NUTRI SYSTEM INC /DE/ (Form: 10-Q, Received: 08/05/2010 16:22:05)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 0-28551

Nutrisystem, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

23-3012204

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Fort Washington Executive Center

600 Office Center Drive

Fort Washington, Pennsylvania

19034

(Address of principal executive offices)

(Zip code)

(215) 706-5300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ¨ No ¨

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

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 28, 2010:


Common Stock, $.001 par value		26,894,316 shares

NUTRISYSTEM, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q


				Page

PART I – FINANCIAL INFORMATION

	Item 1	–	Financial Statements (unaudited)

			Consolidated Balance Sheets	1

			Consolidated Statements of Operations	2

			Consolidated Statement of Stockholders’ Equity and Comprehensive Income	3

			Consolidated Statements of Cash Flows	4

			Notes to Consolidated Financial Statements.	5

	Item 2	–	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3	–	Quantitative and Qualitative Disclosures About Market Risk	21

	Item 4	–	Controls and Procedures	22

PART II – OTHER INFORMATION

	Item 1	–	Legal Proceedings	22

	Item 1A	–	Risk Factors	24

	Item 2	–	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3	–	Defaults Upon Senior Securities	24

	Item 5	–	Other Information	24

	Item 6	–	Exhibits.	25

SIGNATURES				26

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	58,294		$	31,864
Marketable securities		30,637			30,324
Receivables		12,874			12,932
Inventories, net		23,893			52,012
Prepaid income taxes		964			2,420
Deferred income taxes		2,479			2,756
Other current assets		6,686			10,659
Current assets of discontinued operations		266			648

Total current assets		136,093			143,615

FIXED ASSETS, net		33,868			20,984

OTHER ASSETS		6,241			5,752

NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS		350			436


	$	176,552		$	170,787

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	41,948		$	32,246
Accrued payroll and related benefits		4,012			1,088
Deferred revenue		1,195			3,710
Other accrued expenses and current liabilities		5,493			2,653
Current liabilities of discontinued operations		317			577

Total current liabilities		52,965			40,274

NON-CURRENT LIABILITIES		5,389			1,550


Total liabilities		58,354			41,824


COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS’ EQUITY:

Preferred stock, $.001 par value (5,000,000 shares authorized, no shares issued and outstanding)		—			—
Common stock, $.001 par value (100,000,000 shares authorized; shares issued – 30,465,209 at June 30, 2010 and 30,949,784 at December 31, 2009)		28			29
Additional paid-in capital		—			6,515
Retained earnings		118,254			122,503
Accumulated other comprehensive loss		(84	)		(84	)


Total stockholders’ equity		118,198			128,963


	$	176,552		$	170,787

The accompanying notes are an integral part of these consolidated financial statements.

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009

REVENUE	$	141,634		$	131,000		$	300,464		$	292,779


COSTS AND EXPENSES:
Cost of revenue		61,792			60,304			133,931			135,776
Marketing		37,223			35,372			93,828			82,216
General and administrative		19,662			20,923			38,917			42,476
Depreciation and amortization		2,940			2,499			5,931			4,950


Total costs and expenses		121,617			119,098			272,607			265,418


Operating income from continuing operations		20,017			11,902			27,857			27,361

OTHER INCOME (EXPENSE)		—			281			(35	)		190

EQUITY AND IMPAIRMENT LOSS		—			(3,610	)		—			(4,000	)

INTEREST INCOME (EXPENSE), net		48			(47	)		104			(96	)


Income from continuing operations before income taxes		20,065			8,526			27,926			23,455

INCOME TAXES (BENEFIT)		7,385			(591	)		10,347			5,019


Income from continuing operations		12,680			9,117			17,579			18,436

DISCONTINUED OPERATIONS (NOTE 9):

Loss on discontinued operations, net of income tax benefit		(89	)		(338	)		(187	)		(815	)


Net income	$	12,591		$	8,779		$	17,392		$	17,621


BASIC INCOME PER COMMON SHARE:

Income from continuing operations	$	0.41		$	0.30		$	0.56		$	0.60

Loss on discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.03	)


Net income	$	0.40		$	0.29		$	0.55		$	0.57


DILUTED INCOME PER COMMON SHARE:

Income from continuing operations	$	0.40		$	0.29		$	0.56		$	0.60

Loss on discontinued operations		—			(0.01	)		(0.01	)		(0.03	)


Net income	$	0.40		$	0.28		$	0.55		$	0.57


WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic		29,721			29,399			29,714			29,358

Diluted		30,105			29,648			30,070			29,590

Dividends declared per common share	$	0.18		$	0.18		$	0.35		$	0.35

The accompanying notes are an integral part of these consolidated financial statements.

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Unaudited, in thousands, except share amounts)


	Common Shares		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
BALANCE, January 1, 2010	29,627,261		$	29		$	6,515		$	122,503		$	(84	)	$	128,963

Net income	—			—			—			17,392			—			17,392
Foreign currency translation adjustment	—			—			—			—			—			—
Unrealized loss on marketable securities, net of tax	—			—			—			—			—			—

Total comprehensive income																17,392
Share-based expense	200,020			—			3,529			—			—			3,529
Exercise of stock options	46,159			—			105			—			—			105
Equity compensation awards, net	—			—			326			—			—			326
Cash dividends	—			—			—			(10,855	)		—			(10,855	)
Purchase and retirement of common stock	(908,300	)		(1	)		(10,475	)		(10,786	)		—			(21,262	)


BALANCE, June 30, 2010	28,965,140		$	28		$	—		$	118,254		$	(84	)	$	118,198

The accompanying notes are an integral part of these consolidated financial statements.

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Six Months Ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	17,392		$	17,621
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on discontinued operations		187			815
Depreciation and amortization		5,931			4,950
Loss on disposal of fixed assets		65			29
Share–based expense		5,379			4,251
Deferred income tax benefit		(329	)		(945	)
Equity and impairment loss		—			4,000
Changes in operating assets and liabilities:
Receivables		62			9,136
Inventories, net		28,119			21,084
Other assets		4,360			1,117
Accounts payable		7,558			(2,199	)
Accrued payroll and related benefits		2,924			881
Deferred revenue		(2,515	)		(3,366	)
Income taxes		1,455			(4,792	)
Other accrued expenses and liabilities		1,207			887

Net cash provided by operating activities of continuing operations		71,795			53,469
Net cash used in operating activities of discontinued operations		(243	)		(505	)

Net cash provided by operating activities		71,552			52,964

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities		(313	)		(10,000	)
Capital additions		(11,271	)		(5,105	)

Net cash used in investing activities of continuing operations		(11,584	)		(15,105	)
Net cash used in investing activities of discontinued operations		(38	)		(74	)

Net cash used in investing activities		(11,622	)		(15,179	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options		105			332
Equity compensation awards, net		(1,793	)		(322	)
Payment of dividends		(10,855	)		(10,656	)
Repurchase and retirement of common stock		(21,262	)		(1,939	)

Net cash used in financing activities		(33,805	)		(12,585	)

Effect of exchange rate changes on cash and cash equivalents		10			171

NET INCREASE IN CASH AND CASH EQUIVALENTS		26,135			25,371
CASH AND CASH EQUIVALENTS, beginning of period		32,364			38,631

CASH AND CASH EQUIVALENTS, end of period		58,499			64,002

LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS, end of period		205			963

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of period	$	58,294		$	63,039

The accompanying notes are an integral part of these consolidated financial statements.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, in thousands except share and per share amounts)

1. BACKGROUND

Nature of the Business

Nutrisystem, Inc. (the “Company” or “Nutrisystem”), a provider of weight management products and services, offers nutritionally balanced weight loss programs based on over 35 years of nutrition research and on the science of the low glycemic index. The Company’s pre-packaged foods are sold directly to weight loss program participants primarily through the Internet and telephone (including the redemption of prepaid program cards), referred to as the direct channel and through QVC, a television shopping network.

In the first quarter of 2010, the Company committed to a plan to sell its subsidiary Nutrisystem Fresh, Inc. (“NuKitchen”), a provider of freshly prepared meals designed to promote weight management and healthy living. NuKitchen has been treated as a discontinued operation. Accordingly, the operating results have been presented separately from continuing operations and are included in loss on discontinued operations, net of income tax benefit in the accompanying consolidated statements of operations for all periods presented. Prior period amounts have been reclassified to conform to this presentation. The assets and liabilities have also been presented separately in the accompanying consolidated balance sheets (see Note 9).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Presentation of Financial Statements

The Company’s consolidated financial statements include 100% of the assets and liabilities of Nutrisystem, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Interim Financial Statements

The Company’s consolidated financial statements as of June 30, 2010 and for the three and six months ended June 30, 2010 and 2009 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company’s financial position and results of operations for these interim periods. Readers of these consolidated financial statements should refer to the Company’s audited financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), and the related notes thereto, for the year ended December 31, 2009, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report pursuant to the rules of the Securities and Exchange Commission (the “SEC”). The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents include only securities having a maturity of three months or less at the time of purchase. At June 30, 2010 and December 31, 2009, demand accounts and money market accounts comprised all of the Company’s cash and cash equivalents.

