable after the receipt of such

notice; provided, however, that the Lessor (without limiting Section 15 of Article XXII hereof) shall not be liable for a delay in commencement of the making of such repairs or for a delay or failure to complete such repairs where such delay or failure is attributable to strikes or other labor conditions, inability or difficulty in obtaining materials or services, wars, delays due to the weather, or other cause beyond the reasonable control of the Lessor.

Section 3. Lessor shall be responsible for the maintenance of the grass and shrubs located on the Land and shall be responsible for maintaining, repairing and lighting of common areas of the Building and maintaining, repairing, lighting and removing snow from the parking areas, driveways and walkways on the Land, except where the necessity thereof is due to the willful or negligent acts of Lessee or its agents, employees, licensees, suppliers, contractors or guests.

Section 4. All costs paid or incurred by Lessor in performing any of its obligations under this Article VI (except for structural repairs set forth in
Section 2 hereof) shall be included in Lessor's costs of maintaining and repairing as set forth in Article III, Section 5.

Section 5. The Lessee shall at the expiration or earlier termination of this Lease remove its goods and effects and peaceably yield up the Demised Premises, clean and in the same order, repair and condition as at the Commencement Date of the term hereof, or as the same may be put in during the term hereof, reasonable wear and tear excepted (provided good maintenance practices are employed), except for repairs which the Lessor agrees to make as herein provided, and except for damage by fire or insured casualty, and Lessee shall promptly repair any injury done to the Demised Premises, the Building or the Land by the installation or removal of the Lessee's fixtures or other property.

Section 6. The Lessee shall have the right at its expense to make alterations, improvements or additions to the interior of the Demised Premises, provided that;

(a) No such alteration, addition or improvement shall lessen the fair market value of the Demised Premises or the Building, and any such alteration, addition or improvement shall be done in accordance with all applicable laws, in a good and workmanlike manner with good quality material, and shall not impair the safety of the structure of the Building.

(b) Any such alteration, addition, or improvement shall be made in accordance with previously prepared plans and specifications, and such plans and specifications must have the written approval of the Lessor before any work thereon shall be commenced, such approval with respect to non-structural alterations, not to be unreasonably withheld. With respect to structural alterations, improvements or additions, Lessor shall have absolute discretion to withhold or grant its consent.

(c) Prior to the commencement of work on any such alteration, addition, or improvement, the plans and specifications covering the same shall have been submitted to and approved by:

1. All municipal or other governmental departments or agencies having jurisdiction over the subject matter thereof, and

2. Any mortgagee having an interest in or lien upon the Building or the Land, if required by the terms of the mortgage, it being understood that the Lessor will join in any application to any such mortgagee to obtain such approval with respect to any alteration, addition, or improvement which the Lessor shall have approved under subparagraph b above.

(d) The Lessee shall pay the increased premium, if any, for the insurance coverage of the Demised Premises or the Building resulting from any additional risk during the course of construction or installation of any such alteration, addition, or improvement or resulting from such alteration, addition or improvement.

All additions, improvements and fixtures (other than the usual trade fixtures, furniture and equipment installed by the Lessee which may be removed from the Demised Premises without injury thereto) which may be made or installed by either the Lessor or the Lessee and which are attached to a floor, wall or ceiling, including any linoleum or other floor covering of similar character, shall remain upon the Demised Premises, and at the expiration or earlier termination of this Lease shall be surrendered with the Demised Premises as a part thereof. However, the Lessor upon termination of this Lease may require the Lessee at Lessee's expense to restore the Demised Premises to their condition at the commencement of this Lease in whole or in part.

Any trade fixtures, furniture and equipment owned by the Lessee which may be removed from the Demised Premises without injury thereto shall remain the property of the Lessee and shall be removed by the Lessee from the Demised Premises without injury thereto prior to the expiration or earlier termination of this Lease. In the event Lessee fails to remove said fixtures, furniture and/or equipment prior to the expiration or earlier termination of this Lease they shall be deemed abandoned and may be disposed of by Lessor in any way it sees fit, and Lessor shall not be liable to Lessee for any such disposal.

Section 7. Without limiting Lessee's obligations in this Lease or elsewhere, Lessee shall promptly, after notice from the Lessor, repair at its own expense any damage to the exterior of the Demised Premises, the Building or to the utilities serving the Demised Premises (including the HVAC system), or to the Land (including without limitation the parking areas, driveways, walkways, and grass and shrubs located on the Land) caused by any act or negligence of the Lessee, its agents, employees, licensees, suppliers, contractors, or guests.

Section 8. It is understood that Lessor's obligations under this Article VI are subject to the provisions and limitations set forth in Article XV and XVI.

Article VII Utilities

The Lessee shall pay when due all charges for utility services provided to the Demised Premises including, without limitation, electricity, gas, water, telephone, and the cost of fuel to heat or air condition the Demised Premises. If water consumed by the Demised Premises is not metered separately from water consumed by the remainder of the Building, Lessee shall pay to Lessor, in accordance with the provisions of Section 8 of Article III, Lessee's Pro Rata Share of the aforesaid. The aforementioned share is based on the assumption that water in the Demised Premises will be used only for ordinary drinking and lavatory purposes. If water is consumed in the Demised Premises for other purposes or in excessive quantities or if Lessee's heating and/or cooling requirements are materially greater than that of other tenants or prospective tenants, then Lessee shall pay to Lessor, on demand from time to time, charges for said additional water as reasonably estimated by Lessor. Lessor reserves the right to install a water meter to measure water consumption in the Demised Premises if not installed at the

Commencement Date. The Lessor shall not be liable for any interruption of electricity, gas water, telephone, sewage and/or septic system or other utility service supplied to the Demised Premises, when in Lessor's judgment it is deemed necessary by reason of accident, emergency, repair work, or otherwise. No such interruption or stoppage of utility service shall be deemed to be an eviction of the Lessee or relieve Lessee from any of the Lessee's obligations under this Lease.

Article VIII Indemnity and Public Liability Insurance

Section 1. The Lessee shall assume exclusive control of the Demised Premises, and all tort liabilities with respect to the control or occupancy thereof and shall save the Lessor harmless and indemnified from all injury, loss, claims or damage of whatever nature to any person or property in or about the Demised Premises, the Building and/or the Land, arising from any act, omission or negligence of the Lessee or Lessee's subtenants or concessionaires or the employees, agents, contractors, suppliers, licensees, invites, or customers of any of the foregoing or otherwise resulting from Lessee's use, maintenance and occupancy of the Demised Premises or any thing or facility kept or used thereon. Upon request of Lessor, the Lessee shall take over the Lessor's defense in any action related to such matter for which Lessee has agreed to indemnify Lessor.

Section 2. Lessee agrees to maintain in full force during the term hereof, and any extensions thereof, a policy of public liability and property damage insurance under which the Lessor (and such other persons as are in privity of estate with Lessor as may be set out in notice from the Lessor from time to time) and Lessee are named as insureds, and under which the insurer agrees to indemnify and hold Lessor and those in privity of estate with Lessor harmless from and against all cost, expense and/or liability arising out of or based upon any and all claims, accidents, injuries, and damages mentioned in Section 1 of This Article VIII. Each such policy shall be non-cancellable with respect to the Lessor and Lessor's said designees without ten (10) days' prior written notice to Lessor, and a duplicate original or certificate thereof shall be delivered to Lessor upon execution of this Lease. The minimum limits of liability of such insurance shall be One Million Dollars ($1,000,000) for injury (or death) to any one person, and Two Million Dollars ($2,000,000) for injury (or death) to

more than one person, and Five Hundred Thousand Dollars ($500,000) with respect to damage to property.

Section 3. Neither the Lessor nor any agent or employee of the Lessor shall be liable for any loss or damage to the person or property of the Lessee, or of any subtenant, or concessionaire, or of any employee, customer, licensee, invitee, contractor or supplier, or guest of any of the foregoing, except where such damage is attributable solely to the negligence of the Lessor its agents or employees. Without in any way limiting the generality of the foregoing, Lessor, its agents or employees shall not be liable, in any event, for any such damage resulting;

(a) from the interruption to business resulting from theft, fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of said Demised Premises, or from the pipes, appliances or plumbing or from dampness or any other cause;

(b) from any hidden defect in, under or upon the Demised Premises, the Building or the Land; and/or

(c) from acts or omissions or persons occupying adjacent premises or otherwise entitled to use the Building and/or Land.

Section 4. Lessor shall not be liable to Lessee for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from power losses or shortages or from the necessity of Lessor's entering the Demised Premises for any of the purposes in this Lease authorized, or for repairing the Demised Premises or any portions of the Building or Land in accordance herewith, nor shall any such entry, interruption or similar event give rise to a claim in Lessee's favor that such event constitutes actual or constructive, total or partial, eviction from the Demised Premises.

Article IX Fire and Extended Coverage Insurance

Section 1. The Lessor shall obtain the insurance for which Lessee makes required payments to Lessor under Article III, Section 6.

Section 2. The Lessee shall not acquire, by being named, at the election of Lessor, as insured under any fire or extended coverage insurance on the Demised Premises or the Building, any right to participate in the adjustment of loss or to receive insurance proceeds and agrees upon request

promptly to endorse any checks or other instruments in payment of loss in which the Lessee is named as payee.

Section 3. The Lessee shall, at its own expense, maintain fire and comprehensive casualty insurance of adequate amounts with respect to its own fixtures, merchandise, equipment and other property contained in the Demised Premises, it being understood that all merchandise, furniture, fixtures, effects and property of every kind of the Lessee which may be in the Demised Premises, or the Building or on the Land shall be at the sole risk and hazard of the Lessee.

Article X Signs

The Lessee shall submit to the Lessor, for Lessor's prior approval, the design and specifications for any signs to be installed by Lessee. All Lessee's signs shall conform to Lessor's signage standards attached hereto as Exhibit F and to any applicable municipal or other law, rules, ordinance or code. If a building permit is required to install Lessee's sign, Lessee shall furnish Lessor with a copy of such permit prior to installation. Lessee shall maintain and keep in good repair any signs erected by it. Lessee shall be responsible for any repairs to the Demised Premises or the Building related to the erection of said signs. Lessee shall remove all of its signs upon expiration of the term or earlier termination of this Lease and shall promptly repair any damage related to the erection or removal of said signs.

Article XI Assignment or Subletting

A. Lessee shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Lessee, or assign this Lease for security purposes, without the prior written consent of Lessor, and such restrictions shall be binding upon any assignee or sublessee to which Lessor has consented. In the event Lessee desires to sublet the Premises, or any portion thereof, or assign this Lease, Lessee shall give written notice thereof to Lessor at least 90 days but no more than 180 days prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed sublessee or assignee, the relevant terms

of any sublease, and copies of financial reports and other financial information of the proposed sublessee or assignee. Notwithstanding any permitted assignment or subletting, Lessee shall at all times remain directly and primarily responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under this Lease. Upon the occurrence of an "event of default" (as hereinafter defined), if the Premises or any part thereof are then sublet, Lessor, in addition to any other remedies provided herein or by law, may collect directly from such sublessee all rents due and becoming due to Lessee under such sublease and apply such rent against any sums due to Lessor from Lessee hereunder. No such collection directly from an assignee or sublessee shall be construed to constitute a novation or a release of Lessee from the further performance or Lessee's obligations hereunder.

B. In addition to Lessor's right to approve any sublessee or assignee, Lessor shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, to terminate this Lease, or in the case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised by Lessor's giving Lessee written notice thereof within sixty (60) days following Lessor's receipt of Lessee's written notice as required above. If this Lease shall be terminated with respect to the entire Premises the Term shall end on the date stated in Lessee's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease for the expiration of the Term. If Lessor recaptures only a portion of the Premises, the rent during the unexpired Term shall abate, proportionately, based on the rent as of the date immediately prior to such recapture. Lessee shall, at Lessee's own cost and expense, discharge in full any outstanding commission obligation or the part of Lessor with respect to this Lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are captured pursuant hereto and rented by Lessor to the proposed lessee or any other lessee.

C. Consent by Lessor to any assignment or subletting shall not include consent to the assignment or

transferring of any lease renewal option rights or space option rights of the Premises, special privileges or extra services granted to Lessee by this Lease, or addendum or amendment thereto of letter or agreement (and such options, rights, privileges or services shall terminate upon such assignment), unless Lessor specifically grants in writing such options, rights, privileges or services to assignee or sublessee. Any sale, assignment, mortgage, transfer of this Lease or subletting which does not comply with the provisions or this Article shall be void.

D. In the event that Lessee sells, sublets, assigns or transfers this Lease and at any time receives periodic rent and/or other consideration which exceeds that which Lessee would at that time be obligated to pay to Lessor, Lessee shall pay to Lessor 100% of the gross increase in such rent as such rent is received by Lessee and 100% of any other consideration received by Lessee from such sublessee in connection with such sublease, or in the case of an assignment of this Lease by Lessee, Lessor shall receive 100% of any consideration paid to Lessee by such assignee in connection with such assignment.

E. Should Lessor agree to authorize and execute an assignment or sublease agreement, Lessee will pay to Lessor on demand a sum equal to all of Lessor's costs, including attorneys' fees, incurred in connection with such assignment or transfer.

F. The nature of the occupancy, the use and the manner of use of the Premises by the proposed subtenant or assignee shall not impose on Lessor any requirements of the Americans with Disabilities Act (ADA) of 1990 in excess of those requirements imposed on Lessor in the absence of such proposed subtenant or assignee or such occupancy, use or manner of use, unless such proposed subtenant or assignee shall have agreed to comply with each of such excess requirements and, at Lessor's option, shall have furnished Lessor with such security as Lessor may require to assure that such subtenant or assignee shall so comply.

Article XII Subordination

Section 1. The Lessee shall from time to time, within ten (10) days after written demand of Lessor, either (as demanded by Lessor) subordinate this Lease or make this Lease superior to any existing and/or future Mortgage heretofore or hereafter placed upon the Land and to any renewal, modification, replacement or extension of such Mortgage, and to any and all advances made to or to be made thereunder, provided that said Mortgagee enter into an agreement with Lessee by the terms of which the Mortgagee under said Mortgage will agree that in the event of foreclosure thereof, said Mortgagee will not disturb the possession of the Lessee under the Lease so long as the Lessee is not in default hereunder and the Lessee will agree to recognize the holder of such Mortgage as the Lessor in such event, which agreement shall be made expressly binding upon the successors and assigns of the Lessee, and the Mortgagee and upon anyone purchasing said Demised Premises or Building at any foreclosure sale. Notwithstanding the foregoing if requested by Lessor or a Mortgagee of the Demised Premises, Lessee agrees to promptly execute a Subordination and Attornment Agreement substantially in the form attached hereto as Exhibit G, or in the mortgagee's standard form containing its usual terms and conditions, and failure to execute such an agreement promptly upon request shall be a default under this Lease. The Lessee and the Lessor agree to execute and deliver any instruments necessary to carry out the agreements contained in this Section. Any such Mortgage to which this Lease shall be subordinated or be made superior may contain such other terms, provisions and conditions as the Mortgagee deems usual or customary. The Lessee hereby irrevocably appoints the Lessor and any successor or assigns its attorney-in-fact (which appointment is coupled with an interest) to execute and deliver any such instrument of subordination for and on behalf of the Lessee and its successors and assigns.

Section 2. If any Mortgagee elects by written notice given to the Lessee, to have this Lease and the interest of the Lessee hereunder superior to any such Mortgage then this Lease and the interest of the Lessee hereunder shall be deemed superior to any such Mortgage, whether this Lease was executed before or after such Mortgage.

Section 3. Lessee will, upon request by Lessor or any Mortgagee, from time to time, execute and deliver to such party (a) an "estoppel Letter", so called, in form satisfactory to such party and/or (b) a copy of every notice of default delivered by Lessee to Lessor at the same time

and in the same manner as to Lessor and/or (c) an agreement consenting to an assignment of this Lease to such party and acknowledging such assignment.

Section 4. For purposes hereof, the term "Mortgage" shall mean any real estate mortgages, ground leases, deeds of trust, security agreements or indentures affecting the Land or the Building; the term "Mortgagee" shall include the holder of any such real estate mortgage, any ground lessor or any trustees or holders of any such security agreements or indentures.