Marketable securities consist of investments in a bond fund that holds short-term U.S. government securities with original maturities of greater than three months. The Company classifies these as available-for-sale securities. The marketable securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss, a component of stockholders’ equity, net of related tax effects.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

At June 30, 2010, cash, cash equivalents and marketable securities of continuing operations consisted of the following:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Cash	$	23,236	$	—	$	—	$	23,236
Money market account		35,058		—		—		35,058
U.S. government bond fund		30,657		—		20		30,637

	$	88,951	$	—	$	20	$	88,931

At December 31, 2009, cash, cash equivalents and marketable securities of continuing operations consisted of the following:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Cash	$	31,864	$	—	$	—	$	31,864
U.S. government bond fund		30,344		—		20		30,324

	$	62,208	$	—	$	20	$	62,188

Fixed Assets

Fixed assets are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, which are generally two to seven years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life of the asset or the related lease term. Expenditures for repairs and maintenance are charged to expense as incurred, while major renewals and improvements are capitalized.

Included in fixed assets is the capitalized cost of internal-use software and website development incurred during the application development stage. Capitalized costs are amortized using the straight-line method over the estimated useful life of the asset, which is generally two to five years. Costs incurred related to planning or maintenance of internal-use software and website development are charged to expense as incurred. The net book value of capitalized software was $12,053 and $12,274 at June 30, 2010 and December 31, 2009, respectively.

Revenue Recognition

Revenue from product sales is recognized when the earnings process is complete, which is upon transfer of title to the product. This transfer occurs upon shipment. Recognition of revenue upon shipment meets the revenue recognition criteria in that persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed and determinable and collection is reasonably assured. Deferred revenue consists primarily of unredeemed prepaid program cards, unshipped frozen foods and promotional offers. Customers may return unopened product within 30 days of purchase in order to receive a refund or credit. Estimated returns are accrued at the time the sale is recognized and actual returns are tracked monthly. The Company reviews its history of actual versus estimated returns to ensure reserves are appropriate.

The Company sells prepaid program cards to wholesalers and retailers. Revenue from these cards is recognized after the card is redeemed online at the Company’s website by the customer and the product is shipped to the customer.

Revenue from product sales includes amounts billed for shipping and handling and is presented net of returns and billed sales tax. Revenue from shipping and handling charges was $1,586 and $3,403 for the three and six months ended June 30, 2010, respectively, and $1,213 and $2,723 for the three and six months ended June 30, 2009, respectively. Shipping-related costs are included in cost of revenue in the accompanying consolidated statements of operations.

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company considers actual return rates in preceding periods and changes in product offerings or marketing methods that might impact returns going forward. To the extent the estimate of returns changes, the Company will adjust the reserve, which will impact the amount of product sales revenue

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

recognized in the period of the adjustment. The provision for estimated returns for the three and six months ended June 30, 2010 was $7,200 and $16,408, respectively, and $7,961 and $17,575 for the three and six months ended June 30, 2009, respectively. The reserve for returns incurred but not received and processed was $3,019 and $1,850 at June 30, 2010 and December 31, 2009, respectively, and has been included in other accrued expenses and current liabilities in the accompanying consolidated balance sheets.

Dependence on Suppliers

Approximately 20% and 18% of inventory purchases for the six months ended June 30, 2010 were from two suppliers. The Company has supply arrangements with these vendors that require the Company to make minimum purchases (see Note 7). For the six months ended June 30, 2009, these vendors supplied approximately 23% and 17% of total purchases, respectively.

The Company currently outsources 100% of its fulfillment operations to a third party provider. During the six months ended June 30, 2009, more than 85% of its fulfillment operations were handled by this third party provider.

Inventories

Inventories consist principally of packaged food held in outside fulfillment locations. Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out (FIFO) method. Quantities of inventory on hand are continually assessed to identify excess or obsolete inventory and a provision is recorded for any estimated loss. The reserve is estimated for excess and obsolete inventory based primarily on forecasted demand and/or the Company’s ability to sell the products, future production requirements and changes in customers’ behavior. The reserve for excess and obsolete inventory was $415 and $1,179 at June 30, 2010 and December 31, 2009, respectively.

Vendor Rebates

One of the Company’s suppliers provides for rebates based on purchasing levels. The Company accounts for this rebate on an accrual basis as purchases are made at a rebate percent determined based upon the estimated total purchases from the vendor. The estimated rebate is recorded as a reduction in the carrying value of purchased inventory and is reflected in the consolidated statements of operations when the associated inventory is sold. A receivable is recorded for the estimate of the rebate earned. The rebate period is June 1 through May 31 of each year. For the three and six months ended June 30, 2010, cost of revenue was reduced by $514 and $1,238, respectively, for these rebates. For the comparable periods of 2009, cost of revenue was reduced by $601 and $1,115, respectively. A receivable of $2,450 and $1,478 at June 30, 2010 and December 31, 2009, respectively, has been recorded in receivables in the accompanying consolidated balance sheets. Historically, the actual rebate received from the vendor has closely matched the estimated rebate recorded. An adjustment is made to the estimate upon determination of the final rebate.

Fair Value of Financial Instruments

A three-tier fair value hierarchy has been established by the Financial Accounting Standards Board (“FASB”) to prioritize the inputs used in measuring fair value. These tiers are as follows:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The fair values of the Company’s cash, cash equivalents and marketable securities are based on quoted prices in active markets for identical assets or a Level 1 methodology.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

Earnings Per Share

The Company uses the two-class method to calculate earnings per share (“EPS”) as the unvested shares issued under the Company’s equity incentive plans are participating shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period. The following table sets forth the computation of basic and diluted EPS:


	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(in thousands, except per share amounts)
Income from continuing operations	$	12,680		$	9,117		$	17,579		$	18,436
Income allocated to unvested restricted stock		(634	)		(400	)		(812	)		(767	)

Income from continuing operations allocated to common shares		12,046			8,717			16,767			17,669
Loss on discontinued operations		(89	)		(338	)		(187	)		(815	)

Net income allocated to common shares	$	11,957		$	8,379		$	16,580		$	16,854


Weighted average shares outstanding:
Basic		29,721			29,399			29,714			29,358
Effect of dilutive securities		384			249			356			232

Diluted		30,105			29,648			30,070			29,590


Basic income per common share:
Income from continuing operations	$	0.41		$	0.30		$	0.56		$	0.60
Loss from discontinued operations		(0.01	)		(0.01	)		(0.01	)		(0.03	)

Net income	$	0.40		$	0.29		$	0.55		$	0.57


Diluted income per common share:
Income from continuing operations	$	0.40		$	0.29		$	0.56		$	0.60
Loss from discontinued operations		—			(0.01	)		(0.01	)		(0.03	)

Net income	$	0.40		$	0.28		$	0.55		$	0.57

In the three and six months ended June 30, 2010, common stock equivalents representing 172,136 and 156,927 shares of common stock, respectively, were excluded from weighted average shares outstanding for diluted income per share purposes because the effect would be anti-dilutive. In the comparable periods of 2009, common stock equivalents representing 629,975 and 769,749 shares of common stock, respectively, were excluded because the effect would be anti-dilutive.

Cash Flow Information

The Company made payments for income taxes of $8,983 and $9,810 in the six months ended June 30, 2010 and 2009, respectively, and interest payments of $152 and $151 for the six months ended June 30, 2010 and 2009, respectively. During the six months ended June 30, 2010, the Company had non-cash capital additions of $7,603, comprised of $4,163 of a tenant improvement allowance and $3,440 of unpaid invoices in accounts payable and accrued expenses.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and operating expenses during the reporting period. Actual results could differ from these estimates.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

3. EQUITY INVESTMENT

On October 11, 2007, the Company purchased 1,320,650 Series A Preferred Units from Zero Technologies, LLC (“Zero Water”), at a purchase price of $10.60 per Series A Unit for an aggregate purchase price of $14,258, which included acquisition costs of $259. This represented approximately a 27% fully diluted equity interest in Zero Water. This investment was accounted for under the equity method of accounting.

In June 2009, the Company abandoned its interest in Zero Water as management determined that the business was no longer aligned with the Company’s current strategic direction. The Company wrote-off the remaining investment. During the three and six months ended June 30, 2009, an equity and impairment loss of $3,610 and $4,000, respectively, was recorded to write-off the remaining investment.

4. CREDIT FACILITY

On October 2, 2007, the Company executed a credit agreement with a group of lenders that provides for a $200,000 unsecured revolving credit facility with an expansion feature, subject to certain conditions, to increase the facility to $300,000 (the “Credit Facility”). No amounts were borrowed during 2010 or 2009 and no amounts were outstanding as of June 30, 2010.

The Credit Facility provides for interest at either a floating rate, which will be a base rate, or a Eurocurrency rate equal to the London Inter-Bank Offered Rate for the relevant term, plus an applicable margin. The base rate will be the higher of the lender’s base rate or one-half of one percent above the Federal Funds Rate. The Credit Facility is also subject to a 0.15% per annum unused fee payable quarterly. During the three and six months ended June 30, 2010, the Company paid no interest payments and $76 and $152 in unused line fees, respectively. In the comparable periods of 2009, the Company paid no interest payments and $76 and $151, respectively, in unused line fees. Interest payments and unused lines fees are classified as interest income (expense), net in the accompanying consolidated statements of operations.

The Credit Facility contains financial and other covenants, including a maximum leverage ratio and minimum interest coverage ratio, and includes limitations on, among other things, liens, certain acquisitions, consolidations and sales of assets. The Company may declare and pay cash dividends up to specified amounts if certain ratios are maintained and no events of default have occurred. As of June 30, 2010, the Company was in compliance with all covenants contained in the Credit Facility.

At June 30, 2010, the Company had $366 of unamortized debt issuance costs associated with the Credit Facility that are being amortized over the remaining term of the Credit Facility. The amount of unused Credit Facility at June 30, 2010 was $200,000. The Credit Facility can be drawn upon through October 2, 2012, at which time all amounts must be repaid.

5. CAPITAL STOCK

Common Stock

The Company issued 46,159 and 73,370 shares of common stock in the six months ended June 30, 2010 and 2009, respectively, upon the exercise of stock options and received proceeds of $105 and $332. Additionally, 261,831 and 147,926 shares of restricted stock and restricted stock units vested during the six months ended June 30, 2010 and 2009, respectively. Included in the number of shares vested during the six months ended June 30, 2010 and 2009 were 86,510 and 52,625 shares, respectively, that employees surrendered to the Company for payment of the minimum tax withholding obligations. Also, in the six months ended June 30, 2010 and 2009, the Company issued 24,699 and 30,618 shares of common stock, respectively, as compensation to board members and spokespersons. Costs recognized for these stock grants were $311 and $227 for the six months ended June 30, 2010 and 2009, respectively. The fair value of the common stock issued in 2010 to board members and spokespersons was $580. In the first and second quarters of 2010 and 2009, the Company paid a dividend of $0.175 per share to all shareholders of record.

The Company and its Board of Directors have authorized stock repurchase programs of which an additional $92,569 is available to purchase outstanding shares of common stock through March 31, 2011. The repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased depends on a variety of factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions. In the six months ended June 30, 2010, the Company purchased and retired 908,300 shares of

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

common stock for an aggregate cost of $21,262. In the six months ended June 30, 2009, the Company purchased and retired 132,200 shares of common stock for an aggregate cost of $1,939. The cost of the purchased shares was reflected in the accompanying statement of stockholders’ equity as a reduction of common stock (equal to par value of purchased shares), additional paid-in capital (“APIC”) (equal to balance in APIC) with the excess recorded as a reduction in retained earnings. Subsequent to June 30, 2010 through August 5, 2010, the Company purchased an additional 2,361,779 shares of common stock for an aggregate cost of $53,735.

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock issuable in series upon resolution of the Board of Directors. Unless otherwise required by law, the Board of Directors can, without stockholder approval, issue preferred stock in the future with voting and conversion rights that could adversely affect the voting power of the common stock. The issuance of preferred stock may have the effect of delaying, averting or preventing a change in control of the Company.

6. SHARE-BASED EXPENSE

The following table summarizes the stock option activity for the six months ended June 30, 2010:


	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Outstanding, January 1, 2010	127,760		$	6.92
Exercised	(46,159	)		2.29
Forfeited	(20,000	)		6.00

Outstanding, June 30, 2010	61,601		$	10.68	4.37	$	831

Exercisable, June 30, 2010	61,601		$	10.68	4.37	$	831

Expected to vest at June 30, 2010	61,601		$	10.68	4.37	$	831

The Company did not record any pre-tax compensation charges for stock option awards during 2010 or 2009 as all outstanding awards are fully vested. There were no option grants during the three and six months ended June 30, 2010 or 2009. The total intrinsic value of stock options exercised during the three and six months ended June 30, 2010 was $35 and $850, respectively, and for the three and six months ended June 30, 2009 was $533 and $728, respectively.

The Company has issued restricted stock to employees generally with vesting terms ranging from three to five years. The fair value is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes the restricted stock activity for the six months ended June 30, 2010:


	Number of Shares		Weighted- Average Grant-Date Fair Value
Nonvested, January 1, 2010	1,317,023		$	20.12
Granted	500,705			17.93
Vested	(259,998	)		17.29
Forfeited	(57,661	)		19.03

Nonvested, June 30, 2010	1,500,069		$	19.92

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

Additionally, the Company grants restricted stock units. The restricted stock units granted during 2010 were primarily performance-based units and will be settled in stock upon the achievement of specific performance goals over a specified performance period and vesting over three years. The level of achievement of such goals may cause the actual amount of units that ultimately vest to range from 0% to 200% of the original units granted. The Company recognizes expense for performance-based restricted stock units when it is probable that the performance criteria specified will be achieved. The fair value is equal to the market price of the Company’s common stock on the date of grant. Expense is amortized ratably over the vesting period. The following table summarizes the restricted stock unit activity for the six months ended June 30, 2010:


	Number of Restricted Stock Units (1)		Weighted - Average Grant- Date Fair Value
Nonvested, January 1, 2010	5,500		$	14.84
Granted	67,500			17.53
Vested	(1,833	)		14.84

Nonvested, June 30, 2010	71,167		$	17.39

(1)	The number of restricted stock units issued related to performance shares may range from 0% to 200% of the number of units shown in the table above based on the Company’s achievement of certain specified performance goals.

The Company recorded compensation expense of $3,081 and $5,068 in the accompanying consolidated statements of operations for the three and six months ended June 30, 2010, respectively, and $2,097 and $4,024 for the three and six months ended June 30, 2009, respectively, in connection with the issuance of the restricted shares and restricted stock units.

As of June 30, 2010, there was $24,016 of total unrecognized compensation expense related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.4 years. The total unrecognized compensation expense will be expensed through the first quarter of 2014.

7. COMMITMENTS AND CONTINGENCIES

Litigation

Commencing on October 9, 2007, several putative class actions were filed in the United States District Court for the Eastern District of Pennsylvania naming Nutrisystem, Inc. and certain of its officers and directors as defendants and alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaints purported to bring claims on behalf of a class of persons who purchased the Company’s common stock between February 14, 2007 and October 3, 2007 or October 4, 2007. The complaints alleged that the defendants issued various materially false and misleading statements relating to the Company’s projected performance that had the effect of artificially inflating the market price of its securities. These actions were consolidated in December 2007 under docket number 07-4215. On January 3, 2008, the Court appointed lead plaintiffs and lead counsel pursuant to the requirements of the Private Securities Litigation Reform Act of 1995, and a consolidated amended complaint was filed on March 7, 2008. The consolidated amended complaint raised the same claims but alleged a class period of February 14, 2007 through February 19, 2008. The defendants filed a motion to dismiss on May 6, 2008. On August 31, 2009, the Court granted defendants’ motion to dismiss. On September 29, 2009, plaintiff filed a notice of appeal, and the appeal was fully briefed. On May 19, 2010, upon motion by the appellant, the appeal was dismissed without costs to either party.

Commencing on October 30, 2007, two shareholder derivative suits were filed in the United States District Court for the Eastern District of Pennsylvania. These suits, which were nominally brought on behalf of Nutrisystem, Inc., named certain of its officers and a majority of the current Board of Directors as defendants. The federal complaints alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claimed for breach of fiduciary duty, waste, and unjust enrichment against all defendants and insider selling against certain defendants. The complaints were based on many of the same allegations as the putative class action described above but added contentions regarding the Company’s buyback program. The two federal actions were consolidated in December 2007 under docket number 07-4565, and an amended complaint was filed on March 14, 2008 naming a majority of the current Board of Directors and certain current and former officers as defendants. Defendants filed a motion to dismiss on May 13, 2008. On October 26, 2009, the Court granted defendants’ motion to dismiss. As of June 30, 2010, no appeal has been taken and the dismissal is now final.

A shareholder derivative action was also filed in the Common Pleas Court of Montgomery County, Pennsylvania, in November 2007. Like the federal derivative action, the state court action was nominally brought on behalf of the Company and named a majority of the current Board of Directors as defendants. This action has been stayed. On April 30, 2010, the Court sent the plaintiff in this action a notice to terminate pursuant to Pa. R. Civ. P. 230.2 for inactive cases. On May 12, 2010, plaintiff’s counsel returned the notice. The Company believes that the claims are without merit and intends to defend the litigation vigorously.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

On April 27, 2010, counsel for the same shareholder who commenced the Montgomery County litigation sent a letter demanding that the Company’s Board of Directors investigate and bring litigation against certain current and former officers and directors relating to the same events that form the basis of the federal putative class action and derivative suit. There has been correspondence with this attorney, and the Board of Directors is considering this issue and the demand.