Article XIII Self-Help

If the Lessee shall default in the performance or observance of any agreement or condition in this Lease contained on its part to be performed or observed, and shall not cure such default within thirty (30) days after notice from Lessor specifying the default (or, if said default cannot reasonably be expected to be cured within such thirty-day period, shall not within said period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence) Lessor may, at its option, without waiving any claim for breach of agreement, at any time thereafter cure such default for the account of Lessee, and make all necessary payments in connection therewith, including but not limiting the same to reasonable counsel fees, costs or charges of or in connection with any legal action which may have been brought, and any amount paid by Lessor in so doing shall be deemed paid for the account of Lessee and Lessee agrees to reimburse Lessor therefore with interest thereon at 18% per annum, such sums payable by Lessee to Lessor to be deemed additional rent; provided that Lessor may cure any such default as aforesaid prior to the expiration of any waiting or cure period but after Lessor has exerted best efforts to give actual notice (by telephone or otherwise), if the curing of such default prior to the expiration of said waiting or cure period is reasonably necessary to protect the real estate or Lessor's interest therein, or to prevent injury or damage to persons or property.

Article XIV Waiver of Subrogation

Lessor and Lessee each hereby releases the other from any and all liability or responsibility to the other (or anyone claiming through or under them by way of subrogation or otherwise) for any loss or damage to the Demised Premises or property thereon against which the waiving party is protected by insurance, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible; provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such time as the releasors policies shall contain a clause or endorsement to the effect that any such release shall not adverselv affect or impair said policies or prejudice the right of the releasor to recover thereunder. Lessor and Lessee each hereby agree that it shall cause such clause or endorsement to be included in its insurance policies with respect to the Demised Premises, if available, and, if necessary, pay any additional premium, that may be charged therefore.

Article XV Damage by Fire, Etc.

Section 1. If the Demised Premises or the Building shall be damaged or destroyed by fire, windstorm or any other insured casualty, the Lessee shall immediately give notice thereof to the Lessor and unless this Lease is terminated as hereinafter provided, the Lessor at his own expense shall repair or rebuild the same so as to restore the Demised Premises (but not any leasable improvements, alterations, additions or improvements made by or for Lessee) to substantially the same condition they were in immediately prior to such damage or destruction, subject, however, to zoning and building laws then in existence, provided that the Lessor shall not be responsible for any delay in such repair or reconstruction which may result from any cause beyond its reasonable control, and provided further that Lessor shall not be required to expend more than the net amount of insurance proceeds, if any, received by Lessor for such purposes, it being understood that the application of insurance proceeds is subject to the right of any first mortgagee of the Demised Premises.

Section 2. If either the Demised Premises or the Building shall be damaged or destroyed to the extent of twenty-five percent (25%) or more on a square footage basis by any cause (whether insured against by the Lessor or not), the Lessor may elect by written notice to the Lessee either to

terminate this Lease or to repair or rebuild on the conditions set forth in
Section 1.

Section 3. If the Demised Premises or the Building shall, within the last year of the Original term of this Lease or the last year of any extended term hereof, be damaged or destroyed by any cause to such extent that the same cannot be reasonably expected to be restored to substantially the same condition as prior to such damage or destruction within ninety (90) days from the time that such repair or restoration work would be commenced, then the Lessor shall have the right to terminate this Lease by notice to the Lessee given within sixty (60) days after the occurrence of such damage or destruction.

Section 4. In the event that the Demised Premises or the Building are damaged or destroyed by any cause, then, unless this Lease is terminated as above provided, the Lessee, at its own expense and proceeding with all reasonable dispatch, shall repair or replace suitably all trade fixtures, equipment, signs or other property installed by or belonging to the Lessee which shall be damaged or destroyed.

Section 5. If this Lease is not terminated as above provided, then from and after such damage which is material and until the Demised Premises are restored as above provided, the rent reserved herein shall abate, either wholly or proportionately, according to the nature and extent of the injury.

Article XVI Eminent Domain

Section 1. If as a result of any taking by eminent domain which shall be deemed to include a voluntary conveyance in lieu of a taking, the total floor area remaining in the Demised Premises shall be reduced to less than fifty (50%) percent of the total floor area in the Demised Premises at the commencement of the term hereof, then at the election of the Lessor, exercisable by written notice given to the Lessee within ninety (90) days after the date of the filing of the notice of such taking, this Lease may be terminated as of the date when the Lessee is required to vacate the Demised Premises or the portion thereof so taken, notwithstanding that the entire interest of the Lessor may have been divested by such taking, and if following any such taking the Lessor does not terminate this Lease, then the Lessor at the Lessor's expense, but only to the extent of the award actually received by the Lessor for any such taking, (subject to the rights of any first mortgagee of the

Demised Premises) and proceeding with all reasonable dispatch shall do such work as may be required to put what may remain of the Demised Premises in proper condition for the conduct of the Lessee's business, and the Lessee, at the Lessee's expense and proceeding with all reasonable dispatch, shall make such alterations, repairs and replacements of the trade fixtures, equipment, signs or other property installed by or belonging to the Lessee as may be necessary to put the remainder of the Demised Premises in proper condition for the Lessee's business. From and after the date on which the Lessee is required to vacate the portion of the Demised Premises so taken, a just proportion of the rent reserved herein according to the nature and extent of the taking of the Demised Premises, shall be abated until the Demised Premises are restored to such condition that the Lessee can commence business therein, and from and after the date on which the Lessor shall restore the Demised Premises in the manner above provided the rent shall be reduced in the proportion that the floor area of the portion of the Demised Premises so taken bears to the floor area of the Demised Premises at commencement of the term hereof.

Section 2. In the event of a taking, as defined herein, of 25% or more of the Land or the Building and even though such taking leaves at least fifty (50%) percent or more of the floor area of the Demised Premises remaining, the Lessor shall nonetheless have the right to terminate this Lease by notifying the Lessee of the Lessor's election to terminate within ninety (90) days after the final determination of the amount of the award, or to restore any part of the Demised Premises so remaining and in the case of such restoration, the rent shall be abated to the extent provided above.

Section 3. The Lessor reserves and excepts all rights to damages to the Land, the Building, the Demised Premises and the leasehold hereby created, or awards with respect thereto, then or thereafter accruing, by reason of any taking by eminent domain or by reason of anything lawfully done or required by any public authority, and the Lessee grants to the Lessor all the Lessee's rights, if any, to such damages except with respect to the value of its personal property and its relocation expenses, which may be compensable by a separate award and shall execute and deliver to the Lessor such further instruments of assignment thereof as the Lessor may from time to time request.

Article XVII

Default

Section 1. This Lease is made on the condition that if the Lessee shall fail to perform any obligation hereunder in payment of base rent, additional rent, or in payment of any other sums due under this Lease, and such failure shall continue for ten (10) days after receipt of written notice from Lessor, or for thirty (30) days after receipt of written notice of default in the case of any other obligation (or, if said default cannot reasonably be expected to be cured within such thirty-day period, Lessee shall not within such thirty-day period promptly commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), or if the estate hereby created shall be taken on execution or other process of law, or if the Lessee shall be declared bankrupt or insolvent according to law, or if the Lessee shall make or offer to make, in or out of bankruptcy, a composition with the Lessee's creditors, or if the Lessee shall make an assignment for the benefit of its creditors, or if the Lessee shall commit any act of bankruptcy, or if a receiver, trustee or other officer shall be appointed to take charge of all or any substantial part of the Lessee's property by a court, or if a petition shall be filed by or against the Lessee for the reorganization of the Lessee or for an "arrangement" under the Bankruptcy Code or under any other provisions of the Bankruptcy Code or any successor or similar State or Federal statute or regulation now or hereafter in effect, and the same, if filed against but not by Lessee, shall not be dismissed within thirty (30) days after the date on which it is filed, then and in any of the said cases, notwithstanding any prior waivers or consent the Lessor lawfully may, in addition to and not in derogation of any remedies for any preceding breach of covenant, immediately or at any time thereafter and without prior demand or prior notice (1) terminate this Lease by notice in writing forthwith, or on a date stated in said notice,
(2) with or without process of law (forcibly, if necessary) enter into and upon the Demised Premises or any part thereof in the name of the whole and repossess the same as of the Lessor's former estate, and (3) expel the Lessee and those claiming through or under the Lessee and remove its and their effects (forcibly, if necessary without being deemed guilty of any manner of trespass and without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant, and upon entry as aforesaid this Lease shall terminate, the Lessee hereby waiving all statutory rights; and in case of such termination, or termination by reason of default on the part

of the Lessee, the Lessee shall at the election of the Lessor, which election may be changed at any time:

(a) pay to the Lessor in equal monthly installments, in advance, sums equal to the aggregate rent herein provided for or, if the Demised Premises have been relet, sums equal to the excess of the aggregate rent herein provided for over the sums actually received by the Lessor from such reletting, as well as any reasonable expenses incurred by the Lessor as a consequence of such default or in such reletting, including but not 1imited to, attorneys' fees, brokers' fees and expenses of repairing and putting the Demised Premises in good order and condition, and repairing the same for re-rental, such sums being payable, as liquidated damages for the unexpired term hereof; or

(b) pay to the Lessor as damages a sum which, at the time of such termination or at the time to which installments of liquidated damages shall have been paid represents the amount by which the then rental value of the Demised Premises is less than the aggregate rent herein provided for the residue of the term and pay from time to time to the Lessor upon demand such additional sums as are equal to the excess, if any, of the aforesaid rental value of the Demised Premises over the rent actually received by Lessor for the Demised Premises for the period from such termination, or from the time to which installments of liquidated damages shall have been paid, or from the time to which these additional sums may have been paid by Lessee under this paragraph, whichever the case may be, to the time for which the Lessor may specify in its demand hereunder (but in no event to the time later than the expiration of the term hereof), plus, in any case, reasonable expenses of the Lessor by way of attorneys' fees, or otherwise, in connection with such default; or

(c) indemnify the Lessor against loss of the aggregate rent herein provided for from the time of such termination or from the time to which installments of liquidated damages shall have been paid to the expiration of the term hereof as above set forth, plus, in any case, reasonable expenses of the Lessor by way of attorneys' fees, or otherwise, in connection with such default.

For the purposes of this Article, the phrase "aggregate rent" as used herein, shall include the annual base rent as adjusted from time to time, and all additional rent payable hereunder.

In the event of a default by the Lessee as above provided, if the Lessor shall elect not to terminate this Lease, it may relet the Demised Premises or any part or parts thereof in the name of either the Lessor or the Lessee, for a term or terms which may, at the Lessor's option, extend beyond the balance of the term of this Lease and may remove and store the Lessee's effects at the Lessee's expense, and the Lessee agrees that in the event of such reletting the Lessee shall pay Lessor any deficiency between the aggregate rent to be paid hereunder and the net amount of the rents collected during such reletting, as well as any expenses reasonably incurred by the Lessor as a consequence of such default or in such reletting, including but not limited to, attorneys' fees, brokers' fees and expenses of repairing and putting the Demised Premises in good order and preparing the same for re-rental. Such deficiency shall be paid in monthly installments upon statements rendered by the Lessor to the Lessee.

Section 2. All rights and remedies which the Lessor may have under this Lease shall be cumulative and shall not be deemed inconsistent with each other, and any two or more of such rights and remedies may be exercised at the same time insofar as permitted by law.

Section 3. The Lessor shall not be deemed to be in default hereunder unless its default shall continue for thirty (30) days or such additional time as is reasonably required to correct its default, after written notice thereof has been given by the Lessee to the Lessor specifying the nature of the alleged default. In no event shall Lessor be liable for consequential or incidental damages, nor shall damages exceed the reasonable costs of performing the obligations of Lessor hereunder.

Article XVIII Notices

Any notice, request, demand or other communication required or permitted by this Lease shall, until either party notifies the other in writing of a different address in accordance herewith, be deemed to be duly given if in writing and sent by registered or certified first class mail, postage prepaid, return receipt requested, addressed as follows: If to Lessor: addressed to the Lessor c/o The Flynn Company, 1621 Wood Street, Philadelphia, PA 19103. If to the Lessee, at Lessee's Address, as stated in Article I, Section 1 of this Lease.

Article XIX Brokerage

Lessor and Lessee each warrants and represents to the other that it has not dealt with any broker in connection with this Lease or the Demised Premises, except the Authorized Broker named in Article I, Section 1 hereof, and each agrees to defend, indemnify and hold the other harmless from and against any and all claims for brokerage fees and commissions (except with respect to the Authorized Broker) by any broker claiming to have dealt with it in connection with this Lease.

Article XX Term "Lessee's Pro Rata Share"

As used in this Lease the term "Lessee's Pro Rata Share" shall mean the percentage stated in Article I, Section 1 of this Lease, so long as there are no additions to the Building. If any additions are made to the Building, then such term shall mean a fraction of the respective item, the numerator of which fraction shall be the then total leasable square footage of the Demised Premises and the denominator or which shall be the then total leasable square footage of floor area of the Building.

Article XXI Security Deposit

At the time of the execution hereof, Lessee shall pay to Lessor a Security Deposit in the amount provided in Article I, Section 1 of this Lease, to be held by Lessor without interest during the term hereof, and any extensions, and for so long thereafter as Lessee is in possession of the Demised Premises or has unsatisfied obligations hereunder to Lessor, which deposit the Lessor may apply from time to time against outstanding obligations of Lessee hereunder. Each time that the monthly installment of annual base rent shall increase Lessee shall promptly pay Lessor as additional Security Deposit the amount of any increase in the same monthly installment of annual base rent, said additional sums to be added to the Security Deposit held hereunder. Lessee shall have no right to require the Lessor to so apply said Security Deposit, nor shall Lessee be entitled to credit the same against rents or other sums payable hereunder. If and to the extent that Lessor makes such use of the Security Deposit, or any part thereof, the sum so applied by Lessor shall be restored to the Security Deposit by Lessee upon notice from Lessor, and failure to pay to Lessor the amount to be so restored (within the grace period applicable to

rents hereunder) shall be a default hereunder giving rise to all of the Lessor's rights and remedies applicable to a default in the payment of rent. Any portion of said Security Deposit which has not been applied as aforesaid by Lessor shall be repaid by Lessor to Lessee at the end of the term and any extensions hereof, or as soon thereafter as all obligations of Lessee hereunder have been performed in full. Upon any conveyance by Lessor of its interest under this Lease the Security Deposit may be turned over by the Lessor to Lessor's grantee or transferee, and upon any such delivery of the deposit, Lessee hereby releases Lessor herein named of any and all liability with respect to the Security Deposit, its application and return, and Lessee agrees to look solely to such grantee or transferee, and it is further understood that this provision shall also apply to subsequent grantees and transferees.

Article XXII Miscellaneous Provisions

Section 1. No consent or waiver, express or implied, by the Lessor to or of any breach in the performance by the Lessee of its agreements hereunder shall be construed as a consent or waiver to or of any other breach in the performance by the Lessee of the same or any other covenant or agreement. No acceptance by the Lessor of any rent or other payment hereunder, even with the knowledge of any such breach, shall be deemed a waiver thereof nor shall any acceptance of rent or other such payment in a lesser amount than is herein required to be paid by the Lessee, regardless of any endorsement or any check or any statement in any letter accompanying the payment of the same, be construed as an accord and satisfaction or in any manner other than as a payment on account by the Lessee. No reference in this Lease to any sublessee, licensee or concessionaire, or acceptance by the Lessor from other than the Lessee of any payment due hereunder shall be construed a consent by the Lessor to any assignment or subletting by the Lessee, or give the Lessee any right to permit another to occupy any portion of the Demised Premises except as herein expressly provided. No waiver by the Lessor in respect of any one tenant shall constitute a waiver with respect to any other tenant. Failure on the part of the Lessor to complain of any action or non-action on the part of the Lessee or to declare the Lessee in default, no matter how long such failure may continue shall not be deemed to be a waiver by the Lessor of any of its rights hereunder.

Section 2. In no case shall mention of specific instances under a more general provision be construed to limit the generality of said provisions.

Section 3. The delivery of keys to Lessor or any employees of Lessor or the Lessor's agent or any employee thereof shall not operate as a termination of this Lease or surrender of the Demised Premises.

Section 4. If any installment of rent, base or additional, is paid more than 10 days after the due date thereof, at Lessor's election, it shall bear interest at 18% per annum from such due date of payment, which interest shall be immediately due and payable as additional rent.

Section 5. If the Lessee continues to occupy the Demised Premises after the termination hereof, it shall have no more rights than a tenant by sufferance, but shall be liable for 150% of the aggregate rental as above determined during such occupancy, and shall be liable for any loss or expense due to such holding over. Nothing in this section shall be construed to permit such holding over.