The Company received in November 2007 correspondence from an attorney purporting to represent a Nutrisystem shareholder. This correspondence requested that the Company’s Board of Directors appoint a special litigation committee to investigate unspecified breaches of fiduciary duty. The disinterested and independent board members met to discuss this issue and responded to the attorney’s correspondence. Following receipt of additional correspondence from the same attorney in February 2008, the Board of Directors was considering its response when the shareholder represented by this attorney commenced a derivative lawsuit in the Court of Common Pleas of Montgomery County, Pennsylvania in the name of the Company against the entire Board of Directors at that time and certain current and former officers. The Board of Directors responded to the attorney’s correspondence. The parties have reached an agreement to stay this matter pending the disposition of the motion to dismiss the federal securities putative class action complaint. On April 30, 2010, the Court sent the plaintiff in this action a notice to terminate. The Company believes that the claims are without merit and intends to defend the litigation vigorously.

On March 28, 2008, a former Nutrisystem, Inc. sales representative filed a putative collective action complaint in the United States District Court for the Eastern District of Pennsylvania, docket no. 08-1508, alleging that the Company unlawfully failed to pay overtime in violation of the Fair Labor Standards Act. The complaint purported to bring claims on behalf of a class of current and former sales representatives who were compensated by the Company pursuant to a commission-based compensation plan, rather than on an hourly basis. The plaintiff filed an amended complaint on May 28, 2008, adding a state-law class claim under the Pennsylvania Minimum Wage Act, alleging that the Company’s compensation plan also violated state law. On June 11, 2008, the Company answered the amended complaint and moved to dismiss the plaintiff’s state-law class claim. On June 11, 2008, the plaintiff filed a motion to proceed as a collective action and sent class members notice under the Fair Labor Standards Act claim. On July 25, 2008, the Court granted the Company’s motion to dismiss with respect to the state law claim. On September 26, 2008, the Court granted plaintiff’s motion to proceed as a collective action and facilitate notice. On October 8, 2008, the Court entered a Stipulation and Order approving proposed notice of a collective action lawsuit. On October 14, 2008, plaintiff’s counsel mailed notice to potential class members. Including plaintiff, fifty-four former sales representatives and fourteen current sales representatives have opted-in to this litigation. On March 9, 2009, the Company filed a motion for summary judgment on plaintiffs’ claims. On June 22, 2009, plaintiffs filed their response in opposition to the Company’s motion for summary judgment and cross-motion for summary judgment. On July 6, 2009, the Company filed its reply in further support of its motion for summary judgment. Thereafter, on July 22, 2009, plaintiffs filed their reply in further support of their cross-motion for summary judgment. The Court heard oral argument on the cross-motions for summary judgment on July 24, 2009. On July 31, 2009, the Court entered an Order granting the Company’s motion for summary judgment and denying plaintiffs’ cross-motion for summary judgment. On September 10, 2009, plaintiffs filed an appeal of the Court’s Order granting the Company’s motion for summary judgment and denying plaintiffs’ cross-motion for summary judgment. On January 4, 2010, plaintiffs filed their brief in support of their appeal. On January 7, 2010, several employee rights organizations filed an amicus curiae brief in this matter. On January 21, 2010, the U.S. Department of Labor filed an amicus curiae brief in this matter. On March 8, 2010, the Company filed its brief in opposition to plaintiffs’ appeal. On June 21, 2010, the Third Circuit held oral argument on plaintiffs’ appeal. The Company believes that the claims are without merit and intends to defend the litigation vigorously.

The Company is also involved in other various claims and routine litigation matters. In the opinion of management, after consultation with legal counsel, the outcome of such matters is not anticipated to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows in future years.

Contractual Commitments

The Company has entered into supply agreements with various food vendors. The majority of these agreements provide for annual pricing, annual purchase obligations, as well as exclusivity in the production of certain products, with terms of five years or less. One agreement also provides rebates if certain volume thresholds are exceeded. The Company anticipates it will meet all annual purchase obligations.

NUTRISYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited, in thousands except share and per share amounts)

8. INCOME TAXES

The Company’s effective income tax rates were 36.8% and 37.0% for the three and six months ended June 30, 2010, respectively, as compared to (6.9)% and 21.4% in the corresponding periods of 2009. The increase in the effective income tax rates for the three and six months ended June 30, 2010 as compared to the corresponding periods in 2009 is related to the Company’s abandonment of its investment in Zero Water during 2009, which provided a prior year income tax deduction for its entire original $14,258 tax basis investment in Zero Water and reduced 2009 federal income tax payments by approximately $4,990.

The Company offsets taxable income for state tax purposes with net operating loss carryforwards. At December 31, 2009, the Company had net operating loss carryforwards of approximately $10,163 for state tax purposes. For state tax purposes, there is a limitation on the amount of net operating loss carryforwards that can be utilized in a given year to offset state taxable income and management believes that some of the net operating loss carryforwards will be subject to this annual limit in 2010. State net operating losses will begin to expire in 2020. The total amount of gross unrecognized tax benefits as of June 30, 2010 and December 31, 2009 was $1,346 and $1,375, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is approximately $875 and $893 for the same respective periods.

Based on the projected level of future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the net deferred tax assets.

9. DISCONTINUED OPERATIONS

In the first quarter of 2010, the Company committed to a plan to sell its subsidiary, NuKitchen, as it was no longer aligned with the business direction of the Company. NuKitchen has been treated as a discontinued operation. Accordingly, the operating results of this discontinued operation have been presented separately from continuing operations for all periods presented. NuKitchen had revenues of $687 and $1,406 and pre-tax losses of $142 and $299 for the three and six months ended June 30, 2010, respectively. Income tax benefits of $53 and $112 in 2010 reduced the loss on discontinued operation to $89 and $187, respectively. In the comparable periods of 2009, NuKitchen had revenues of $813 and $1,724 and pre-tax losses of $502 and $1,252, respectively. Income tax benefits of $186 and $464 in 2009 for NuKitchen reduced the loss on discontinued operation to $316 and $788, respectively.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information contained herein, this Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve substantial risks and uncertainties. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include those set forth in “Item 1A—Risk Factors” as disclosed in our Form 10-K filed on March 5, 2010 with the Securities and Exchange Commission (the “SEC”). Accordingly, there is no assurance that the results in the forward-looking statements will be achieved.

The following discussion should be read in conjunction with the financial information included elsewhere in this Report on
Form 10-Q.

Background

We provide weight management products and services and offer nutritionally balanced weight loss programs based on over 35 years of nutrition research and on the science of the low glycemic index. Our pre-packaged foods are sold directly to weight loss program participants primarily through the Internet and telephone (including the redemption of prepaid program cards), referred to as the direct channel, and through QVC, a television shopping network.

Revenue consists primarily of food sales. For the six months ended June 30, 2010, the direct channel accounted for 96% of total revenue compared to 4% for QVC. We incur significant marketing expenditures to support our brand as we continue to advertise across various media channels. New media channels are tested on a continual basis and we consider our media mix to be diverse. We market our weight management system through television, print, direct mail, Internet and public relations. We review and analyze a number of key operating and financial metrics to manage our business, including the number of new customers, revenue per customer, total revenues, marketing per new customer, operating margins and reactivation revenue.

During 2009, we began marketing our Nutrisystem D program, a low-glycemic program specifically designed for individuals with type 2 diabetes who need to lose weight. Results from a three-month clinical study conducted at the Temple University School of Medicine and published in the Journal of Postgraduate Medicine showed that a pre-packaged, portion controlled meal plan helped overweight individuals with type 2 diabetes lose up to 16 times more weight and experience greater reductions in their A1C levels as compared to the control group. This weight loss was also associated with reductions in blood pressure, cholesterol and waist circumference. We funded this research study. The Nutrisystem D program continues to show strength in results and new customer counts in 2010 and we anticipate that it will be a strategic component of our portfolio of future growth.

We continued to offer our program at Costco through the use of prepaid program cards. Expanding further in the retail area, the Nutrisystem program was offered at other large retailers. Each retailer offered a unique promotional package and pricing through the use of prepaid cards. Costco has continued to perform in accordance with our expectations, while the other retailers offering our program have not. We have discontinued offering our program at underperforming retailers, but we will continually explore other major retailers where we may potentially offer our program in the future.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 2 of the consolidated financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2009.

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates we consider critical include reserves for returns, vendor rebates, excess and obsolete inventory and income taxes. These critical accounting estimates are discussed with our audit committee quarterly.

During the six months ended June 30, 2010, we did not make any material change to our critical accounting policies.

Results of Operations

Revenue and expenses consist of the following components:

Revenue. Revenue consists primarily of food sales. Food sales include sales of food, supplements, shipping and handling charges billed to customers and sales credits and adjustments, including product returns. No revenue is recorded for food products provided at no charge as part of promotions.

Cost of Revenue . Cost of revenue consists primarily of the cost of the products sold, including compensation related to fulfillment, the costs of outside fulfillment, incoming and outgoing shipping costs, charge card fees and packing material. Cost of products sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders.

Marketing Expense . Marketing expense includes media, advertising production, marketing and promotional expenses and payroll-related expenses for personnel engaged in these activities. Internet advertising expense is recorded based on either the rate of delivery of a guaranteed number of impressions over the advertising contract term or on a cost per customer acquired, depending upon the terms. Direct-mail advertising costs are capitalized if the primary purpose was to elicit sales from customers who could be shown to have responded specifically to the advertising and results in probable future economic benefits. The capitalized costs are amortized to expense over the period during which the future benefits are expected to be received. All other advertising costs are charged to expense as incurred.

General and Administrative Expense . General and administrative expense consists of compensation for administrative, information technology, counselors, customer service and sales personnel, share-based payment arrangements, facility expenses, website development costs, professional service fees and other general corporate expenses.

Equity and Impairment Loss. Equity and impairment loss consists of our share of the earnings or losses of our equity interests. In June 2009, we abandoned our interest in Zero Technologies, LLC (“Zero Water”), as management determined that the business was no longer aligned with our current strategic direction. We held approximately a 27% fully diluted interest in Zero Water and had the ability to significantly influence the operations of Zero Water. The investment in Zero Water was accounted for using the equity method of accounting.

Interest Income (Expense), Net. Interest income (expense), net consists of the net amount of interest expense and interest income earned on cash balances and marketable securities.

Income Taxes. We are subject to corporate level income taxes and record a provision for income taxes based on an estimated annual effective income tax rate for the year.

Overview of the Direct Channel

In the six months ended June 30, 2010 and 2009, the direct channel represented 96% and 94%, respectively, of our revenue. Net sales through the direct channel were $136.3 million and $287.0 million in the three and six months ended June 30, 2010, respectively, compared to $122.8 million and $273.8 million in the comparable periods of 2009. The increase in 2010 is primarily attributable to an increase in customer starts and retail revenue, which was partially offset by a decline in reactivation revenue. Revenue is primarily generated through customer starts, reactivation of former customers and the customer ordering behavior, including length of time on our program and the diet program selection. Critical to increasing customer starts is our ability to deploy marketing dollars while maintaining marketing effectiveness. Factors influencing our marketing effectiveness include the quality of the advertisements, promotional activity by our competitors, as well as the price and availability of appropriate media.

Overview of Distribution through QVC

We distribute our proprietary prepackaged food through QVC, a television home shopping network. In the six months ended June 30, 2010 and 2009, this channel represented 4% and 6% of our revenue, respectively. On the QVC network, we reach a large audience in a 50 minute infomercial format that enables us to fully convey the benefits of the Nutrisystem diet programs. Under the terms of our agreement, QVC viewers purchase Nutrisystem products directly from QVC and are not directed to the Nutrisystem website. Retail prices (including shipping and handling) offered on QVC to consumers are similar to prices offered on the website. We generate a lower gross margin (as a percent of revenue) on sales through QVC relative to the direct channel, but QVC sales require no incremental advertising and marketing expense and, management believes, exposure on QVC raises consumer awareness of the Nutrisystem brand. Net sales through QVC were $5.2 million and $13.1 million for the three and six months ended June 30, 2010, respectively, compared to $7.9 million and $18.5 million in the comparable periods of 2009. QVC sales are a function of the number of shows and the duration of each show. The decrease in QVC sales can be primarily attributed to a decline in the number of customers placing a second order through QVC and a decrease in quality air time and sales per minute.

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009


	Three Months Ended June 30,
	2010			2009			$ Change			% Change
	(in thousands)
REVENUE	$	141,634		$	131,000		$	10,634		8	%


COSTS AND EXPENSES:
Cost of revenue		61,792			60,304			1,488		2	%
Marketing		37,223			35,372			1,851		5	%
General and administrative		19,662			20,923			(1,261	)	(6	)%
Depreciation and amortization		2,940			2,499			441		18	%


Total costs and expenses		121,617			119,098			2,519		2	%


Operating income from continuing operations		20,017			11,902			8,115		68	%

OTHER INCOME		—			281			(281	)	(100	)%

EQUITY AND IMPAIRMENT LOSS		—			(3,610	)		3,610		100	%

INTEREST INCOME (EXPENSE), net		48			(47	)		95		202	%

Income from continuing operations before income taxes		20,065			8,526			11,539		135	%
INCOME TAXES (BENEFIT)		7,385			(591	)		7,976		1350	%

Income from continuing operations		12,680			9,117			3,563		39	%
LOSS ON DISCONTINUED OPERATIONS, net		(89	)		(338	)		249		74	%

Net income	$	12,591		$	8,779		$	3,812		43	%

% of revenue
Gross margin		56.4	%		54.0	%
Marketing		26.3	%		27.0	%
General and administrative		13.9	%		16.0	%
Operating income from continuing operations		14.1	%		9.1	%

Revenue. Revenue increased to $141.6 million in the second quarter of 2010 from $131.0 million for the second quarter of 2009. The revenue increase resulted primarily from an increase in customer starts and retail revenue partially offset by decreased reactivation and QVC revenue. The direct channel accounted for 96% of total revenue in the second quarter of 2010 compared to 4% for QVC. In the second quarter of 2009, the direct channel accounted for 94% of total revenue compared to 6% for QVC.

Costs and Expenses. Cost of revenue increased to $61.8 million in the second quarter of 2010 from $60.3 million in the second quarter of 2009. Gross margin increased to 56.4% in the second quarter of 2010 from 54.0% for the second quarter of 2009. The increase in gross margin was primarily attributable to decreased food costs, a reduction in the use of food-based promotions and a reduced level of returns.

Marketing expense increased to $37.2 million in the second quarter of 2010 from $35.4 million in the second quarter of 2009. Marketing expense as a percent of revenue decreased to 26.3% in 2010 from 27.0% in 2009. Substantially all marketing spending during the second quarter of 2010 promoted the direct business. The increase in marketing is primarily attributable to increased spending for advertising media ($2.1 million) and increased marketing consulting ($639,000) partially offset by a decreased spending for television production ($674,000). In total, media spending was $32.5 million in the second quarter of 2010 and $30.4 million in the second quarter of 2009.

General and administrative expense decreased to $19.7 million in the second quarter of 2010 compared to $20.9 million in the second quarter of 2009. General and administrative expense as a percent of revenue decreased to 13.9% in the second quarter of 2010 from 16.0% for the first quarter of 2009. The decrease in spending is primarily attributable to reduced spending in professional, outside and computer services expenses ($1.5 million) and telephone and internet expense ($262,000) due to our continued focus on cost containment. Additionally, 2009 was impacted by $1.2 million in charges to right size our organization and streamline work processes. These decreases were partially offset by increases in compensation and benefit costs ($1.1 million) and in non-cash expense for share-based payment arrangements ($983,000).

Depreciation and amortization expense increased to $2.9 million in the second quarter of 2010 compared to $2.5 million in the second quarter of 2009 due to the relocation of our corporate headquarters and capital expenditures on our website.

Other Income. Other income primarily represents the impact of changes in the Canadian dollar during 2009.

Equity and Impairment Loss. In June 2009, we abandoned our interest in Zero Water as management determined that the business was no longer aligned with our current strategic direction. An equity and impairment loss of $3.6 million in 2009 was recorded to write-off the remaining investment.

Interest Income (Expense), Net. Interest income, net, was $48,000 in the first quarter of 2010 compared to interest expense, net, of $47,000 in the second quarter of 2009 as larger amounts were invested in marketable securities during the three months ended June 30, 2010 than the comparable period of 2009.

Income Taxes (Benefit). In the second quarter of 2010, we recorded income tax expense of $7.4 million, which reflects an estimated annual effective income tax rate of 36.8% compared to an income tax benefit of $591,000 in the second quarter of 2009. The abandonment of our investment in Zero Water provided a prior year income tax deduction for the entire original $14.3 million tax basis investment in Zero Water and reduced 2009 income tax payments by approximately $5.0 million.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009


	Six Months Ended June 30,
	2010			2009			$ Change			% Change
	(in thousands)
REVENUE	$	300,464		$	292,779		$	7,685		3	%


COSTS AND EXPENSES:
Cost of revenue		133,931			135,776			(1,845	)	(1	)%
Marketing		93,828			82,216			11,612		14	%
General and administrative		38,917			42,476			(3,559	)	(8	)%
Depreciation and amortization		5,931			4,950			981		20	%


Total costs and expenses		272,607			265,418			7,189		3	%


Operating income from continuing operations		27,857			27,361			496		2	%

OTHER (EXPENSE) INCOME		(35	)		190			(225	)	(118	)%

EQUITY AND IMPAIRMENT LOSS		—			(4,000	)		4,000		100	%

INTEREST INCOME (EXPENSE), net		104			(96	)		200		208	%

Income from continuing operations before income taxes		27,926			23,455			4,471		19	%
INCOME TAXES		10,347			5,019			5,328		106	%

Income from continuing operations		17,579			18,436			(857	)	(5	)%
LOSS ON DISCONTINUED OPERATIONS, net		(187	)		(815	)		628		77	%

Net income	$	17,392		$	17,621		$	(229	)	(1	)%


% of revenue
Gross margin		55.4	%		53.6	%
Marketing		31.2	%		28.1	%
General and administrative		13.0	%		14.5	%
Operating income from continuing operations		9.3	%		9.3	%

Revenue. Revenue increased to $300.5 million in the six months ended June 30, 2010 from $292.8 million for the comparable period of 2009. The revenue increase resulted primarily from an increase in customer starts and retail revenues partially offset by a decrease in reactivation and QVC revenue. The direct channel accounted for 96% of total revenue in the six months ended June 30, 2010 compared to 4% for QVC. In the six months ended June 30, 2009, the direct channel accounted for 94% of total revenue compared to 6% for QVC.