Suction 6. If any provision of this Lease or the application thereof to any person of circumstances shall be to any extent invalid or unenforceable the remainder of this Lease and the application to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

Section 7. Lessor agrees that upon Lessee's paying rent and performing and observing the agreements, conditions and other provisions on its part to be performed and observed, Lessee shall and may peaceably and quietly have, hold and enjoy the Demised Premises during the term of this Lease and any extension thereof without any manner of hindrance or molestation from Lessor or anyone claiming under Lessor, subject, however, to rights of holders of present and future Mortgages and to the terms and provisions of this Lease.

Section 8. The conditions and agreements in this Lease contained to be kept and performed by the parties hereto shall be binding upon and inure to the benefit of said respective parties, their legal representatives, successors and assigns, and the same shall be construed as covenants running with the land. Wherever in this Lease reference is made to either of the parties, it shall be held to include

and apply to the successors and assigns of such party as if in each case so expressed, unless the context requires otherwise and regardless of the number or gender of such party; provided, however, that the term "Lessor" as used in this Lease means only the owner for the time being of the Land, so that in the event of any sale or sales of the Land and Demised premises or of this Lease the Lessor shall be and hereby is entirely released of all covenants and obligations of the Lessor hereunder.

Section 9. This Lease shall constitute the only agreement between the parties relative to the Demised Premises and no oral statements and no prior written matter not specifically incorporated herein shall be of any force or effect. In entering into this Lease, the Lessee relies solely upon the representations and agreements contained herein. This agreement shall not be modified except by writing executed by both parties.

Section 10. The section and article headings throughout this instrument are for convenience and reference only and shall in no way be held to limit, define or describe the scope or intent of this Lease or in any way affect this Lease.

Section 11. If the Lessor shall at any time be an individual, joint venture, tenancy in common, joint regency, firm or partnership (general or limited), or a trust or trustee of a trust, it is specifically understood and agreed that there shall be no personal liability of any individual or any joint endure, tenant, partner (general or limited), trustee, shareholder, beneficiary or holder of a beneficial interest under any of the provisions hereof or arising out of the use or occupation of the Demised Premises by Lessee. The obligations of Lessor shall in all events be binding upon Lessor's equity in the Building and Land only, all in accordance herewith. It is further understood and agreed that the liability of any party who is a Lessor (whether the original Lessor or any successor Lessor) shall be limited to defaults occurring or arising during the period for which such party shall have been a Lessor, and such party shall not be liable for defaults occurring or arising at any time before such party obtained its interest as Lessor or after such party disposed of its interest as Lessor.

Section 12. In the event that prior to the Commencement Date any actual or proposed holder of a first mortgage on the Building or Land shall demand that this Lease be modified or amended in any respect (other than those

provisions relating to rental, term, size, or location of the Demised Premises) and if Lessee shall fail to so modify or amend this Lease within fifteen (15) days after such demand, Lessee shall be deemed in default under this Lease. Lessee agrees to give within ten (10) days of written request such reasonable statements and certificates as may be requested by Lessor in connection with a mortgage closing or the sale of the Building or Land, or any portion thereof.

Section 13. This Lease shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania.

Section 14. In any case where either party hereto is required to do any act, delays caused by or resulting from Acts of God, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor, materials or equipment, government regulations, unusually severe weather, or other causes beyond such party's reasonable control shall not be counted in determining the time during which work shall be completed, whether such time be designated by a fixed date, a fixed time, "promptly" or "a reasonable time", and such time shall be deemed to be extended by the period of such delay. For the purpose hereof, inability to pay normal charges incurred in connection with performance of an obligation hereunder (including, without limitation, payment of base rent or additional rent hereunder) does not constitute a cause beyond such party's reasonable control.

Section 15. Lessee shall provide Lessor with annual certified financial statements within ninety (90) days after the close of Lessee's fiscal year.

Section 16. Lessee shall not record this Lease, but upon request of either party, both parties shall execute and deliver a notice of lease, in form satisfactory to Lessor and appropriate for recording; the costs of such notice shall be borne by the requesting party.

Section 17. Lessee shall not do, and shall not permit Persons Within Lessee's Control to do, any act or thing in or upon the Premises or the Building which will invalidate or be in conflict with the Certificate of Occupancy for the Premises or the Building or violate any Requirements. Lessee shall, at Lessee's sole cost and expense, take all action, including any required Alterations necessary to comply with all Requirements (including, but not limited to, applicable terms of Local Laws No. 5 of 1973, No. 16 of 1984, No. 76 of 1985, No. 58 of 1987, and the Americans with

Disabilities Act of 1990 (the "ADA"), each as modified and supplemented from time to time) which shall with respect to the Premises or with respect to any abatement of nuisance, impose any violation, order or duty upon Lessor or Lessee arising from, or in connection with, the Premises, Lessee's occupancy, use or manner of use of the Premises (including, without limitation, any occupancy, use or manner of use that constitutes a "place of public accommodation" under the ADA, or any installations in the Premises, or required by reason of a breach of any of Lessee's covenants or agreements under this Lease, whether or not such Requirements shall now be in effect or hereafter enacted or issued, and whether or not any work required shall be ordinary or extraordinary or foreseen or unforeseen at the date hereof. Notwithstanding the preceding sentence, Lessee shall not be obligated to perform any Alterations necessary to comply with any Requirements, unless compliance shall be required by reason of (i) any cause or condition arising out of any Alterations or installations in the Premises (whether made by Lessee or by Lessor on behalf of Lessee), (ii) Lessee's particular use, manner of use or occupancy of the Premises (as opposed to mere use as executive, general and administrative offices, (iii) any breach of any of Lessee's covenants or agreements under this Lease, or (iv) any wrongful act or omission by Lessee or Persons Within Lessee's Control, or (v) Lessee's use or manner of use or occupancy of the Premises as a "place of public accommodation" within the meaning of the ADA.

Article XXIII Prohibition of Lessee Abandonment

Lessee shall not vacate the Demised Premises or abandon part or all of the Demised Premises during the Original Term, and any extension thereof. At all times during the Original Term, and any extension thereof, Lessee agrees (i) to keep the Demised Premises adequately heated to the extent necessary to prevent the pipes from freezing and to prevent deterioration of the Demised Premises,
(ii) to keep the Demised Premises adequately secure so as to prevent the entry of unauthorized persons, and (iii) to fully and completely occupy the Demised Premises.

Article XXIV Hazardous Waste; Hazardous Material; Oil

Section 1. As used herein, the terms "Hazardous Material" shall mean material or waste, in whatever form, which because of its quantity, concentration, physical, chemical,

corrosive, flammable, reactive, toxic, infectious or radioactive characteristics, either separately or in combination with any substance or substances, constitutes a present or potential threat to human health, safety, welfare, or to the environment or any other substance that is defined or listed as hazardous, toxic, or dangerous under any present or future environmental law or regulation or which is otherwise regulated, prohibited, or subject to investigation under any present or future environmental law or regulation including, without limitation, those substances which are included under 42 USC
Section 9601 (14), and insoluable or partially soluable oils of any kind or origin or in any form (including, without limitation, crude or fuel oils, lube oil or sludge, asphalt, insoluable or partially insoluable derivatives of mineral, animal or vegetable oils).

Section 2. Except as provided in Section 5 hereof, Lessee shall not use, maintain, generate or bring on the Demised Premises, the Building or the Land or transport or dispose of or from the Demised Premises, the Building or the Land (whether through the sewer or septic system or into the ground or by removal off-site or otherwise) any Hazardous Material and shall not voilate the provisions of any environmental law or regulation; and Lessee shall prevent any agent, servant, employee, contractor, supplier, guest, visitor, customer or invitee of Lessee, and of such parties, and any other party claiming under Lessee, from using, maintaining, generating or bringing on the Demised Premises, the Building or the Land or transporting or disposing of on or from the Demised Premises, the Building or the Land (whether through the sewer or septic system or into the ground or by removal off-site or otherwise) any Hazardous Material or from violating the provisions of any environmental law or regulation.

Section 3. Lessee shall deliver to Lessor, within ten (10) days after Lessee receives same, copies of all letters, inquiries, summons, subpoenas, complaints, restraining orders and any other written communication received by Lessee, and written notice of any oral communication received by Lessee, which written or oral communication relates to Lessee's compliance or noncompliance, the compliance or noncompliance of any activities being conducted on or from the Demised Premises, with any laws, orders, regulations and the like of any governmental authorities or any public body relating to Hazardous Materials or which writen or oral communication otherwise relates to the use, maintenance, generation, storage,

treatment, transport or disposal of Hazardous Material on, from, or to the Demised Premises, the Building or the Land.

Section 4. Lessee shall be solely responsible for becoming informed of any new environmental laws and regulations and of any amendments made from time to time to existing environmental laws and regulations; the Lessor shall not be obligated to notify Lessee of any said amendments. In addition, Lessee shall execute affidavits, representations and the like from time to time at Lessor's request concerning Lessee's best knowledge and belief regarding the presence of Hazardous Materials on the property.

Section 5. In accordance with Exhibit H of the Lease, Lessee may engage in the activities described in Section 2 hereof provided (a) such activities are performed in a manner consistent with the highest standards of the industry, (b) such activities are performed in strict compliance with applicable statues, ordinances and regulations, including without limitation any applicable statutes, ordinances and regulations of the State where the building is located dealing with Hazardous Materials and (c) and except for those items listed on Exhibit H which Lessor has pre-approved as a condition of this Lease, Lessor gives its prior written consent to any such activities. Any request for Lessor's consent shall be in writing and shall include a list of particular Hazardous Materials to be used and a description of their purpose and intended applications and any other information that Lessor requests. Lessor shall not unreasonably withhold its consent provided that Lessee demonstrates strict compliance with requirements (a) and (b) above and provided further that in Lessor's reasonable judgment, Lessee's proposed use wi11 not pose a present or potential hazard to the health, safety or welfare of the occupants of the Demised Premises, the Building or Land or any other persons or a substantial present or potential risk or damage to the Demised Premises, the Building or the Land or any other property or pose a risk of potential liability on Lessor. As a condition of its consent, Lessor may require such alterations to the Demised Premises, the Building or the Land as may be reasonably necessary or appropriate to mitigate hazards associated with Lessee's proposed use. Any such alterations shall be at Lessee's sole expense upon Lessor's prior approval of the plans for such alterations. In consideration of Lessee's use of the Premises and Lessee's use of the pre-approved Hazardous Materials and substances as outlined in Exhibit H, Lessor agrees that no such alterations are required of Lessee as of the Lease Commencement Date.

Section 6.

a. (a) Lessee shall, at Lessee's sole expense, indemnify, defend and hold Lessor and Lessor's officers, trustees, employees, and agents harmless from any and all claims, judgments, damages, penalties, fines, costs, 1iabilities, obligations, defenses, 1iens or losses (including without limitation, diminution in value of the Property, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Property, damages arising from any adverse impact on marketing of space in the Building, and sums paid in settlement of claims, actual attorneys' fees, consultation fees and expert fees) which arise during or after the Lease Term as a result of any of the activities by Lessee its employees, agents, contractors, or licensees or sublessees described in Section 2 hereof or as a result of any violation of the provisions of this Article HM by Lessee its employees, agents, contractors, or licensees or sublessees. This indemnification of Lessor by Lessee includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work, damages for personal injury and property damage, and claims for damages or rent offset by other tenants. The indemnity and hold harmless obligations of Lessee under this Article shall survive any termination of this Lease. Without limiting the foregoing, if the presence of any Hazardous Material on the Property caused or permitted by Lessee results in any contamination of the Property, Lessee shall promptly take all actions at its sole expense as are necessary to return the Property to the condition existing prior to the introduction of any such Hazardous Material to the Property; provided that Lessor's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions, in Lessor's sole and absolute discretion, would not potentially have any material adverse long-term or short-term effect on the Property. If Lessee fails to take such actions, Lessor may take such actions, and Lessee shall reimburse Lessor, for Lessor's expense in taking such actions no later than ten (10) days after each request for such reimbursement.

b. It shall not be unreasonable for Lessor to withhold its consent to any proposed Assignment or Sublease if (i) the proposed Assignee's or Sublessee's anticipated use of the Premises involves the generation, storage, use, treatment, maintenance or disposal of Hazardous Material or any other activities described in Section 2 hereof; (ii) the proposed Assignee or Sublessee has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Material contaminating a property if the contamination resulted from such Assignee's or Sublessee's actions or use of the property in question; or (iii) the proposed Assignee is subject to an enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material.

c. Any increase in the premiums for necessary insurance on the Property which arises from Lessee's use and/or storage of Hazardous Materials shall be solely at Lessee's expense. Lessee shall procure and maintain at its sole expense such additional insurance as may be necessary to comply with any requirement of any Federal, State or local governmental agency with jurisdiction.

Section 7. In all events, Lessee shall indemnify Lessor in the manner provided elsewhere from any release of hazardous materials on the Premises occurring while Lessee is in possession, or elsewhere if caused by Lessee or persons acting under Lessee. The within covenants of this Article XXIV shall survive the expiration or earlier termination of the lease term.

Section 8. Any breach of the provisions of this Article XXIV shall be deemed to be a breach and default of a material obligation of Lessee under this Lease; and Lessor shall have with respect thereto all remedies provided in this Lease for defaults of Lessee.

Article XXV Additional Provisions

Section 1.

The Lessee shall have the option to extend the term of this Lease for an additional period of two (2) years (the "Extended Term") provided that Lessee is not in default and

has given Lessor written notice of its election to extend the term no later than one hundred eighty (180) days prior to the expiration of the Original Term of this Lease. In the event that Lessee shall extend the term as aforesaid, such extension shall be upon the same terms and conditions as set forth herein, except that no further right to extend shall be deemed to be included, and except for the rental which shal1 be $5.35 s.f. triple net or an annual rent of $174,945.00 in year one of the option period and $5.56 s.f. triple net or an annual rent of $181,812.00 in year two of the option period.

Section 2. LESSOR'S MANAGEMENT AND INCOME TAX PROVISIONS

A. Any services which Lessor is required to furnish pursuant to the provisions of this Lease may at Lessor's option be furnished from time to time, in whole or in part, by employees of Lessor or by the Managing Agent of the Building and Land or by one or more third persons, and Lessor further reserves the right to require Lessee to enter into reasonable agreements with such persons in form and content approved by Lessor for the furnishing of such services.

B. Lessor shall have the right, at any time and from time to time, to unilaterally amend the provisions of the Lease if Lessor is advised by its Counsel that all or any portion or the monies paid by Lessee to Lessor hereunder are, or may be deemed to be, unrelated business income within the meaning of the United States Internal Revenue Code, regulation issues thereunder, and Lessee agrees that it will execute all documents or instruments necessary to effect such amendment or amendments, provided that no such amendment shall result in Lessee having to pay in the aggregate more money on account of its occupancy of the Demised Premises under the terms of this Lease as so amended, and provided further that no such amendment or amendments shall result in Lessee having less rights than it has prior to any such amendments or receiving under the provisions of this Lease less services than it is entitled to receive, nor services of a lesser quality, and provided further that Lessee's taxes do not increase as a result of such amendment or amendments.

EXECUTED under seal on the date first above written.

LESSEE: Nutri/System LP

By: /s/ Brian D. Haveson
    -------------------------

Title: President
       ----------------------

Dated: 12/11/97
       ----------------------

LESSOR: Teachers Pennsylvania Realty, Inc. 730 Third Avenue
New York, New York 10017

Title:

Exhibit A

[GRAPHIC]

In the printed version of the document a floor plan appears.

Real Estate Taxes:                $1,771.25
Operating Expenses:               $1,607.75
Insurance:                        $  218.00
                                  ---------
Total:                            $3,597.00
                                  =========

Exhibit E

HVAC Maintenance Schedule

PERIODIC MAINTENANCE:

Perform the following inspections and service routine at the beginning of each cooling season:

1. Clean the condenser coil by hosing with cold water. Do not use hot water which can cause excessive pressure within the coil.

2. Remove any accumulation of dust and dirt from the casing of the unit.

3. Clean or replace the air filters.

4. Inspect the condensate drain pan and piping to make sure they are clear and will carry away all water.

At the beginning of the heating season, perform the following inspection and service routine:

1. Add a few drops of SAE. No. 10 non-detergent oil to the combustion blower motor. WARNING: The use of a heavier grade oil may cause operating difficulties during cold weather.

2. Clean or replace the air filters.

3. Inspect the control panel wiring and the heating controls to make sure connections are tight and wiring insulation is intact.

4. Check the operation of the gas ignition system and the spark electrode, and the setting of the limit control; make sure the evaporator-furnace fan is cycled at the correct cut-in and cut-out points.

MONTHLY INSPECTIONS:

It is recommended that, once a month, the following inspections be performed:

1. Clean or replace air filters.

2. Inspect and clean, if necessary, the condensate drain piping during the cooling season.

3. Inspect the control panel wiring and the heating controls to make sure connections are tight and wiring insulation is intact.

4. Check the operation of the gas ignition system and the spark electrode, and the setting of the limit control; make sure the evaporator-furnace fan is cycled at the correct cut-in and cut-out points.

Exhibit F

Signage Standards

Tenant's proposed signage must first be submitted to Landlord for approval. Such approval shall not be unreasonably withheld. Any proposed signs must conform with those that presently exist at the building.

Exhibit G

Subordination and Attornment Agreement

THIS AGREEMENT made as of the ______ day of _______, 19___, by and between Teachers Pennsylvania Realty, Inc. with a principal place of business c/o The Flynn Company, 1521 Wood Street, Philadelphia, PA 19103 (hereinafter "Lessor"), and _____________ with a place of business at _____________ (hereinafter "Lessee"), and ___________________, with a place of business at ____________________________ (hereinafter "Mortgagee").

W I T N E S S E T H:

WHEREAS, Mortgagee is committed to lend certain sums to Lessor which sums shall be secured by a Mortgage Deed (hereinafter referred to as the "Mortgage) on certain property (hereinafter referred to as the "Property") in _______________ more particularly described therein and which shall be recorded in the County Registry of Deeds, ________________ concurrently with the recording of his agreement; and

WHEREAS, Lessee has entered into a Lease (hereinafter referred to as "said Lease" which term shall mean and include all amendments and modifications thereto through the date hereof or which have been approved by Mortgagee with Lessor dated the _______ day of _______, 19___, covering a part of the premises subject to said Mortgage as therein more particularly described; and

WHEREAS, in order to induce the Mortgagee to make the loan as evidenced by the Mortgage, Lessor and Lessee have offered to enter into this Agreement in order to, inter alia, establish the prior right, claim and lien of the Mortgagee with respect to all matters concerning condemnation and casualty as set forth in said Lease.

NOW, THEREFORE, for and in consideration of One Dollar ($1.00) and other good and valuable consideration, the receipt whereof the parties hereto hereby acknowledge, and to induce the Mortgagee to make the loan evidenced by said Mortgage, the parties hereto covenant and agree as follows:

1. The said Mortgage and the lien thereof, shall be, and the same is hereby made, SUBJECT AND SUBORDINATE to the said Lease with the same force and effect if said Lease had been executed, delivered and recorded prior to execution, delivery and recording of the said Mortgage, EXCEPT HOWEVER that the Lease and the rights of Lessor and Lessee thereunder shall be expressly subject and subordinate in all respects to:

(a) The right, claim and lien of said Mortgage in, to and upon any award or other compensation heretofore or hereafter to be made for any taking by eminent domain of any part of the said Property, and to the right of disposition thereof in accordance with the provisions of said Mortgage,

(b) The right, claim and lien of said Mortgage in, to and upon any proceeds payable under all policies of fire, casualty and rent insurance upon the said Property and as to the right of disposition thereof in accordance with the terms of said Mortgage,

(c) Any lien, right, power or interest, if any, which may have arisen or intervened between the date of execution of said Lease, the date of recording of the Mortgage, or any lien or judgment which may arise at any time, under the terms of such Lease, it being expressly further understood and agreed that with respect to the matters referred to in subsections 1(a) through and including
1(c), the Mortgage and the lien thereof shall be, and the same is hereby made, prior in right to the said Lease and the rights of Lessor and Lessee thereunder with the same force and effects as if said Mortgage had been executed, delivered and recorded prior to the execution, delivery and recording of the Lease.

2. Lessee agrees that it shall not alter, modify, amend, change, surrender or cancel the Lease, nor pay the rent due thereunder in advance for more than thirty (30) days except as may be required by said Lease, without the prior written consent of the mortgagee, and will not seek to be made an adverse or defendant party in any action or proceeding brought to enforce or foreclose the Mortgage. Lessee further agrees that it shall not subordinate its interest in the Lease to the lien of any mortgage, security agreement or lease affecting the Premises demised under the Lease.

3. In the event of a default by Lessor under the terms of the Lease which is of such a nature as to give Lessee the right to terminate the Lease or reduce the rent payable thereunder by credit, offset or otherwise, then, and in any such event, Lessee agrees that concurrently with giving notice of default to Lessor, Lessee shall deliver a copy thereof to Mortgagee. Lessee further agrees that if Lessor does not cure the default specified in such notice of default within thirty (30) calendar days after notice thereof, then Lessee shall give further notice of that fact to Mortgagee and Mortgagee shall thereupon, if it shall so elect, have the right, but not the obligation, to cure the default of Lessor within twenty (20) calendar days after the giving of such further notice by Lessee, and in case of a default which cannot, with due diligence, be cured within said twenty (20) days, then the twenty (20) days shall be extended for such period as my be necessary to complete the curing of the same with all due diligence and continuity.

4. In the event of entry to foreclose the Mortgage and/or foreclosure thereof, or a conveyance in lieu of, or subsequent to, foreclosure and if the Lease shall not have been terminated under the provisions hereof or of the Lease:

A. The Mortgagee will not interfere with or disturb Lessee's possession of the Premises demised under the Lease, so long as Lessee pays the rent stipulated in the Lease and performs all other terms and conditions thereof;

B. The Lease will remain in full force and effect, as modified hereby, and the Lessee will attorn to and be bound after the Lease to the Mortgagee and its successors and assigns including any purchaser of the Property in foreclosure or any grantee under a conveyance in lieu of or subsequent to foreclosure, and Lessee will perform and observe all of its obligations thereunder to the same effect as through the Lease had been executed prior to the execution and delivery of the Mortgage, and Lessee agrees to execute and deliver, upon the request of the mortgagee or other owner of the Demised Premises, any instrument which may be necessary or appropriate to evidence such attornment.

PROVIDED, HOWEVER, that the Mortgagee shall not be:

(i) Liable for any act or omission of the Lessor; or

(ii) subject to any off-sets or defenses which the Lessee might have against Lessor; or

(iii) bound by any rent or additional rent which Lessee might have paid for more than the current rental period of the Lease; or

(iv) bound by an amendment or modification of the Lease made without its written consent.

5. All notices, demands or other communications which any party hereto is required or may desire to give to another party hereto may be delivered in person or shall be mailed by certified or registered mail, postage prepaid, return receipt requested, addressed to the other party at the address first set forth hereinabove or at such other addresses as any party hereto may hereafter specify by notice in writing to the others. Any such notice or demand shall be deemed given and received seventy-two (72) hours after deposit in the United States mail as aforesaid.

6. Lessor hereby authorizes Lessee to rely on any written notice of demand received from Mortgagee to make rent and other payments, to which Lessor may be entitled, to Mortgagee instead of Lessor whenever so demanded by Mortgagee, whether or not the Mortgage shall have been foreclosed.

7. Lessee agrees that in the event Mortgage shall succeed to the rights of Lessor as Lessor under the Lease, then Lessee shall look solely to Mortgagee's interest in the Property in the enforcement of any claims against Mortgagee. The provisions hereof shall expressly inure to the benefit of any successors and assigns of Mortgagee.

8. The provisions of this Agreement shall be deemed to be covenants running with the land, shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors and assigns, and shall specifically be binding upon any purchaser of said Property at a sale foreclosing the said Mortgage.

9. This Agreement may be executed in three or more counterparts by one or more of the parties hereto and each such counterpart shall be deemed to be an original and shall have the same force and effect as an original, and all such counterparts in the aggregate shall constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals, as of the day and year first above written.___________________________________ as Trustee of ____________________ REALTY TRUST UNDER Declaration of Trust dated __________________ and recorded in the ____________________ County, __________ Registry of deeds in Book _________________ at Page ____.

Exhibit 10.3

AMENDMENT TO FRANCHISE AGREEMENT

This Amendment is made as of the 29th day of April, 1996, between NUTRI/SYSTEM L.P. ("Franchisor" or "we"), a Delaware limited partnership, with its principal place of business located at 410 Horsham Road, Horsham, PA 19044-2014, and __________ ("Franchisee" or "you"), a ___________________ __________, whose principal address is ________________________________________.

1. NutriRx Program. Franchisor has developed a new comprehensive, multidiscipline weight loss program involving appetite suppressant medication, nutritionally balanced menu plans, wellness and exercise information and other products and services (hereinafter the "NutriRx Program" or the "Program"). The Program contemplates that a duly licensed physician be present at the premises of Nutri/System Centers, prescribing and monitoring the use of prescription medications. We may improve or otherwise change the Program from time to time.

2. Your Acknowledgements. You have read this Amendment. You understand the terms of this Amendment and accept them as being reasonably necessary to maintain the uniformity of our high quality standards at all Nutri/System Centers in order to protect the goodwill of the Marks and the integrity of the System. You have conducted an independent investigation of the NutriRx Program and recognize that the NutriRx Program may involve customer liability risks and includes experimental weight loss therapy. You recognize that the NutriRx Program involves business risks, that the success of the venture is largely dependent on your own business abilities, efforts and financial resources and that the nature of the Program may change over time. You have not received or relied on any guaranty or assurance, express or implied, as to the revenues, profits or success of the NutriRx Program. As we further develop the NutriRx Program, we will provide you with information and guidance regarding any changes and improvements. This Amendment modifies the Franchise Agreement to grant you a limited right to offer the NutriRx Program at your Center(s) and to amend certain other provisions of the Franchise Agreement.

3. Definitions.

(a) "Operations Manual" - Our confidential operations manual, as amended from time to time, which may consist of one or more manuals, containing our mandatory and suggested standards, specifications and operating procedures relating to the development and operation of Nutri/System Centers and other information relating to your obligations under this agreement. The term "Operations Manual" also includes alternative or supplemental means of communicating such information to you, including bulletins, e-mails, videotapes, audio tapes, compact discs and computer diskettes. All such alternative or supplemental communications will be clearly identified as additions to the Operations Manual.

(b) "Owner" - Each person or entity that has a 10% or more direct or indirect legal or beneficial ownership interest in you, if you are a business corporation, partnership, limited liability company or other legal entity.

(c) "Competitive Business" - Any weight loss, wellness or fitness business or any other business that is the same as or similar to the Nutri/System Center concept, as it

evolves or changes over time. Restrictions in this Agreement on competitive activities do not apply to: (a) the ownership or operation of other Nutri/System Centers that are licensed or franchised by us; or (b) the ownership of shares of a class of securities that are listed on a stock exchange or traded on the over-the-counter market and that represent less than five percent (5%) of that class of securities.

(d) "Confidential Information" - Our proprietary and confidential information relating to the development and operation of Nutri/System Centers, including: (1) technical information and expertise relating to the treatment of obesity, including preparation of dietary food and beverage products; (2) site selection criteria for Nutri/System Centers and plans and specifications for the development of Nutri/System Centers, (3) knowledge of operating results and financial performance of Nutri/System Centers, other than your Center and other Nutri/System Centers you own; (4) methods of food product handling, training and management relating to Nutri/System Centers; and (5) computer systems and software programs. Confidential Information includes information that is a trade secret owned by Company, or confidential and proprietary information owned by Company, but does not include: (i) information that is generally known in the industry, (ii) information that becomes public through means other than the violation of this Amendment by Franchisee, or (iii) information that Franchisee can demonstrate that Franchisee acquired from third parties who did not obtain the information in violation of the rights of Company.

(e) "The Franchise Agreement" - The Agreement dated November 16, 1987, by and between you and the Franchisor, for the territory described as Angelina County, Texas. This Amendment shall be part of the Franchise Agreement (and reference to the Franchise Agreement shall include this Amendment).

4. Grant of Rights. We grant you the right, and you assume the obligation, to offer and sell the NutriRx Program at your Center(s) during the term of the Franchise Agreement strictly in accordance with its terms and conditions. All fees and other revenues you receive in connection with the NutriRx Program are part of your net receipts and subject to the royalty fee and advertising provisions of the Franchise Agreement.

5. Development of the Premises. You are responsible for developing and/or converting your Center and for all expenses associated with it. We will furnish you prototype plans for a Nutri/System Center that offers the NutriRx Program. You may modify the prototype plans only to the extent that the plans and specifications pursuant to which you develop the Center comply with all applicable ordinances, building codes and permit requirements and any lease requirements and restrictions. You must submit such plans and specifications to us for our approval, not to be unreasonably withheld, before starting to develop the Premises. At our request, you must submit all revised or "as built" plans and specifications. All development must be in accordance with the plans and specifications we have approved and must comply with all applicable laws, ordinances and local rules and regulations. We will furnish such guidance to you in developing the Premises as we deem appropriate. We may periodically inspect the Premises during its development. We do not, by approving your plans and specifications or by inspecting the Premises, assume any liability or responsibility to you or to any third parties with respect to the soundness of construction of the Premises or otherwise. All copies of prototype plans and plans and specifications provided by us for your Center are our sole and exclusive property, and you

may claim no interest therein.

Within 30 days after you have signed this Amendment you must start renovation of your Center or lease, sublease or acquire new Premises. You must complete renovation of your Center within 90 days after the date hereof. Any extension of time is subject to our approval, which we may withhold at our discretion, except in cases of delays occasioned by causes beyond the reasonable control of the Franchisee, but in no event shall renovations be completed later than 180 days after the date hereof. The requirement to complete renovations of your Center includes obtaining all required construction and occupancy licenses and permits, installing all required fixtures, furnishings, equipment and signs, and doing all other things as may be required pursuant to this agreement or by practical necessity. Your Center may not begin to offer the NutriRx Program until we have notified you that your Center meets these requirements.

6. Equipment, Furniture and Fixtures. You agree to purchase or lease all required medical and other equipment, furnishings and fixtures for your Center. You agree to purchase or lease only such types, brands and models of fixtures, furniture, medical and other equipment which we approve for your Centers and the NutriRx Program as meeting our standards and specifications. You may purchase or lease approved types, brands or models of fixtures, furniture and equipment only from suppliers (including us and any of our Affiliates) we approve, approval not to be unreasonably withheld. We may modify the list of approved types, brands, models and/or suppliers, and you may not, after receipt of notice of such modification, reorder any type, brand or model, or from any supplier, which is no longer approved.

If you propose to purchase or lease any fixtures, furniture or equipment of a type, brand or model, or from a supplier, that we have not previously approved, you must notify us and submit to us such information as we may request. We may impose reasonable inspection and supervision fees on suppliers not previously approved. Franchisor will not arbitrarily discriminate against any proposed supplier.

7. Introduction of Program. You agree to conduct an introductory advertising and promotion program for the NutriRx Program within 30 days after you begin offering the Program. You are required to spend at least 20% of your average monthly net receipts (for the trailing twelve (12) months) or the equivalent of 100 target rating points on the program and to use any combination of one or more of the following types of advertising media: television, radio, newspaper, magazine, yellow pages, direct mail, flyers, billboards and telemarketing (only actual out-of-pocket telemarketing expenses will qualify, and salaries or benefits for employees who are not solely dedicated to telemarketing do not qualify). The program must last four weeks and is subject to our approval, not to be unreasonably withheld.

8. Operations Manual/Physician's Manual. We will loan to each of your Center(s) and to each signatory to the Franchise Agreement 1 copy each of the Operations Manual, Physician's Manual and other Operating Manuals. You agree to comply with all mandatory standards, specifications and operating procedures and other obligations contained in the Manuals. We may modify the Operations Manual and other Manuals to reflect changes in standards, specifications and operating procedures, provided no addition

or modification may alter your fundamental status and rights under this Amendment or the Franchise Agreement. Mandatory specifications, standards and operating procedures and other obligations we prescribe from time to time in the Operations Manual, or otherwise communicate to you in writing, constitute provisions of this Franchise Agreement as if fully set forth therein. All references to the Franchise Agreement include all such mandatory specifications, standards and operating procedures and other obligations. You must keep your copy of the Operations Manual current. If a dispute develops relating to the contents of the Operations Manual, our master copy will be controlling. The Operations Manual contains Confidential Information, and you agree not to copy any part of the Operations Manual.