Costs and Expenses. Cost of revenue decreased to $133.9 million in the six months ended June 30, 2010 from $135.8 million in the comparable period of 2009. Gross margin increased to 55.4% in the six months ended June 30, 2010 from 53.6% for the comparable period of 2009. The increase in gross margin was primarily attributable to decreased food costs, a reduction in the use of food-based promotions and a reduced level of returns.

Marketing expense increased to $93.8 million in the six months ended June 30, 2010 from $82.2 million in the comparable period of 2009 and marketing expense as a percent of revenue increased to 31.2% in 2010 from 28.1% for 2009. Substantially all marketing spending during the year promoted the direct business. The increase in marketing is primarily attributable to increased spending for advertising media ($10.2 million) and marketing consulting ($1.5 million). In total, media spending was $82.8 million in the six months ended June 30, 2010 and $72.6 million in the comparable period of 2009.

General and administrative expenses decreased to $38.9 million in the six months ended June 30, 2010 compared to $42.5 million in the comparable period of 2009. General and administrative expense as a percent of revenue decreased to 13.0% in the six months ended June 30, 2010 from 14.5% for the comparable period of 2009. The decrease was primarily attributable to decreased spending in professional, outside and computer services expenses ($2.8 million) due to our continued focus on cost containment. Additionally, during 2009 we incurred charges with our attempt to right size our organization and streamline work processes ($1.2 million). These decreases were partially offset by an increase in non-cash expense for share-based payment arrangements ($1.0 million) due to an increased number of grants of restricted stock.

Depreciation and amortization expense increased to $5.9 million in the six months ended June 30, 2010 compared to $5.0 million in comparable period of 2009 due to the relocation of our corporate headquarters and capital expenditures on our website.

Other (Expense) Income. Other (expense) income primarily represents the impact of changes in the Canadian dollar during 2010 as compared to 2009.

Equity and Impairment Loss. In June 2009, we abandoned our interest in Zero Water as management determined that the business was no longer aligned with our current strategic direction. An equity and impairment loss of $4.0 million was recorded including the write-off of the remaining investment.

Interest Income (Expense), Net. Interest income, net, was $104,000 in the six months ended June 30, 2010 compared to interest expense, net of $96,000 in the comparable period of 2009. The change is due to larger amounts invested in marketable securities during the six months ended June 30, 2010 than the comparable period of 2009.

Income Taxes. In the six months ended June 30, 2010, we recorded income tax expense of $10.3 million, which reflects an effective income tax rate of 37.0% compared to income tax expense of $5.0 million, which reflected an effective income tax rate of 21.4% in the comparable period of 2009. The increase in the effective tax rate related to our abandonment of our investment in Zero Water which provided a prior year income tax deduction for the entire original $14.3 million tax basis investment in Zero Water and reduced 2009 income tax payments by approximately $5.0 million.

Contractual Obligations and Commercial Commitments

As of June 30, 2010, our principal commitments consisted of obligations under supply agreements with food vendors, an agreement with our outside fulfillment provider, operating leases and employment contracts. Additionally we have entered into obligations to purchase certain capital assets for the relocation of our corporate headquarters. We anticipate increased spending for capital additions during 2010 as compared to 2009.

During the six months ended June 30, 2010, there were no items that significantly impacted our commitments and contingencies as disclosed in the notes to the consolidated financial statements for the year ended December 31, 2009, as included in our Form 10-K. In addition, we have no off-balance sheet financing arrangements.

Liquidity, Capital Resources and Other Financial Data

The capital and credit markets have become more volatile as a result of the global economic conditions, which has caused a general tightening in the credit markets, lower levels of liquidity and increased financing costs. Despite these factors, we believe that available capital resources are sufficient to fund our working capital requirements, capital expenditures, income tax obligations, dividends and share repurchases for the foreseeable future.

At June 30, 2010, we had net working capital of $83.1 million, compared to net working capital of $103.3 million at December 31, 2009. Cash and cash equivalents at June 30, 2010 were $58.3 million, an increase of $26.4 million from the balance of $31.9 million at December 31, 2009. Additionally, we had $30.6 million invested in marketable securities at June 30, 2010 as compared to $30.3 million at December 31, 2009. Our principal source of liquidity during this period was cash flows from operations. Subsequent to June 30, 2010 through August 5, 2010, we purchased an additional 2,361,779 shares of common stock for an aggregate cost of $53.7 million.

We have a $200.0 million unsecured revolving credit agreement with a group of lenders, which is committed until October 2, 2012 with an expansion feature, subject to certain conditions, to increase the facility to $300.0 million.

We have not borrowed any amounts against this facility during the six months ended June 30, 2010 or 2009, and no amounts are outstanding as of June 30, 2010.

In the six months ended June 30, 2010, we generated a cash flow of $71.8 million from operating activities of continuing operations, an increase of $18.3 million from 2009. The increase in cash flow from operations is primarily attributable to net changes in operating assets and liabilities.

In the six months ended June 30, 2010, net cash used in investing activities was $11.6 million and was primarily used for capital expenditures for the relocation of our corporate headquarters. Additionally, we are continuing to invest in our ecommerce platform and web initiatives during 2010.

In the six months ended June 30, 2010, net cash used in financing activities was $33.8 million primarily for the repurchase of 908,300 shares of common stock for an aggregate cost of $21.3 million and the payment of dividends of $10.9 million.

Our Board of Directors has authorized stock repurchase programs under which an additional $92.6 million of our outstanding shares of common stock may be purchased through March 31, 2011. The repurchase programs may be limited or terminated at any time without prior notice. The repurchased shares have been retired.

Subsequent to June 30, 2010, the Board of Directors declared a quarterly dividend of $0.175 per share payable on August 19, 2010 to shareholders of record as of August 9, 2010. Although the Company intends to continue to pay regular quarterly dividends, the declaration and payment of future dividends are discretionary and will be subject to quarterly determination by the Board of Directors following its review of the Company’s financial performance.

Seasonality

Typically in the weight loss industry, revenue is strongest in the first calendar quarter and lowest in the fourth calendar quarter. We believe our business experiences seasonality, driven by the predisposition of dieters to initiate a diet and the price and availability of certain media.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We believe that we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk instruments. We do not have any variable interest debt outstanding at June 30, 2010 and our cash and cash equivalents at that date of $58.3 million were maintained in bank accounts. Additionally, we invested $30.6 million in marketable securities which are classified as available-for-sale securities and are reported at fair value in the accompanying consolidated balance sheets. As such, a change in interest rates of 1 percentage point would not have a material impact on our operating results and cash flows.

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures at the end of the period covered by this report were effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the fiscal quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

Litigation

Item 1A.

Risk Factors

There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information relating to our purchases of our common stock during the quarter ended June 30, 2010:


Period	Total Number of Shares Purchased (1)(2)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 – April 30, 2010	—	—	—	$	113,831,389
May 1 – May 31, 2010	—	—	—	$	113,831,389
June 1 – June 30, 2010	908,300	23.41	908,300	$	92,568,938

(1)

In August 2006, we announced that our Board of Directors authorized the repurchase of up to $50 million of our outstanding shares of common stock in open-market transactions on the Nasdaq National Market. Additionally, in February 2007, a repurchase program of up to $200 million of outstanding shares of common stock was authorized and, in October 2007, an additional $100 million of outstanding shares of common stock was authorized. The timing and actual number of shares repurchased depend on a variety of factors including price, corporate and regulatory requirements, alternative investment opportunities and other market conditions. The stock repurchase programs from 2007 had an expiration date of March 31, 2009 but were extended by our Board of Directors until March 31, 2011. These programs also may be limited or terminated at any time without prior notice.

(2)	The period April 1, 2010 through June 30, 2010 does not include 39,032 shares surrendered by employees to the Company for payment of the minimum tax withholding obligations upon the vesting of shares of restricted common stock.

Item 3.

Defaults Upon Senior Securities

None

Item 5.

Other Information

The Company entered into a lease agreement, the term of which commenced on August 1, 2010, with B.R. Properties Owner, LP (the “Landlord”) for our new corporate headquarters (the “Lease”). The premises leased occupy approximately 119,767 square feet of rentable space located at 600 Office Center Drive, Fort Washington, Pennsylvania (the “Premises”). The Premises may be used for general office and incidental and ancillary uses related to our business. The lease term will continue until July 31, 2022.