9. NutriRx Program. You agree to offer and sell our multi-disciplinary weight loss program strictly in accordance with our standards, specifications and requirements, as we may establish and modify them from time to time. If and to the extent permitted by applicable law, you must engage (or retain as an independent contractor) at least one duly licensed physician to examine clients at your Center to prescribe and monitor the use of appetite suppressant medications as he or she deems appropriate in his or her independent professional judgment. If you are not permitted by applicable law to so employ or retain one or more licensed physicians, you agree to establish an appropriate lawful relationship with one or more physicians to provide the medical treatment elements of the NutriRx program. You must require such physicians, at all times that they perform such services, to maintain such medical malpractice insurance coverage as we may reasonably specify from time to time. Nothing contained herein nor in any of our specifications, standards or requirements shall be deemed to directly or indirectly interfere with or control the independent professional judgment of any such physician. Furthermore, no payment required under the Franchise Agreement will permit us directly or indirectly to interfere with or control the independent professional judgment of a licensed physician. The right to receive any payment shall not permit us to have access to any confidential information relating to any clients. No payment under the Franchise Agreement will be made, directly or indirectly, as an inducement for the referral of clients and we shall not solicit or refer patients to the Center's physician. We reserve the right to review the qualifications of any physician you engage or enter into a relationship with.

10. Compliance With Laws. You must maintain in force in your name all required licenses, permits and certificates relating to the operation of your Center. You must operate your Center in full compliance with all applicable laws, ordinances and regulations. You must notify us in writing within 5 days after: (a) the commencement of any legal or administrative action, or the issuance of any order of any court, agency or other governmental instrumentality, which may adversely affect the development, occupancy or operation of your Center of your financial condition; or (b) the delivery of any notice of violation or alleged violation of any law, ordinance or regulation, including those relating to health or sanitation at your Center. In all dealings with us, as well as your customers, suppliers, lessors and the public, you must adhere to the highest standards of honest, integrity, fair dealing and ethical conduct.

11. Insurance. Paragraph 9 of the Franchise Agreement is hereby deleted in its entirety and the following inserted in its place: You must maintain in force: (a) comprehensive, general, professional, product, and automobile liability insurance; (b)

general casualty insurance, including fire and extended coverage, vandalism and malicious mischief insurance, for the replacement value of your Center and its contents; (c) medical malpractice insurance; and (d) such other insurance policies, such as business interruption and unemployment insurance, as we may determine from time to time. All insurance policies must be issued by carriers approved by us, must contain such types and reasonable minimum amounts of coverage, exclusions and maximum deductibles as we prescribe from time to time, must name us and our Affiliates as additional insureds, must provide for 30 days' prior written notice to us of any material modification, cancellation or expiration of such policy and must include such other provisions as we may require.

At our request, you must furnish us with such evidence of insurance coverage and payment of premiums as we require. If you fail or refuse to maintain any required insurance coverage, or to furnish satisfactory evidence thereof, we, at our option and in addition to our other rights and remedies hereunder, may obtain such insurance coverage on your behalf and you must pay us any costs and premiums we incur.

12. Training and Guidance. You or your designated representative must attend and successfully complete an initial program on the operation of the NutriRx Program at such time(s) and place(s) as we designate. We may require you or your Center Manager(s) to attend and successfully complete periodic or additional training programs. We will not charge any fees for attendance at any such training program. You will be responsible for all compensation and expenses (including travel, meals and lodging) incurred by you and your personnel in attending any training programs.

13. Inspection. We may periodically inspect your Center(s) to determine whether the NutriRx Program is being properly implemented. We have the right at any time during business hours to (1) inspect your Center; (2) observe, photograph, audiotape and/or video tape your Center's operation; (3) remove samples of any dietary food and beverage products, materials or supplies for testing and analysis and (4) interview personnel and/or customers of your Center. You agree to cooperate fully with such activities. We will respect client privacy and the confidentiality of client medical records during any inspection.

14. Termination of NutriRx Program. If at any time during the first twelve months after the date of this Amendment, Franchisee fails to implement and/or operate the NutriRx Program in accordance with the Company's standards established in the Operations Manual or other manuals or written communications or if we in good faith determine to terminate, limit or otherwise restrict the NutriRx Program, then we may terminate your right to offer the NutriRx Program or any other or related weight loss program that uses prescription medication effective upon notice to you. You agree to take all action we request to discontinue offering, selling and using the Program.

If we determine to restrict, limit or terminate the NutriRx Program, we agree not to act arbitrarily in any distinctions we make between you and other franchisees and if we determine to continue the NutriRx Program only in corporate centers, we agree to make such decision in good faith, for example, we may decide that it is more difficult or costly to ensure proper implementation of the NutriRx Program in franchised centers, but we may not do so for the sole purpose of providing a competitive edge for corporate centers that compete directly with you.

You acknowledge and agree that a termination of your rights to the NutriRx Program does not constitute a termination (or constructive termination) of your franchise under this Agreement or applicable law.

15. Effect of Failure to Voluntarily Discontinue the NutriRx Program. Any franchisee who fails to comply with paragraph 14 above and does not voluntarily discontinue the sale and servicing of the NutriRx Program (or any other medical weight loss program approved by the Company) after notice from the Company, may have its franchise immediately terminated and shall thereafter:

(a) Within 30 days after the effective date of termination or expiration (without renewal) of this Agreement, you must pay us and our Affiliates all royalties, Advertising Fund contributions, amounts owed for purchases from us or our Affiliates, interest due on any of the foregoing and all other amounts owed to us or our Affiliates which are then unpaid.

(b) not directly or indirectly at any time or in any manner use any Mark, any colorable imitation of any Mark or any other indicia of a Nutri/System Center.

(c) take such action as may be required to cancel all fictitious or assumed name registrations relating to your use of any Mark;

(d) notify the telephone company and all telephone directory publishers of the termination or expiration of any rights you may have to use any telephone number and any regular, classified or other telephone directory listings associated with any Mark and to authorize transfer of the number to us or at our direction. You must immediately execute such instruments and take such steps as we deem necessary or appropriate to transfer and assign each such telephone number. You irrevocably appoint the then president of Franchisor or its successor as your duly authorized agent and attorney-in-fact to execute all instruments and take all steps to transfer and assign each such telephone number;

(e) promptly remove from the Premises, and discontinue using for any purpose, all signs, fixtures, furniture, decor items, advertising materials, forms and other materials and supplies which display any of the Marks or any distinctive features, images, or design associated with Nutri/System Centers and, at your expense, make such alterations as may be necessary to distinguish the Premises so clearly from its former appearance as a Nutri/System Center and from other Nutri/System Centers as to prevent any possibility of confusion by the public;

(f) if we ask you to sell us all unadulterated and saleable dietary food and beverage products located at the Center and purchased in accordance with this Agreement, you must promptly do so and discard any remaining dietary food and beverage products not so purchased. If we choose to purchase such dietary food and beverage products, we will do so at your cost, less 10% for shipping and handling;

(g) immediately cease to use all Confidential Information and return to us all copies of the Operations Manual and any other confidential materials which have been loaned to you; and

(h) within 30 days after the effective date of termination or expiration, furnish us evidence satisfactory to us of your compliance with the foregoing obligations.

16. Covenants Not To Compete. Paragraph 2 of the Franchise Agreement is hereby deleted in its entirety and replaced with the following: During the term of the Franchise Agreement, neither you nor any of your Owners may, without our prior written consent, directly or indirectly own any legal or beneficial interest in, or render services or give advice to any Competitive Business located anywhere or any business enterprise located anywhere which grants franchises or licenses to operate any Competitive Business. In addition, for a additional period of 2 years, starting on the effective date of termination or expiration (without renewal) of this agreement, neither you nor any of your Owners may directly or indirectly (such as through your or their Immediate Families) own a legal or beneficial interest in, or render services or give advice to: (a) any Competitive Business operating in a radius of 10 miles of your Center; (b) any Competitive Business operating within a radius of 10 miles of any Nutri/System Center in operation or under construction on the effective date of termination or expiration; or (c) any entity which grants franchises, licenses or other interests to others to operate any Competitive Business.

You and each of your Owners expressly acknowledge the possession of skills and abilities of a general nature and the opportunity for exploiting such skills in other ways, so that enforcement of the covenants made in this Section will not deprive any of you of your personal goodwill or ability to earn a living. If you or any of your Owners fail or refuse to abide by any of the foregoing covenants, and we obtain judicial enforcement thereof, the obligations under the breached covenant will continue in effect for a period of time ending 2 years after the date such person commences compliance with the order enforcing the covenant.

17. Continuing Obligations. All obligations under this Agreement which expressly or by their nature survive the expiration or termination of this Agreement shall continue in full force and effect until they are satisfied in full or by their nature expire.

18. Exclusive Jurisdiction. You and each of your Owners agree that the U.S. District Court for the Eastern District of Pennsylvania, or if such court lacks jurisdiction, the Court of Common Pleas (or its successor) for Montgomery County, Pennsylvania shall be the venue and exclusive forum in which to adjudicate any case or controversy arising from or relating to this Amendment. You and each of your Owners irrevocably submit to the jurisdiction of such courts and waive any objections to either the jurisdiction of or venue in such courts.

19. Conflict of Provisions. If there is any conflict between the provisions of this Amendment and the Franchise Agreement the provisions of this Amendment prevail. All

of the remaining terms, conditions, covenants and obligations of the Franchise Agreement shall remain unchanged and in full force and effect.

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

by: NSI Management, Inc.,
its managing general partner               by:



By:                                        By:
    --------------------------------           -------------------------------
        Philip Voluck, President                                  , President

1995 SETTLEMENT AND RELEASE AGREEMENT

This Agreement is entered into as of April __, 1995, by and between Nutri/System L.P. ("Franchisor") and ______________________ ("Franchisee").

WHEREAS, Franchisee is a party to one or more Franchise Agreements, as previously amended, with Franchisor which are listed and described more fully on Exhibit 1 hereto (the "Franchise Agreements");

WHEREAS, Franchisee entered into a "1994 Settlement and Release Agreement" with an effective date of January 1, 1994, with Franchisor and Michael E. Heisley (the "1994 Agreement");

WHEREAS, Franchisee has alleged directly, or through a party purporting to act as a representative of a class of all franchisees, that it has or may have claims against Franchisor and Michael E. Heisley arising out of the Franchise Agreements and/or 1994 Agreement;

WHEREAS, Franchisor and Michael E. Heisley deny that Franchisee has any claim against either of them; and

WHEREAS, Franchisor and Franchisee now wish to settle and resolve all of their differences and amend the 1994 Agreement.

NOW, THEREFORE, in consideration of the premises and promises set forth herein and intending to be legally bound hereby, the parties agree to the following:

1. For the period from March 1, 1995 through February 28, 1997, Franchisor hereby agrees to reduce Franchisee's royalty due and owing under the Franchise Agreements by 42.9% (i.e., from 7% to 4% or from 6% to 3.4%, depending on the royalty currently due thereunder).

2. Paragraph 2 of the 1994 Agreement is deleted in its entirety and Franchisor agrees to waive payment of all accounts receivable (but not the balance due on promissory notes) attributable to Franchisee which arose on or before the date of the filing of bankruptcy of Nutri/System, Inc., May 4, 1993. However, same shall only be applicable as long as Franchisee's centers do not compete with existing Franchisor centers for a period of two years, provided this non-competition requirement does not apply to existing Franchisee centers in Franchisor markets.

3. Franchisee acknowledges that Franchisor has complied with the advertising requirements for 1994 set forth in paragraph 3 of the 1994 Agreement. Furthermore,

Franchisee hereby waives and releases Franchisor from any obligation to do franchisee dedicated advertising in 1995 or 1996 as set forth in paragraph 3 of the 1994 Agreement.

4. Franchisor hereby waives Franchisee's obligations to comply with the provisions of paragraphs 3, 4 and 5 of that certain Amendment to Franchise Agreement, dated effective December 31, 1991 ("PCA Amendment"), for the calendar years 1994 and 1995. Beginning January 1, 1996, and thereafter, Franchisee must comply with all provisions of the PCA Amendment in order to receive the benefits of a free renewal period, except that Franchisee's obligation in paragraph 4 thereof to advertise at ten percent (10%) of its net receipts is reduced to six percent (6%).

5. Franchisee hereby irrevocably and unconditionally releases the Franchisor and Michael E. Heisley from any and all claims of every kind and nature which Franchisee has or may have up to the date of this Release (i) arising out of or in connection with: (a) the Franchise Agreements or (b) the 1994 Agreement, including, without limitation, their respective terms and conditions and Franchisor's performance thereunder; and (ii) any claims that were raised or could have been raised by the parties regarding subparagraph (a) and/or (b) above or, had the action been certified as a class action, by the class representative in Cross Road Professionals, Inc. and Park Avenue Professionals, Inc. v. Nutri/System L.P. and Michael Heisley, Case No. 94-CV-5266, in the United States District Court for the Eastern District of Pennsylvania (the "Civil Action"). Franchisee hereby also agrees that should Franchisee file any action against Franchisor subsequent to the date of this Agreement that alleges a cause or causes of action to which this Release is deemed a bar, then Franchisee shall be liable to Franchisor for its attorneys fees and costs in defending any such cause of action, provided Franchisor prevails.

6. This Agreement shall be null and void and of no effect unless all Nutri/System franchisees who signed the 1994 Agreement execute agreements identical in substance to this Agreement on or before April 15, 1995.

7. Counsel for the franchisee plaintiffs in the Civil Action will take those steps necessary to dismiss with prejudice the Civil Action on or before April 15, 1995. Franchisee hereby consents to the entry of the aforesaid dismissal order, subject to the provisions of this Agreement.

8. Any terms, covenants or conditions in Franchisee's Franchise Agreements or any amendments thereto or in the 1994 Agreement that are inconsistent with any of the provisions of this Agreement are superseded by the terms of this Agreement.

9. This Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns.

10. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. The parties hereto agree that the United States District Court for the Eastern District of Pennsylvania or the Court of Common Pleas for Montgomery County,

PENNSYLVANIA SHALL have jurisdiction over any dispute arising out of the terms of this Agreement.

11. If any provision of this Agreement or the application of it shall be determined to be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions shall not be affected and shall be enforced to the greatest extent permitted by law.

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

(FRANCHISEE)                              NUTRI/SYSTEM L.P.
                                          By: NSI MANAGEMENT, INC.,
                                              its General Partner



By:                                       By:
    --------------------------                ---------------------------
                                                  Philip Voluck

[EXHIBITS OMITTED]

1994 AMENDMENT TO FRANCHISE AGREEMENT

This Amendment is entered into as of January 1, 1994, by and between NSI Acquisition Limited Partnership ("Company") and ________________________ ("Franchisee").

WHEREAS, an exclusive Franchise Agreement, issued under date of November 16, 1987 as amended ("Franchise Agreement"), was entered into by and between Nutri/System, Inc. ("NSI") and Franchisee whereby Franchisee agreed to own and operate Nutri/System Weight Loss Centers in the territory designated therein ______________________ ("Territory"); and

WHEREAS, the Company, a partnership having two general partners, one of which is a corporation controlled by Michael E. Heisley and responsible for the management of the Company has acquired the Franchise Agreement; and

WHEREAS, Franchisee and the Company wish to reaffirm the commitment of Franchisee and Company to the Nutri/System Weight Loss Program and amend the terms of the Franchise Agreement.

NOW, THEREFORE, in consideration of the premises and promises set forth herein and intending to be legally bound hereby, the parties agree to modify the Franchise Agreement as follows:

1. Paragraph 7 of the Franchise Agreement shall be deleted in its entirety and be replaced for purposes of this Amendment with the following language: "In addition to the franchise fee previously paid for the Territory, the Franchisee will pay to the Company a monthly royalty on a per center basis beginning with March 15, 1994, in accordance with the following schedule:

February 1, 1994 through December 31, 1994 (the "Period")

5% of Net Receipts on a per center basis, until such time as aggregate Net Receipts for a center during the Period equal $100,000 then 7% on all other Net Receipts for such center during the Period

January 1, 1995 through December 31, 7% of Net Receipts 1995 and each calendar year thereafter

2. Paragraph 1(B) of Exhibit C to the Franchise Agreement (the 1984 Release Agreement) shall be deleted in its entirety and replaced for purposes of this Amendment with the following language: 'Thirty-three percent (33%) of the net cost amount from subparagraph (A) above, which includes all cost of distribution except as set forth in paragraph 4 below, until such time that year-to-date system wide retail revenue (i.e., total Company and franchisee retail revenue from the sale of all services and products, less sales tax and refunds) equals three hundred and fifty million dollars ($350,000,000). Above $350,000,000 of year-to-date system wide retail revenue the 33% markup declines one hundred
(100) basis points for each incremental fifty million dollars ($50,000,000) of system wide retail revenue to a floor of twenty-three percent (23%) as outlined below:

        Year-to-Date
 System Wide Retail Revenue             Food Mark-Up
 --------------------------             ------------

    zero to $350 million                   33%
$350 million to $400 million               32%
$400 million to $450 million               31%
$450 million to $500 million               30%
$500 million to $550 million               29%
$550 million to $600 million               28%
$600 million to $650 million               27%
$650 million to $700 million               26%
$700 million to $750 million               25%
$750 million to $800 million               24%
$800 million and above                     23%

plus,"

3. Paragraph 13(1) of Exhibit C to the Franchise Agreement (1984 Release Agreement) is amended to delete the words "make suggestions for" and substitute therefore the word "approve".