The monthly rent under the Lease will be as follows:


Lease Period	Minimum Rent Per Annum Per Square Foot		Months	Minimum Rent Per Annum			Minimum Monthly Rent
8/1/10-5/31/11	$	0.00	10			*
6/1/11-5/31/12	$	19.95	12	$	2,389,351.65		$	199,112.64
6/1/12-5/31/13	$	20.45	12	$	2,449,235.15		$	204,102.93
6/1/13-5/31/14	$	20.95	12	$	2,509,118.65		$	209,093.22
6/1/14-5/31/15	$	21.45	12	$	2,569,002.15		$	214,083.51
6/1/15-5/31/16	$	21.95	12	$	2,628,885.65		$	219,073.80
6/1/16-5/31/17	$	22.45	12	$	2,688,769.15		$	224,064.10
6/1/17-5/31/18	$	22.95	12	$	2,748,652.65		$	229,054.39
6/1/18-5/31/19	$	23.45	12	$	2,808,536.15		$	234,044.68
6/1/19-5/31/20	$	23.95	12	$	2,868,419.65		$	239,034.97
6/1/20-5/31/21	$	24.45	12	$	2,928,303.15		$	244,025.26
6/1/21-5/31/22	$	24.95	12	$	2,988,186.65		$	249,015.55
6/1/22-7/31/22	$	25.45	2	$	508,011.69	**	$	254,005.85

*	This amount represents ten (10) months of the minimum monthly rent.

**	This amount represents two (2) months of the minimum monthly rent.

Pursuant to the terms of the Lease, the Landlord provided a tenant improvement allowance of thirty-five dollars ($35.00) per rentable square foot. We will be assessed for all electric consumption within the Premises and will be assessed for 30.5% of the common electric consumption. We will be required to pay all operating expenses related to the Premises and 30.5% of the common operating expenses for the complex in which the Premises is located. The Company was required to provide a security deposit of $838,369. Of this amount, barring an event of default under the Lease, the Company will receive a refund in the amount of $440,144 on June 1, 2012.

The foregoing description of the Lease does not purport to be complete and is qualified in its entirety by reference to the Lease, which is attached as Exhibit 10.1 hereto, and is incorporated herein by reference.

Item 6.

Exhibits

3.1	Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 10, filed on December 17, 1999.

3.2	Certificate of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-3 (No. 333-124561), filed on May 3, 2005.

3.3	Certificate of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (No. 333-124561), filed on May 3, 2005.

3.4	Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (dated July 16, 2009), filed on July 22, 2009.

10.1	Lease Agreement, dated October 13, 2009, between B.R. Properties Owner, LP and Nutrisystem, Inc.

31.1	Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code.

32.2	Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


Nutrisystem, Inc.

BY:	/S/ J OSEPH M. R EDLING	August 5, 2010
	Joseph M. Redling
	Chairman, President and Chief Executive Officer
	(principal executive officer)

BY:	/S/ D AVID D. C LARK	August 5, 2010
	David D. Clark
	Executive Vice President, Chief Financial Officer and Treasurer
	(principal financial and accounting officer)

Exhibit Index


No.		Description

3.1		Certificate of Incorporation, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form 10, filed on December 17, 1999.

3.2		Certificate of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-3 (No. 333-124561), filed on May 3, 2005.

3.3		Certificate of Amendment of Certificate of Incorporation, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3 (No. 333-124561), filed on May 3, 2005.

3.4		Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (dated July 16, 2009), filed on July 22, 2009.

10.1		Lease Agreement, dated October 13, 2009, between B.R. Properties Owner, LP and Nutrisystem, Inc.

31.1		Certifying Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifying Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifying Statement of the Chief Executive Officer pursuant to Section 1350 of Title 18 of the United States Code.

32.2		Certifying Statement of the Chief Financial Officer pursuant to Section 1350 of Title 18 of the United States Code.

Exhibit 10.1

LEASE AGREEMENT

B.R. PROPERTIES OWNER, LP

and

NUTRISYSTEM, INC., a Delaware corporation

Page 1 of 79

LEASE AGREEMENT

INDEX


CONTENTS				PAGE
Index				2

Basic Lease Provisions				5

1. Premises; Tenant Improvements				10

2. Term; Renewal				17

3. Security Deposit				23

4. Use of Premises				23

5. Minimum Rent; Additional Rent				24

6. Covenant to Pay Rent and Additional Rent				39

7. Assignment and Subletting				39

8. Alterations and Finishing				31

9. Liens				31

10. Notice of Breakage				33

11. Repairs and Conditions of Premises				33

12. Hazardous Materials				34

13. Fire or Other Casualty				36

14. Insurance and Waiver of Subrogation				37

15. Indemnification				38

16. Compliance with Law				38

Page 2 of 79


CONTENTS		PAGE
17.	Services	39

18.	Landlord’s Right to Enter	42

19.	Tenant Default/Landlord’s Remedies	43

20.	Remedies Cumulative	46

21.	Subordination; Non-Disturbance	47

22.	Condemnation	48

23.	Tenant Certificate	48

24.	Financial Statements of Tenant or Guarantors	49

25.	Notices	49

26.	Brokers	49

27.	Definition of “Landlord”; Liability of Landlord	50

28.	Definition of “Tenant”	50

29.	Rules and Regulations	50

30.	Quiet Enjoyment	51

31.	Titles For Convenience Only	51

32.	Severability	52

33.	Governing Law	52

34.	Holding Over	52

35.	Relocation	52

36.	OFAC Compliance	52

Page 3 of 79


CONTENTS		PAGE
37.	Entire Agreement	53

38.	Tenant’s Authority	54

39.	Examination Not Option	54

40.	Recordation	54

41.	Modifications due to Financing	54

42.	Capitalized Terms Not Defined Herein	54

43.	Right of First Offer	55

44.	Signage	56

	Exhibit A: The Premises	58

	Exhibit B: Construction Plans	59

	Exhibit C: Form of Lease Term Certification	60

	Exhibit D: HVAC Specifications	61

	Exhibit E: Landlord’s Representations Regarding Building Services	64

	Exhibit F: Rules and Regulations	65

	Exhibit G: Memorandum of Lease	68

	Exhibit H: Discharge of Memorandum of Lease	73

	Schedule 17.02	73

	Schedule 43	78

Page 4 of 79

BASIC LEASE PROVISIONS


A. Building / Building Address:		600 Office Center Drive Fort Washington, PA 19034 “Complex” consists of three buildings, 600, 601, 602 Office Center Drive, which share exterior areas and certain interior areas.

B. Landlord and Landlord Notice Address:		B.R. Properties Owner, LP c/o Acorn Development Corp. 400 Cresson Blvd, Suite 105 P.O. Box 1150 Oaks, PA 19456-1150 With copies to: B.R. Properties Owner, LP c/o Bresler & Reiner, Inc. 11200 Rockville Pike, Suite 502 Rockville, MD 20852 And Shaiman, Drucker, Beckman, Sobel & Stutman, LLP 1845 Walnut Street, 15 ^th Floor Philadelphia, PA 19103 Attn: Michael J. Stutman, Esquire

C. Tenant and Tenant Notice Address:		Prior to the Commencement Date: NutriSystem, Inc. 300 Welsh Road Horsham, PA 19044 Attn: David Clark, CFO After the Commencement Date: NutriSystem, Inc. 600 Office Center Drive Fort Washington, Pennsylvania 19034 Attn: David Clark, CFO With copies to: Morgan Lewis & Bockius, LLP 1701 Market Street Philadelphia, PA 19103 Attn: James W. McKenzie, Jr., Esquire

Page 5 of 79


D. Effective Date:		October 13, 2009

E. Initial Term:		The period commencing on the Commencement Date and expiring on the Initial Expiration Date

F. Commencement Date:		Option I – August 1, 2010 Option II – The later to occur of August 1, 2010 or the date of Substantial Completion

G. Rent Commencement Date:		Option I – 10 months following the Commencement Date, subject to Section 2.01(b) Option II – 10 months following the Commencement Date, subject to Sections 2.01(b) and 2.01(c)

H. Estimated Initial Expiration Date:		Option I – July 31, 2022 Option II – July 31, 2022 If the Commencement Date is any day other than the first day of a calendar month, the Initial Term shall be extended to the final day of the final calendar month of the Initial Term.

I. Permitted Use:		General office use and incidental and ancillary uses related to NutriSystem, Inc.’s core business, including, without limitation, an experimental kitchen, provided that such kitchen is in compliance with all state and local laws and regulations, and for any other lawful use, provided such other lawful use is consistent with the uses by other tenants in similar properties.