4. Paragraph 7(C)(2) of Exhibit C to the Franchise Agreement (1984 Release Agreement) shall be deleted in its entirety.

5. All the remaining terms, conditions, covenants and obligations of the Franchise Agreement shall remain unchanged and in full force and effect. To the extent that Franchisee owes a renewal fee, any renewal fee schedule attached to the Franchise Agreement shall remain in full force and effect.

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

NSI ACQUISITION, LIMITED PARTNERSHIP FRANCHISEE
By NSI Management, Inc., Its General Partner

1994 SETTLEMENT AND RELEASE AGREEMENT

This Agreement is entered into as of January 1, 1994, by and between NSI Acquisition Limited Partnership ("Franchisor"), Michael E. Heisley ("Heisley") and ___________________ ("Franchisee")

WHEREAS, Franchisee is a party to one or more franchise agreements, as previously amended, with Nutri/System, Inc. ("NSI") which are listed and described more fully on Exhibit 1 hereto ("the Franchise Agreements"); and

WHEREAS, on May 4, 1993 an involuntary petition was filed against NSI ("Petition") under Chapter 7 of Title 11 of the United States Code, 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code"). On June 3, 1993, the Petition was amended to seek relief under Chapter 11 of the Bankruptcy Code and NSI consented to an order for relief, which was entered by the Court on June 4, 1993, In re Nutri/System. Inc., E.D. Pa., Cpt. 11, No. 93-12725S ("NSI Bankruptcy"); and

WHEREAS, Franchisee has alleged that it has or may have claims against NSI arising out of actions taken by NSI; and

WHEREAS, NSI has alleged that it holds food and print related receivables for obligations incurred by Franchisee prior to the filing of the Petition ("Prepetition Accounts Receivable"); and

WHEREAS, on December 29, 1993, Franchisor, a partnership having two general partners, one of which is a corporation controlled by Heisley and responsible for the management of Franchisor, acquired the Franchise Agreements, the "Nutri/System" trade name and trademarks, the Franchise pre-Petition trade accounts receivable, including Franchisee food and print related receivables, non-food receivables and renewal fees receivables, and a significant portion of other assets of NSI which were used in the operation of NSI's franchise system as of that date ("NSI Franchise Assets"), from NSI Debt, Inc. which had acquired the NSI Franchise Assets through foreclosure and public sale pursuant to state law; and

WHEREAS, Franchisor and Franchisee now wish to settle and resolve all of their differences and reaffirm the franchise relationship and Franchise Agreements;

NOW, THEREFORE, in consideration of the premises and promises set forth herein and intending to be legally bound hereby, the parties agree to the following:

1. Franchisor hereby waives all royalties due and owing under the Franchise Agreements from April 1, 1993 through and including January 31, 1994.

2. Franchisee agrees to pay to Franchisor Prepetition Accounts Receivables in six equal monthly payments commencing October 1, 1994. Payments received on such Prepetition Accounts Receivables will be placed into a trust account, under the exclusive control of the advertising committee, to be used to pay: (i) for advertising supplemental to that required by paragraph 3 below and (ii) $161,000 from pre-Petition food and print related accounts receivables to be collected from all franchisees system wide to be paid directly to NSF Corp. ("NSF") for its general expenses on March 15, 1995. Commencing on March 15,1994, provided Franchisee has made and continues to make all payments required hereunder and under the terms of the Franchise Agreements, as amended per Exhibit 2, the Franchisor will reestablish fourteen (14) day credit terms, including normal delivery time, in accordance with paragraph 7 of the June 1984 Release Agreement, attached as Exhibit C to the Franchise Agreements.

3. Franchisor will begin to create and distribute advertising materials for/to the franchisees immediately. This obligation, the creation and distribution of advertising materials, is an ongoing obligation of Franchisor. Franchisor has indicated that in 1994, it will spend at least three million dollars ($3,000,000) on the creation of advertising materials. Franchisor will begin national advertising on January 1, 1994. In addition to this obligation, Franchisor is obligated to spend, on an annual basis in 1994, 1995 and 1996, and subject to Advertising Committee approval the lesser of nine million dollars ($9,000,000) increased annually by four percent (4%) for inflation or seventy-one point four percent (71.4%) of the royalty (i.e., five percent (5%) of franchisee revenue) collected by the Franchisor on franchisee dedicated advertising (including national advertising which would benefit Company centers indirectly). Advertising programs for years after 1996 will be developed in the future. Franchisor has indicated that in 1994, it will spend a total of eighteen million dollars ($18,000,000) on advertising; nine million dollars ($9,000,000) on franchisee dedicated advertising (including national advertising which would benefit Company centers indirectly), six million dollars ($6,000,000) on local advertising in the Company markets, and three million dollars ($3,000,000) on the creation of advertising materials.

4. Franchisor will reimburse NSF for $500,000 of its NSI Bankruptcy related expenses following receipt of appropriate documentation supporting these expenses. Franchisor will pay this sum by February 12,1994; provided that at least 400 of the franchise centers sign this Agreement and the attached Amendment to Franchise Agreement (Exhibit 2) by January 15, 1994.

5. Franchisor will make reasonable efforts to purchase insurance coverage, including products and professional liability insurance, for Franchisor. In addition, Franchisor will purchase insurance for its Company centers from a financially sound third party insurance company (i.e., the captive insurance subsidiary of NSI will not be used to provide this insurance) and will cooperate with the franchisees in developing an overall insurance program.

6. As of December 29, 1993, Franchisor was capitalized with at least fifteen million dollars ($15,000,000) of equity.

7.(a) Franchisee hereby irrevocably and unconditionally releases Heisley, any company or entity controlled by Heisley, and Franchisor from any and all claims of every kind and nature which Franchisee has or may have arising out of or in connection with: (i) the operation of Franchisee's Nutri/System franchise or the performance of NSI or Franchisor under the Franchise Agreements or any other franchise agreement Franchisee now has or may have had with NSI or Franchisor, (ii) the operations or management of NSI or the NSI Bankruptcy proceedings, (iii) the transfer or disposal of any assets of NSI or the effecting of any payment to the "Banks" (as hereinafter defined). Franchisee acknowledges that as of the effective date hereof, no non-waived defaults or violations by Heisley, any company or entity controlled by Heisley, or Franchisor exist.

(b) Franchisee hereby irrevocably and unconditionally releases First Fidelity Bank, National Association, Pennsylvania, PNC Bank, National Association, Mellon Bank, N.A., CIBC, Inc., Maryland National Bank, Continental Bank, N.A. and Credit Du Nord (the "Banks"), and any and all successor holders of the NSI debt owed to the Banks from any claims that Franchisee may have against the Banks that could require repayment by any of the Banks of any amount paid, set-off or applied against obligations of NSI to any of the Banks on or after April 27, 1993 and prior to or as of December 1, 1993 ("NSI Payments"). The parties intend that said release does not preclude Franchisee from bringing, and said release shall not apply to, any and all other claims of every kind and nature Franchisee may have against the Banks which could not require repayment of any portion of the NSI Payments (e.g. tortious interference claims by Franchisee for damages such as lost profits, additional costs and diminution in value regarding its business and punitive damages).

(c) Notwithstanding any contrary provision herein, it is the intention of the parties to this Agreement that the foregoing release of the Banks be limited to and effect a release of only those claims that could require Heisley, any company or entity controlled by Heisley, or Franchisor to pay or otherwise reimburse, to any of the Banks all or any portion of NSI Payments repaid by the Banks as described in (b) above.

8. Heisley, any company or entity controlled by Heisley, and Franchisor hereby irrevocably and unconditionally release Franchisee from any and all claims of every kind and nature which Heisley, any company or entity controlled by Heisley, or Franchisor may have arising out of or in connection with the operation of Franchisee's Nutri/System franchise or Franchisee's performance under the Franchise Agreements or any other franchise agreement Franchisee now has or may have had with NSI or Franchisor other than with respect to Prepetition Accounts Receivable, any non-food receivables (excluding royalties to the extent required by paragraph 1 above) and any renewal fees, if any, now due under the Franchise Agreements. Heisley, any company or entity controlled by Heisley, and Franchisor acknowledge that as of the effective date hereof, no non-waived defaults or violations by Franchisee exist, other than with respect to Prepetition Accounts Receivable, any non-food receivables (excluding royalties to the extent required by paragraph 1 above) and renewal fees, if any, now due. Heisley, any company or entity controlled by Heisley, and Franchisor further acknowledge that Franchisee reserves any and all claims of every kind and nature and the right and ability to assert such claims, not released in paragraph 7 above.

9. Franchisor hereby waives Franchisee's obligation to comply with the provisions of paragraphs 3, 4, and 5 of that certain Amendment to Franchise Agreement, dated effective December 31,1991 ("December 31,1991 Amendment"), for the calendar year 1993. Beginning January 1, 1994, and thereafter, Franchisee must comply with all provisions of the December 31, 1991 Amendment in order to receive the benefits of a free renewal period.

10. Franchisee and Franchisor hereby reaffirm the terms of the Franchise Agreements, acknowledge that the Franchise Agreements are valid and binding contracts, and agree to execute an Amendment to Franchise Agreement, in the form attached hereto as Exhibit 2, for each Franchise Agreement listed on Exhibit 1.

11. Franchisee hereby consents to an assignment of the Franchise Agreements to Franchisor and agrees to execute any additional agreement which is necessary to effectuate the assignment and which is consistent with this Agreement and the Franchise Agreements.

12. Any terms, covenants or conditions in Franchisee's Franchise Agreements that are inconsistent with any of the provisions of this Agreement are superseded by the terms of this Agreement.

13. This Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns.

14. This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania. If any provision of this Agreement or the application of it shall be determined to be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions shall not be affected and the remainder shall be enforced to the greatest extent permitted by law.

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

(FRANCHISEE)                      NSI ACQUISITION LIMITED PARTNERSHIP
                                  BY NSI MANAGEMENT, INC., ITS GENERAL PARTNER


By:                                By:
    ---------------------------       --------------------------------

MICHAEL E. HEISLEY, individually
and on behalf of any company or entity
controlled by him

[EXHIBIT OMITTED]

AMENDMENT TO FRANCHISE AGREEMENT

Amendment made effective this 31st day of December, 1991 by and between Nutri/System, Inc. ("Company") and __________________ ("Franchisee").

WHEREAS, an exclusive Franchise Agreement, issued under date of November 16, 1987 ("Franchise Agreement") was entered into by and between the Company and Franchisee whereby franchisee agreed to own and operate Nutri/System Weight Loss Centers in the territory designated as __________________ ("Territory").

WHEREAS, both the Company and Franchisee recognize the importance of marketing the Franchisee's business throughout the territory.

WHEREAS, pursuant to Exhibit B to the Franchise Agreement and the Letter of Intent to Participate, dated August 1987, referred to therein, Franchisee received a deferral and opportunity to reduce the franchise renewal fee ("PCC Payment") payable during a period, commencing January 1, 1988 and ending January 1, 1993, for an extended term of the Franchise Agreement ("PCC Term").

WHEREAS, Franchisee and the Company wish to reaffirm Franchisee's commitment to marketing the Nutri/System name and weight loss program in the Territory through media advertising and amend the terms of the Franchise Agreement.

NOW, THEREFORE, In consideration of the premises set forth herein and intending to be legally bound hereby, the parties agree to modify the Franchise Agreement as follows:

1. The second sentence of paragraph three of the Franchise Agreement is deleted in its entirety.

percent (10%) of net receipts or a $.50 PCA on local advertising does not affect Franchisee's obligations to participate in a cooperative advertising program, in accordance with the terms and conditions set forth above."

4. For the purposes of this Amendment, the determination of whether Franchisee is in compliance with the above provision, i.e., whether Franchisee's advertising expenditures are equal to either 10% of its net receipts or $.50 PCA, Franchisee's compliance will be measured annually on a calendar year basis using the net receipts or population of the Territory or, if Franchisee has two or more Franchise Agreements describing territories within the same ADI, Franchisee may choose to have its compliance measured by the Territory combined with all other territories owned by Franchisee within the same ADI. The population data source for the Territory will be the Company's "center based tracking system", with the population determined by the most current federal census report, as updated. Under no circumstances will the Company update or change the population figure for the Territory more than once every two years.

5. The Franchisee will complete and file with the Home Office a monthly form reporting Franchisee's monthly advertising expenditures. The Company will be entitled to audit on a semi-annual basis, at Company expense and after reasonable written note to Franchisee, Franchisee's advertising expenditure receipts and Franchisee is obligated to maintain current records and past records for the most recent two full calendar years.

6. If Franchisee now has or at any time in the future adds a satellite not included in the existing Territory (for which an annual renewal fee is paid), said satellite(s) are excluded from this renewal program; that is, neither the advertising expenditures for such satellite nor the net receipts attributable thereto shall be used to determine Franchisee's

compliance with either the 10% of net receipts or $.50 PCA obligations.

7. Should Franchisee fail to comply with its obligation to spend at least 10% of net receipts or $.50 PCA in advertising dollars during any calendar year, Franchisee shall be allowed to cure any deficiency during the first quarter of the following calendar year. Any additional advertising expenditures designated by Franchisee to cure the prior year's deficiency in advertising expenditures will be credited to the prior year so designated and will not be counted towards Franchisee's advertising obligations for the current year.

8. The Company will use its best efforts, at Franchisee's request, to assist Franchisee in developing and managing plans for the efficient and productive expenditures of its marketing funds.

9. The Company hereby agrees to waive any additional PCC Payments due as of January 1, 1992 and going forward thereafter under the terms of Franchise Agreement. All payments, if any, made prior to January 1, 1992 by Franchisee shall be retained by the Company except that if Franchisee met its PCC goal established by Exhibit B to the Franchise Agreement for the annual adjusted base year beginning May 1, 1990 and ending April 30, 1991, Franchisee will be entitled to a refund of all PCC payments made prior to January 1, 1992. Franchisee and the Company agree that the refund due under this paragraph will be made to Franchisee through food credits available beginning April 1, 1992. Provided Franchisee is in compliance with this Amendment agreement, Franchisee will have no further obligation for PCC Payments pursuant to the Franchise Agreement.

10. Should Franchisee default under its obligations to incur local advertising expenditures equal to 10% of net receipts or $.50 PCA in any calendar year during the term set forth in paragraph three of the Franchise Agreement, and Franchisee fails to cure said

default within the time frame set forth in paragraph 7 above, then Franchisee forfeits the waiver of the PCC Payments set forth in paragraph 9 above, forfeits the additional renewal term at no renewal fee set forth in paragraph 2 above, and Franchisee's obligations revert back to those set forth in the Franchise Agreement and Exhibit B thereto, as if this Amendment never existed and this Amendment shall be null and void and Franchisee shall be obligated to pay any PCC Payments or renewal payments due and owing pursuant to the Franchise Agreement.

11. All the remaining terms, conditions, covenants and obligations of the Franchise Agreement shall remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have set their hands and seals this 31st day of March, 1992.

By:                                                  By:
    -----------------------------------------            --------------------------------------
    _____________, Asst. Corporate Secretary             Ricardo D. Arevalo, Vice President-
                                                         Franchise Operations
                     (Seal)

NUTRI/SYSTEM, INC.
Exclusive Franchise Agreement

Issued under date of

Nutri/System, Inc., a corporation organized under the laws of the State of Pennsylvania with general offices in Willow Grove, PA (herein called the "Company"), hereby grants to

Name

Address

(herein called the "Franchisee"), an exclusive Franchise to own and operate a weight control or weight loss center(s) (herein called the "Center"), under the Nutri/System, Inc. copyrights, patents, and trademarks for designs, trade names, signs, insignias, symbols, or slogans (herein collectively called the "Trademarks"), in the following described territory (herein referred to as the "Territory"), and shown more fully on the attached map called "Exhibit A", and nowhere else, bounded as follows:

This Franchise Agreement being upon the following terms and conditions:

1) That the Franchisee will operate a thoroughly clean, appropriately laid out, and decorated center at:

or other locations as agreed upon in writing.

2) That the Franchisee will not operate or sell, directly or indirectly, any other competing weight control or weight loss business, or any other business which could be confused with the Center either during the term of this Agreement or for two (2) years thereafter in a ten (10) mile radius of any center.

3) That the term of this Agreement shall commence (Issue Date) and expire . Provided Franchisee is in substantial compliance with this Agreement, this Agreement shall be renewable for an additional

ten (10) years at the option of the Franchisee, on economic terms and conditions presenting the Franchisee a reasonable opportunity to earn renewal fee reductions and/or a "zero" renewal fee.

4) That the Franchisee will use reasonable efforts to have sufficient penetration of Centers in the Territory approved by the Company to enable the Franchisee to meet fully his obligations under this Agreement. It is recognized that under the foregoing it may be necessary from time to time for the Franchisee to increase the penetration of Centers in the Territory. The Franchisee will comply with any and all local, city, county, State and Federal laws and regulations now in effect or which may hereafter be enacted pertaining to the operation of weight loss or reduction Centers. The Center will be maintained at all times in good condition and appearance, subject to the Company's operational manual (herein referred to as "Operations Manual"), which manual shall neither be inconsistent with any of the terms or conditions of this Agreement, nor contain minimum business requirements not set forth in this Agreement. The Franchisee will not operate or permit the Center to be operated in any way not in compliance with the Company's reasonable requirements or standards.

5) That the Franchisee will make no representation as to the program, diet, food, or Center not previously authorized by the Company in writing, such authorization not to be unreasonably withheld. Failure of the Company to act within fourteen (14) days of request for authorization shall be deemed authorization. The business shall be operated under the Company's Trademarks and on its own merits, and not compared with any other weight loss or reduction business without the Company's consent.

6) That the Franchisee will market the business throughout the entire Territory. Without in any way limiting the Franchisee's obligation under this Paragraph 6, the Franchisee must use reasonable efforts to meet and increase the demand for the business throughout the Territory and to secure penetration for the population in the Territory; and must reasonably cooperate in and support the Company's marketing, advertising, and sales promotion programs and campaigns for the Territory. If other franchisees or Company centers share an Area of Dominant Influence ("ADI") with Franchisee, then if Company directs and two-thirds (2/3) of the franchise centers of the affected franchisees agree, Franchisee shall participate with the other franchisees and Company in a cooperative advertising program. In the event no payment sharing agreement is reached, Franchisee shall pay a proportionate share of the expenses of such cooperative advertising program based upon penetration of the advertising medium within the Territory provided however, Franchisee's proportionate share shall not exceed three and one-half percent (3 1/2%) of Franchisee's monthly gross receipts from centers located in that part of the Territory penetrated by such advertising medium. In addition, the Franchisee will advertise in all reasonable media and engage in reasonable sales promotion of the business throughout the Territory at his own cost and expense. All advertising, marketing, promotional, and media copy shall be subject to the Company's approval, such approval not to be unreasonably withheld. Failure of the Company to act within fourteen (14) days of request for approval shall be deemed approval.

7) That in addition to paying a fee of for the Territory, the Franchisee will pay to the Company by the fifteenth (15) day of the following month a royalty fee of seven percent (7%) on all net receipts from the previous month's sale of the Company's products and services.

8) That the Franchisee will at all times cooperate and comply with quality control programs reasonably required by the Company, including Center layout and design specifications, and procedures set forth in the Operations Manual. The Franchisee will at all times cooperate with the company's field, territorial, and other representatives. The Franchisee will permit the Company's agents to conduct checks in the Center and Territory and to enter the Franchisee's Center upon reasonable notice during working hours and inspect the facilities, equipment and materials used. Without notice during working hours, Company shall have that access to Center which is available to the general public. The Company or its agents will be allowed to check

methods of operations. The Franchisee will furnish information reasonably requested by the Company concerning his Center and business and will furnish same in the form so requested. Franchisees without prior written approval may not alter any program, or diet, or sell products by mail, or relinquish control over the management of the exclusive franchise to an independent third party, or publish written materials copyrighted by Company.

9) That the Franchisee will carry all insurance and renewals on his operation in such amounts as reasonably required by the Company.

10) That upon the happening of any one or more of the following events, in addition to all other rights and remedies, including the Company's right to damages sustained, if any, the Company shall have the right to cancel or terminate this Agreement by written notice to the Franchisee:

a) The failure of the Franchisee to substantially perform or comply with any one or more of the material terms or conditions of this Agreement, and correction of such failure is not made within sixty (60) days after receipt by Franchisee of written notice from Company that such failure exists, provided however, if such failure constitutes an imminent danger of public health, then such cure period may be shortened as reasonably necessary to protect the public health; or the failure of the Franchisee to obtain prior written approval from the Company for any deviations from this agreement, such approval not to be unreasonably withheld. Failure of the Company to act within thirty (30) days of request for approval shall be deemed approval.

b) Any sale, transfer or other disposition, without the prior written consent of the Company (such consent not to be unreasonably withheld. Failure of the Company to act within thirty (30) days of request for consent shall be deemed consent) including any such transfer by operation of law:

i) Of all or part of the business effecting the Franchise; or

ii) Of more than ten percent (10%) of the stock of the Franchisee, if the Franchisee be a corporation, or of any of its stock if sold in a public offering; or

iii) Of any interest in a partnership or the withdrawal of a partner if the Franchisee be a partnership; or

iv) The merger or consolidation of the Franchisee with any other company, or the dissolution of the Franchisee.

c) The discontinuance by the Franchisee, for any reason, of the business for a period of thirty (30) days, except as provided in Paragraph 17 hereof; or

d) The insolvency of the Franchisee as that term is defined in either the bankruptcy or equity sense, or an assignment by the Franchisee for the benefit of creditors, or the filing of a voluntary petition under any Chapter of the Bankruptcy Act, as now enacted or as may hereafter be amended, or the failure of the Franchisee to vacate an involuntary bankruptcy or reorganization petition filed against him within sixty (60) days from the date of such filing, or the failure of the Franchisee to vacate the appointment of a receiver or a trustee for the Franchisee, or any part or interest of his business effecting the franchise, within sixty
(60) days from the date of such appointment.

e) If Franchisee defaults in the reporting or the payment of royalties, franchise fee, cooperative advertising costs, or any other indebtedness to Company, where such payments are not made 1) after receipt by the Franchisee of written notice that such payments are overdue and 2) within fourteen (14) days after Franchisee receipt of such written notice which period shall occur prior to cancellation or termination.

Upon the happening of any one or more of the foregoing events the Company shall also have the right to discontinue supplying the Franchisee with Food and/or other

materials, for such length of time as the Company may reasonably deem necessary. without thereby cancelling or terminating this Agreement and without thereby prejudicing the Company's other rights and remedies including the right to terminate this Agreement for the same cause or for any one or more other causes.

11) In the event that the Company gives written consent to a sale or transfer as in paragraph 1Ob. above, the Franchisee will pay the Company its reasonable expenses of such transfer, at a rate schedule published by Company, which shall not exceed thirty-five hundred dollars ($3500.00) prior to any transfer being completed.

12) That, in addition to and not in limitation of the foregoing, if, in the reasonable opinion of the Company, the Franchisee should fail to promote the business or fail to secure reasonable penetration thereof in the Territory so defined geographically, the Company may call the Franchisee's attention to such failure by written notice to the Franchisee, specifying the segment of the Territory involved, and suggest remedial steps therefore. If Franchisee fails to use reasonable effort to substantially correct the failures identified in Company's written notice within three (3) months after the giving of such written notice, the Company shall thereupon have the right, upon written notice to the Franchisee to that effect, to remove such segment from the Territory covered by this Agreement and deal with it as the Company sees fit, without thereby cancelling or terminating this Agreement and without thereby prejudicing the Company's other rights and remedies hereunder. If the Company exercises such right to remove such segment from the Territory, the Company shall refund to Franchisee that portion of the franchise fee paid and attributable to such Territory segment.

13) That the Franchisee will pay and discharge, at his own expense, any and all expenses, charges, fees and taxes arising out of, or incidental to, the carrying on of his business, including, without limiting, the generality of the foregoing, all workers' compensation, unemployment insurance, and social security taxes levied or assessed with respect to the employees of the Franchisee, and the Franchisee will indemnify and hold harmless the Company, against any and all claims for such expenses, charges, fees and taxes.

14) That the Company or one of its subsidiaries is the owner of the various Trademarks used in the business, and will defend and protect same and indemnify and hold harmless the Franchisee in the authorized use of same. Nothing herein contained shall be construed as conferring upon the Franchisee any right or interest in said Trademarks or copyrights, and patents, used in connection with the business.

15) Company shall use best efforts to provide Franchisee with training programs for Franchisee and staff, operations and management guidance, marketing programs and advertising for the purpose of marketing the business throughout the entire Territory and securing penetration for the population in the Territory.

16) That the Franchisee shall not have the right to use the Trademarks as part of a trade name or the name of a partnership or corporation.

17) That immediately upon the cancellation or termination of this Agreement, however caused, the Franchisee will eliminate the Trademarks from his business, if they are in use, and will cease using, in any manner whatsoever, the Trademarks or copyrights, and patents used in connection with the business.

18) That neither party to the Agreement shall be held liable for failure to comply with any of the terms and conditions of this Agreement when such failure has been caused solely by fire, labor dispute, strike, war, insurrection, government restrictions, force majeure or act of God beyond the control and without fault on the part of the party involved, provided such party uses due diligence to remedy such default.

19) That this Agreement is personal. It cannot be transferred, assigned, pledged, mortgaged, or otherwise disposed of by the Franchisee in whole or in part without the Company's prior written consent, such consent not to be unreasonably withheld.

Failure of the Company to act within thirty (30) days of request for consent shall be deemed consent.

20) That this Agreement expresses fully the understanding, and that all prior understandings are hereby cancelled, and no future changes in the terms of this Agreement shall be valid, except when and if reduced in writing and signed by both the Franchisee and the Company, by legally authorized officials.

21) That this Agreement is subject to and controlled by all the terms and conditions of the Settlement/Release Agreement between the Company and the Nutri/System franchisees arising out of Civil Action No. 83-C-0601 (E.D. Wis.) and attached hereto and made a part hereof as Exhibit C. In the event of any inconsistencies between the terms and conditions of this Agreement and the terms and conditions of said Settlement/Release Agreement, the Settlement/Release Agreement shall control.

22) That the failure by the Company or the Franchisee to enforce at any time or for any period of time any one or more of the terms and conditions of the Agreement, shall not be a waiver of such terms or conditions or of such party's right thereafter to enforce each and every term and condition of this Agreement.

23) That this Agreement and all its terms and conditions shall be governed by and interpreted under the laws of the State of Pennsylvania.

NUTRI/SYSTEM, INC.

By

Title

This Agreement accepted and agreed to:

-----------------------------------------  -------------------------------------
          Applicant Information                 Sponsor Information
-----------------------------------------  -------------------------------------
Name:                                      Name:


-----------------------------------------  -------------------------------------
Social Security or Federal Tax ID:         ID Number:


-----------------------------------------  -------------------------------------
Address:                                   Address:


-----------------------------------------  -------------------------------------
City, State, and Zip Code:                 City, State, and Zip Code:


-----------------------------------------  -------------------------------------
Phone (Daytime)                            Phone:                Fax:


-----------------------------------------  -------------------------------------
Phone (Evening):                           Sponsor's Signature:


-----------------------------------------  -------------------------------------
Fax:

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

TERMS AND CONDITIONS

Executive Right Away Program
I want to become an Independent Distributor and become an Executive    Initials
right away. I authorize NutriSystem Direct to charge my credit card
listed below, my checking account, or I have enclosed a check for      -------
$299 for the Distibutor Kit, the Executive Development Kit and         |     |
an assortment of Nutri-System(R) products. I authorize NutriSystem     |     |
Direct to enroll me in the optional $100 AutoShip program. I           |     |
have attached an AutoShip form with my order.                          -------


Independent Distributor
I want to become an Independent NutriSystem Direct(TM)                Initials
Distributor. I authorize NutriSystem Direct to charge my credit
card listed below, my checking account or I have enclosed a check     --------
in the amount of $49 for the Distributor Kit. I understand this is    |      |
the only requirement to become a NutriSystem Direct(TM)               |      |
Distributor.                                                          |      |
                                                                      --------

[ ] LOGO [ ] LOGO [ ] LOGO [ ] LOGO

--------------------------------------------     ---------------------
                Signature                                 Date

Call in Application: 800-892-0276                              Fax: 215-706-5367
--------------------------------------------------------------------------------

775400 7/99 NutriSystem(R) (C)1999 Printed in U.S.A.

NUTRISYSTEM DIRECT DISTRIBUTOR AGREEMENT TERMS OF ENROLLMENT

As a NutriSystem Direct Independent Distributor, I acknowledge that I am an independent contractor and not an agent or employee of NutriSystem Direct. I understand that I will not be treated as an employee for federal or state tax purposes.

As a NutriSystem Direct Independent Distributor, I will make no statements, disclosures, or representations to sell NutriSystem Direct products or services, or in recuiting other prospective Distributors other than those contained in approved NutriSystem Direct Literature.

I understand that no purchase other than a Distributor Kit is necessary to become a NutriSystem Direct Distributor. I understand that I may terminate my Distributorship at any time. I further understand that I am under no obligation to make any financial investment to become a NutriSystem Direct Independent Distributor. I also understand that any successful retail business will incur business expenses beyond the purchase of product.

When I choose to become an Executive by accumulation, I must generate a monthly personal sales volume of at least $100 SV to maintain may Executive status and stay in the 4x7 Executive Organization. If I fail to meet this minimum two months in a row, I will simply return to my sponsor's Personal Group. If I choose to become an Executive right away, I must generate a monthly personal Sales Volume of at least $100 SV and be enrolled in the autoship program. If I fail to meet the Sales Volume minimum for two months in a row, I will simply return to my sponsor's Personal Group.

I understand that if no personal sales volume is generated for 12 consecutive months, this Agreement shall automatically terminate and any Distributorship will be cancelled and any future Bonuses will be forfeited. I understand that I may re-enroll after 12 months of not generating any sales volume by submitting a new Distributor Agreement and purchasing a new Distributor Kit.

I understand that in order to maintain a viable marketing system and to comply with changes in applicable law, NutriSystem Direct reserves the right to change prices, company policies, company literature and/or the compensation plan, without prior notice.

I understand that should I wish to terminate my distributorship. I must notify NutriSystem Direct. Any that time any salable products may be returned for a refund equal to 90% of the original purchase price less any commissions or bonuses paid. In any state in which specific buy back requirements has been enacted which may vary from the foregoing, NutriSystem Direct shall repurchase products in accordance with the applicable statute.

NutriSystem Direct Check By Phone/Fax Terms and Conditions

You may use Check-By-Phone for product purchases or monthly services available from NutriSystem Direct. To activite the Check-By-Phone option, please attach a voided check to this Agreement. (No deposit slips or temporary checks will be accepted.)

I hereby authorize NutriSystem Direct, its authorized agent in accordance with this Agreement to initiate debit/credit entries to may checking account. I agree that NutriSystem Direct shall be fully protected in honoring such a draft, and if any funds are dishonored, whether intentionally or inadverently, NutriSystem Direct shall be under no liability whatsoever even though such dishonor results in the forfeiture of product, bonuses, or privileges I may have been entitled to as an active distribuor.

Additional Terms and Conditions

I understand that in order to be successful in this program I must purchase and sell NutriSystem Direct Products and retail them myself. I understand that I can sponsor other distributors to do the same; and in order for them to be successful they must purchase and sell products at retail and recruit other people to do the same. I understand that in order to qualify for commissions, I must retail or use in business building, 70% of the product I purchase before I purchase more products.

Exhibit 10.5

NUTRISYSTEM.COM INC.

1999 EQUITY INCENTIVE PLAN

1. Purpose. The purpose of the nutrisystem.com inc. 1999 Equity Incentive Plan (the "Plan") is to further the growth, development and financial success of nutrisystem.com inc. (the "Company") by providing additional incentives to those officers and key employees who are responsible for the management of the Company's business, which incentives will enable them to participate directly in the growth of the value of the capital stock of the Company. To accomplish these purposes, the Plan provides a means whereby key employees and officers may receive stock options ("Options") to purchase the Company's Common Stock, $.001 par value (the "Common Stock").

2. Administration.

(a) Composition of the Committee. The Plan shall be administered by a committee (the "Committee") which shall be appointed by and serve at the pleasure of the Company's Board of Directors (the "Board") or by the Board in the absence of the appointment of the Committee. The Committee shall be comprised of two or more members of the Board, each of whom shall be (i) a "non-employee director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) an "outside director" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Subject to the foregoing, from time to time the Board may increase or decrease the size of the Committee, appoint additional members thereof, remove members with or without cause, appoint new members in substitution therefor, fill vacancies or remove all members of the Committee and thereafter directly administer the Plan.

(b) Authority of the Committee. The Committee shall have full and final authority, in its sole discretion, to interpret the provisions of the Plan and to decide all questions of fact arising in its application; to determine the officers and other key employees to whom awards shall be made and the type, amount, size and terms of each such award; to determine the time when awards shall be granted and to make all other determinations necessary or advisable for the administration of the Plan. The Committee shall have the authority to adopt, amend and rescind such rules, regulations and procedures as, in its opinion, may be advisable in the administration of the Plan, including, without limitation, rules, regulations and procedures that: (i) deal with satisfaction of an optionee's tax withholding obligations pursuant to Section 13 hereof, (ii) include arrangements to facilitate an optionee's ability to borrow funds for the payment of the exercise price of an Option, if applicable, from securities brokers and dealers and (iii) include arrangements that provide for the payment of some or all of an

Option's exercise price by delivery of previously owned shares of Common Stock or other property and/or by withholding some of the shares of Common Stock being acquired upon exercise of an Option. All decisions, determinations and interpretations of the Committee shall be final and binding on all optionees and all other holders of Options granted under the Plan.

(c) Authority of the Board. Notwithstanding anything to the contrary set forth in the Plan, all authority granted hereunder to the Committee may be exercised at any time and from time to time by the Board. All decisions, determinations and interpretations of the Board shall be final and binding on all optionees and all other holders of Options granted under the Plan.

3. Stock Subject to the Plan. Subject to Section 16 hereof, the shares that may be issued under the Plan shall not exceed in the aggregate 1,000,000 shares of Common Stock. Such shares may be authorized and unissued shares or shares issued and subsequently reacquired by the Company. Except as otherwise provided herein, any shares subject to an Option that for any reason expires or is terminated unexercised as to such shares shall again be available under the Plan.

4. Eligibility To Receive Options. Persons eligible to receive Options under the Plan shall be limited to those officers and other key employees of the Company and any subsidiary (as defined in Section 424 of the Code or any amendment or substitute thereto) who are in positions in which their decisions, actions and counsel significantly impact upon the profitability and success of the Company or a subsidiary of the Company; provided, however, that directors of the Company who are not also officers or employees of the Company shall not be eligible to participate in the Plan.

5. Types of Options. Grants may be made at any time and from time to time by the Committee in the form of stock options to purchase shares of Common Stock. Options granted hereunder may be Options that are intended to qualify as incentive stock options within the meaning of Section 422 of the Code or any amendment or substitute thereto ("Incentive Stock Options") or Options that are not intended to so qualify ("Nonqualified Stock Options").

6. Option Agreements. Each Option for the purchase of Common Stock shall be evidenced by a written option agreement in such form not inconsistent with the Plan as the Committee or the Board shall approve from time to time. The Options granted hereunder may be evidenced by a single agreement or by multiple agreements, as determined by the Committee in its sole discretion. Each option agreement shall contain in substance the following terms and conditions:

(a) Type of Option. Each option agreement shall identify the Options represented thereby either as Incentive Stock Options or Nonqualified Stock Options, as the case may be.

(b) Option Price. Each option agreement shall set forth the purchase price of the Common Stock purchasable upon the exercise of the Option evidenced thereby. Subject to the limitation set forth in Section 6(d)(ii) hereof, the purchase price of the Common Stock subject to an Incentive Stock Option shall be not less than 100% of the fair market value of such stock on the date the Option is granted, as determined by the Committee or the Board, but in no event less than the par value of such stock. The purchase price of the Common Stock subject to a Nonqualified Stock Option shall be not less than 85% of the fair market value of such stock on the date the Option is granted, as determined by the Committee or the Board. For this purpose, fair market value on any date shall mean the closing price of the Common Stock, as reported in The Wall Street Journal, or if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation System ("Nasdaq"), or if the Common Stock is not reported by Nasdaq, the fair market value shall be as determined by the Committee or the Board pursuant to Section 422 of the Code.

(c) Exercise Term. Each option agreement shall state the period or periods of time within which the Option may be exercised, in whole or in part, as determined by the Committee or the Board, provided that no Option shall be exercisable after ten years from the date of grant thereof. The Committee shall have the power to permit an acceleration of previously established exercise terms, subject to the requirements set forth herein, upon such circumstances and subject to such terms and conditions as the Committee deems appropriate.

(d) Incentive Stock Options. In the case of an Incentive Stock Option, each option agreement shall contain such other terms, conditions and provisions as the Committee determines necessary or desirable in order to qualify the Option granted thereunder as a tax-favored Option (within the meaning of Section 422 of the Code or any amendment or substitute thereto or regulation thereunder) including without limitation, each of the following, except that any of these provisions may be omitted or modified if it is no longer required in order to have an Option qualify as a tax-favored Option within the meaning of Section 422 of the Code or any amendment or substitute therefor:

(i) The aggregate fair market value, determined as of the date the Option is granted, of the Common Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year under all plans of the Company shall not exceed $100,000.

(ii) No Incentive Stock Options shall be granted to any employee if at the time the Option is granted such employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its subsidiaries unless at the time such Option is granted the Option price is at least 110% of the fair market value of the stock subject to the Option and, by its terms, the Option is not exercisable after the expiration of five years from the date of grant.

(iii) No Incentive Stock Options shall be exercisable more than three months, or one year in the case of an employee who dies or becomes disabled within the meaning of Section 72(m)(7) of the Code or any substitute therefor, after termination of employment with the Company.

(e) Substitution of Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become, and who do concurrently with the grant of such options become, employees of the Company or a subsidiary of the Company as a result of a merger or consolidation of the employing corporation with the Company or a subsidiary of the Company, or the acquisition by the Company or a subsidiary of the Company of the assets of the employing corporation or the acquisition by the Company or a subsidiary of the Company of stock of the employing corporation. The terms and conditions of the substitute Options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.

7. Date of Grant. The date on which an Option shall be deemed to have been granted under the Plan shall be the date of the Committee's authorization of the Option or such later date as may be determined by the Committee at the time the Option is authorized. Notice of the determination shall be given to each individual to whom an Option is so granted within a reasonable time after the date of such grant.

8. Exercise and Payment for Shares. Options may be exercised in whole or in part, from time to time, by giving written notice of exercise to the President of the Company, specifying the number of shares to be purchased. The purchase price of the shares with respect to which an Option is exercised shall be payable in full with the notice of exercise in cash, Common Stock at fair market value or a combination thereof, as the Committee may determine from time to time and subject to such terms and conditions as may be prescribed by the Committee for such purpose. The Committee may also, in its discretion and subject to prior notification to the Company by an optionee, permit an optionee to enter into an agreement with the Company's transfer agent or a brokerage firm of national standing whereby the optionee will

simultaneously exercise the Option and sell the shares acquired thereby through the Company's transfer agent or such a brokerage firm and either the Company's transfer agent or the brokerage firm executing the sale will remit to the Company from the proceeds of sale the exercise price of the shares as to which the Option has been exercised.

9. Rights upon Termination of Service. In the event that an optionee ceases to be an employee of the Company or any subsidiary of the Company for any reason other than death, retirement (as hereinafter defined) or disability (within the meaning of Section 72(m)(7) of the Code or any substitute therefor), the optionee shall have the right to exercise the Option during its term within a period of three months after such termination to the extent that the Option was exercisable at the time of termination or within such other period and subject to such terms and conditions as may be specified by the Committee. In the event that an optionee dies, retires or becomes disabled prior to the expiration of his Option and without having fully exercised his Option, the optionee or his successor shall have the right to exercise the Option during its term within a period of one year after termination of employment due to death, retirement or disability to the extent that the Option was exercisable at the time of termination or within such other period and subject to such terms and conditions, as may be specified by the Committee. As used in this Section 9, "retirement" means a termination of employment by reason of an optionee's retirement at or after his earliest permissible retirement date pursuant to and in accordance with his employer's regular retirement plan or personnel practices. Notwithstanding the provisions of Section 6(d)(iii) hereof, if the term of an Incentive Stock Option continues for more than three months after termination of employment due to retirement or more than one year after termination of employment due to death or disability, such Option shall thereupon lose its status as an Incentive Stock Option and shall be treated as a Nonqualified Stock Option.

10. General Restrictions. Each Option granted under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, (ii) the consent or approval of any government regulatory body,
(iii) the satisfaction of any tax payment or withholding obligation or (iv) an agreement by the recipient of an Option with respect to the disposition of shares of Common Stock is necessary or desirable as a condition of or in connection with the granting of such Option or the issuance or purchase of shares of Common Stock thereunder, such Option shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee or the Board.

11. Rights of a Stockholder. The recipient of any Option under the Plan, unless otherwise provided by the Plan, shall have no rights as a stockholder unless and until a certificate for shares of Common Stock is issued and delivered to him.

12. Right to Terminate Employment. Nothing contained in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any optionee the right to continue in the employment of the Company or any subsidiary of the Company or affect any right that the Company or any subsidiary of the Company may have to terminate the employment of such optionee.

13. Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state or local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. If and to the extent authorized by the Committee, in its sole discretion, an optionee may make an election, by means of a form of election to be prescribed by the Committee, to have shares of Common Stock that are acquired upon exercise of an Option withheld by the Company or to tender other shares of Common Stock or other securities of the Company owned by the optionee to the Company at the time of exercise of an Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of an Option. Any such election shall be irrevocable and shall be subject to termination by the Committee or the Board at any time. Any securities so withheld or tendered will be valued by the Committee or the Board as of the date of exercise.

14. Non-Assignability. No Option under the Plan shall be assignable or transferable by the recipient thereof except by will or by the laws of descent and distribution or by such other means as the Committee or the Board may approve. During the life of the recipient, such Option shall be exercisable only by such person or by such person's guardian or legal representative.

15. Non-Uniform Determinations. The Committee's determinations under the Plan, including, without limitation, determinations of the persons to receive Options, the form, amount and timing of such grants, the terms and provisions of Options and the agreements evidencing same, need not be uniform and may be made selectively among persons who receive, or are eligible to receive, grants of Options under the Plan whether or not such persons are similarly situated.

16. Adjustments.

(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each

outstanding Option and the number of shares of Common Stock that have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Committee or the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Committee or the Board. The Committee or the Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Committee or the Board and give each Option holder the right to exercise his Option as to all or any part of the shares of Common Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable.

(c) Sale or Merger. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, the Committee or the Board, in the exercise of its sole discretion, may take such action as it deems desirable, including, but not limited to: (i) causing an Option to be assumed or an equivalent option to be substituted by such successor corporation or a parent or subsidiary of such successor corporation, (ii) providing that an Option holder shall have the right to exercise his Option as to all of the shares of Common Stock covered by the Option, including shares as to which the Option would not otherwise be exercisable or (iii) declaring that an Option shall terminate at a date fixed by the Committee or the Board provided that the Option holder is given notice and opportunity prior to such date to exercise that portion of his Option that is currently exercisable.

17. Amendment. The Committee or the Board may terminate or amend the Plan at any time with respect to shares as to which Options have not been granted, subject to any required stockholder approval or any stockholder approval that the

Committee or the Board may deem to be advisable for any reason, such as for the purpose of obtaining or retaining any statutory or regulatory benefits under tax, securities or other laws or satisfying any applicable stock exchange listing requirements. Neither the Board nor the Committee may, without the consent of the holder of an Option, alter or impair any Option previously granted under the Plan, except as specifically authorized herein.

18. Conditions upon Issuance of Shares.

(a) Compliance with Securities Laws. Shares of Common Stock shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder and the requirements of any stock exchange upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the shares of Common Stock are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such representation is required by any of the aforementioned relevant provisions of law.

19. Reservation of Shares. The Company, during the term of the Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained.

20. Effect on Other Plans. Participation in the Plan shall not affect an employee's eligibility to participate in any other benefit or incentive plan of the Company or any subsidiary of the Company. Any Options granted pursuant to the Plan shall not be used in determining the benefits provided under any other plan of the Company or any subsidiary of the Company unless specifically provided.

21. Duration of the Plan. The Plan shall remain in effect until all Options granted under the Plan have been satisfied by the issuance of shares, but no Option

shall be granted more than ten years after the earlier of the date the Plan is adopted by the Board or is approved by the Company's stockholders.

22. Forfeiture for Dishonesty. Notwithstanding anything to the contrary in the Plan, if the Committee or the Board finds, by a majority vote, after full consideration of the facts presented on behalf of both the Company and any optionee, that the optionee has been engaged in fraud, embezzlement, theft, commission of a felony or dishonest conduct in the course of his employment or retention by the Company or any subsidiary of the Company that damaged the Company or any subsidiary of the Company or that the optionee has disclosed trade secrets of the Company or any subsidiary of the Company, the optionee shall forfeit all unexercised Options and all exercised Options with respect to which the Company has not yet delivered the certificates. The decision of the Committee or the Board in interpreting and applying the provisions of this
Section 22 shall be final. No decision of the Committee or the Board shall affect the finality of the discharge or termination of such optionee by the Company or any subsidiary of the Company in any manner.

23. No Prohibition on Corporate Action. No provision of the Plan shall be construed to prevent the Company or any officer or director thereof from taking any corporate action deemed by the Company or such officer or director to be appropriate or in the Company's best interest, whether or not such action could have an adverse effect on the Plan or any Options granted hereunder, and no optionee or optionee's estate, personal representative or beneficiary shall have any claim against the Company or any officer or director thereof as a result of the taking of such action.

24. Indemnification. With respect to the administration of the Plan, the Company shall indemnify each present and future member of the Committee and the Board against, and each member of the Committee and the Board shall be entitled without further action on his part to indemnity from the Company for, all expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of, any action, suit or proceeding in which he may be involved by reason of his being or having been a member of the Committee or the Board, whether or not he continues to be such member at the time of incurring such expenses; provided, however, that such indemnity shall not include any expenses incurred by any such member of the Committee or the Board
(i) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as such member of the Committee or the Board or (ii) in respect of any matter in which any settlement is effected for an amount in excess of the amount approved by the Company on the advice of its legal counsel; and provided further that no right of indemnification under the provisions set forth

herein shall be available to or enforceable by any such member of the Committee or the Board unless, within 60 days after institution of any such action, suit or proceeding, he shall have offered the Company in writing the opportunity to handle and defend such action at its own expense. The foregoing right of indemnification shall inure to the benefit of the heirs, executors and administrators of each such member of the Committee and the Board and shall be in addition to all other rights to which such member may be entitled as a matter of law, contract or otherwise.

25. Miscellaneous Provisions.

(a) Compliance with Plan Provisions. No optionee or other person shall have any right with respect to the Plan, the Common Stock reserved for issuance under the Plan or any Option until a written option agreement shall have been executed by the Company and the optionee and all the terms, conditions and provisions of the Plan and the Option applicable to such optionee and each person claiming under or through him have been met.

(b) Approval of Counsel. In the discretion of the Committee and the Board, no shares of Common Stock, other securities or property of the Company or other forms of payment shall be issued hereunder with respect to any Option unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, local and foreign legal, securities exchange and other applicable requirements.

(c) Compliance with Rule 16b-3. To the extent that Rule 16b-3 under the Exchange Act applies to Options granted under the Plan, it is the intention of the Company that the Plan comply in all respects with the requirements of Rule 16b-3, that any ambiguities or inconsistencies in construction of the Plan be interpreted to give effect to such intention and that, if the Plan shall not so comply, whether on the date of adoption or by reason of any later amendment to or interpretation of Rule 16b-3, the provisions of the Plan shall be deemed to be automatically amended so as to bring them into full compliance with such rule.

(d) Unfunded Plan. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets under the Plan.

(e) Effects of Acceptance of Option. By accepting any Option or other benefit under the Plan, each optionee and each person claiming under or through him shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Board or the Committee or its delegates.

(f) Construction. The masculine pronoun shall include the feminine and neuter, and the singular shall include the plural, where the context so indicates.

26. Stockholder Approval. The Company shall submit the Plan to the stockholders entitled to vote hereon for approval within twelve months after the date of adoption by the Board in order to meet the requirements of Section 422 of the Code and the regulations thereunder. The exercise of any Option granted under the Plan shall be subject to the approval of the Plan by the affirmative vote of the holders of a majority of the outstanding shares of the Common Stock present, or represented, and entitled to vote at a duly convened meeting of stockholders.

Date of adoption by the Board of Directors: August 20, 1999

Date of approval by the stockholders: August 20, 1999