J. Premises:		Suites 100, 200 and 300

K. Floor of Premises:		First, Second and Third

L. Premises Rentable Area:		119,767 rentable square feet rentable square feet

M. Rentable Area of Building: Rentable Area of Complex :		119,767 rentable square feet 393,067 rentable square feet

Page 6 of 79


N. Tenant’s Pro-Rata Share (Proportionate Share):		100% of the rentable area of the Building. Tenant’s Premises are considered the entirety of the rentable area of the 600 Office Center Drive Building. The Building physically includes additional square footage on the first floor but which is utilized as a cafeteria ( “Cafeteria” ) and what will be a fitness center ( “Fitness Center” ). These two areas, which total 16,386 square feet, are considered to be a part of the “Complex Common Area” (as such term is defined below), and the expenses for same are shared by the square footage within the Complex. 30.5% of the Complex Common Area. This Complex Common Proportionate Share is derived by taking Tenant’s Premises rentable square footage over the Rentable Area of the Complex.

Tenant’s Complex Common Proportionate Share:		Tenant will be assessed for all electric consumption within Tenant’s Premises ( “Premises Electric” ). All Complex Common Area electric will be sub-metered including, without limitation, any portion of the Building designated as a Complex Common Area will be sub-metered, if not already, at Landlord’s sole cost and expense. The sub-metered costs of any electric allocable to any portion of the Building designated as a Complex Common Area will be deducted from the Building Electric in order to assess the Premises Electric. Premises Electric – HVAC HVAC Roof Top Unit #3 is on the Building meter, and, unlike the other units for the Building, it services a portion of the Premises on all three floors, as a vertical ‘building face’ design was implemented. On the first floor, however, Unit #3 services both the Premises and the Complex Common Area located within the Building. The electric usage for Unit #3 will be submetered by Landlord, at Landlord’s expense and the cost for all such usage (as evidenced by such sub-meter, at the blended/overall cost per KWH, plus taxes and charges as determined and evidenced on the invoices to Landlord by the utility company and, assuming Tenant’s operation in

Page 7 of 79


		this area is based on Business Hour usage, will be prorated over all of the square footage serviced by Unit #3. Tenant proportionate share for use of Unit #3 shall be 63.7% (the “Unit #3 Premises Share” ) and all other costs associated with use of Unit #3 shall be included in the Complex Common Area Electric. COMPLEX COMMON ELECTRIC COMPLEX COMMON PROPORTIONATE SHARE: 30.5% Additionally, and also on a monthly basis, Tenant will be assessed its Complex Common Proportionate Share of the Complex Common Electric, which is the electric usage servicing the Complex Common Areas. Electric Summary: Monthly, Tenant will be assessed the Premises Electric, together with Tenant’s Complex Common Proportionate Share of the Complex Common Electric, together referred to as “Tenant’s Electric” . AND OPERATING EXPENSE BUILDING PROPORTIONATE SHARE: 100% COMPLEX PROPORTIONATE SHARE: 30.5%

O. Base Year:		2010

P. Security Deposit:		20% of the Tenant Improvement Allowance reduced to an amount equal to 2 months of Minimum Monthly Rent on first anniversary of Rent Commencement Date.

Q. Management Company:		Acorn Development Corporation

R. Tenant’s Broker:		Tactix Real Estate Advisors, LLC

S. Landlord’s Broker:		GVA Smith Mack

T. Parking Allotment:		5 parking spaces per every 1,000 RSF, 10 of which shall be reserved, based on mutually agreed upon locations

U. Payment Address:		If by regular mail: Account number 610882171

Page 8 of 79


		c/o B.R. Properties Owner, LP B.R. Properties Owner, LP Box 200738 Pittsburgh, PA 15251-0738 If by overnight delivery: B.R. Properties Owner, LP Attn: Lockbox #200738 500 Ross Street Suite 154-0455 Pittsburgh, PA 15262

V. Minimum Rent

The following is the schedule of minimum annual rent assuming an estimated Commencement Date of August 1, 2010 which shall be updated by the Lease Term Certification (as defined below) to reflect the actual periods and rental amounts:


Anticipated Lease Period	Minimum Rent Per Annum Per Square Foot		Months	Minimum Rent Per Annum			Minimum Monthly Rent
8/1/10-5/31/11	$	0.00	10		*
6/1/11-5/31/12	$	19.95	12	$	2,389,351.65		$	199,112.64
6/1/12-5/31/13	$	20.45	12	$	2,449,235.15		$	204,102.93
6/1/13-5/31/14	$	20.95	12	$	2,509,118.65		$	209,093.22
6/1/14-5/31/15	$	21.45	12	$	2,569,002.15		$	214,083.51
6/1/15-5/31/16	$	21.95	12	$	2,628,885.65		$	219,073.80
6/1/16-5/31/17	$	22.45	12	$	2,688,769.15		$	224,064.10
6/1/17-5/31/18	$	22.95	12	$	2,748,652.65		$	229,054.39
6/1/18-5/31/19	$	23.45	12	$	2,808,536.15		$	234,044.68
6/1/19-5/31/20	$	23.95	12	$	2,868,419.65		$	239,034.97
6/1/20-5/31/21	$	24.45	12	$	2,928,303.15		$	244,025.26
6/1/21-5/31/22	$	24.95	12	$	2,988,186.65		$	249,015.55
6/1/22-7/31/22	$	25.45	2	$	508,011.69	**	$	254,005.85

*	This amount represents ten (10) months of the Minimum Monthly Rent.

**	This amount represents two (2) months of the Minimum Monthly Rent.

Page 9 of 79

LEASE AGREEMENT

THIS LEASE AGREEMENT ( “Lease ” ), effective as of the Effective Date , is made by and between Landlord and Tenant .

W I T N E S S E T H:

1. PREMISES; TENANT IMPROVEMENTS .

1.01 Premises . Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, upon the terms, covenants and conditions set forth herein, the Premises , consisting of the Premises Rentable Area , in the Building , as outlined on the floor plan attached hereto as Exhibit “A” , together with the right to use all common areas serving the Building and the Complex.

1.02 Tenant Improvements . On or before November 2, 2009, Tenant shall provide written notice to Landlord that Tenant has chosen either Tenant Improvements Option I or Tenant Improvements Option II, as set forth in this Section 1.02, to be effective. The Tenant Improvement Option not so chosen shall be null and of no effect.

I. Tenant Improvements Option I .

(a) Possession of the Premises shall be delivered by Landlord to Tenant on the Effective Date. Except as otherwise provided in this Lease (including, without limitation, Landlord’s obligations with respect to HVAC systems and components and representations and warranties respecting compliance with laws and Hazardous Materials (as defined below)), Landlord shall have no obligation to perform any improvements to the Premises to prepare the space for Tenant’s occupancy, and Tenant acknowledges that Tenant accepts the Premises in its “AS IS” condition, without any representation or warranty by Landlord other than those contained herein.

(b) Tenant shall perform, at its sole cost and expense, all work which Tenant deems necessary or desirable to prepare the space for Tenant’s occupancy (collectively, the “ Tenant Improvements ” ). Tenant’s preliminary plans and specifications for the Tenant Improvements to the Premises (the “ Preliminary Plans ” ) which plans were prepared by Meyer Design ( “ Tenant’s Architect ” ) are attached hereto as Exhibit “B” and which Preliminary Plans shall be subject to modification by Tenant’s Architect. Landlord hereby approves the Preliminary Plans attached. Tenant’s Architect shall prepare more detailed construction drawings and Tenant’s design consultants (together with Tenant’s Architect, “ Tenant’s Design Consultants ” ) shall prepare detailed mechanical, electrical, plumbing and structural plans for the Tenant Improvements to the Premises (collectively, the “ Proposed Tenant’s Plans ” ), all of which shall be submitted to the Landlord by December 2, 2009 and subject to Landlord’s approval which shall not be unreasonably withheld, conditioned or delayed. Landlord shall have five (5) business days following receipt of such Proposed Tenant’s Plans to provide written notice of approval or disapproval of the Proposed Tenant’s Plans. If Landlord fails to notify Tenant of Landlord’s approval or disapproval of the Proposed Tenant’s Plans within such 5 business day period, the Proposed Tenant’s Plans will be deemed approved. If Landlord disapproves the Proposed Tenant’s Plans within the 5 business day period, then Landlord shall specify the revisions required for approval in Landlord’s written notice

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and Tenant shall revise the Proposed Tenant’s Plans and submit them to Landlord until the Proposed Tenant’s Plans are approved (the “ Final Plans ” ). Tenant shall have five (5) business days following receipt of any such disapproval by Landlord to revise the Proposed Tenant’s Plans and submit such revision to Landlord. Tenant and Landlord recognize that time is of the essence, and the parties shall work together diligently to finalize the Final Plans. All work shall be performed in a good and workmanlike manner and in accordance with all applicable laws, and shall be performed on an open shop basis. On a plan ( “ Redesign Plan ” ) separate and distinct from the Final Plans, so as not to delay the permitting process and the timing for the completion the Tenant Improvements, Tenant may include a redesign and modernization of the exterior main entrance/vestibule of the Building. The Redesign Plan may include structural and cosmetic changes and removal or pruning of trees to increase visibility of the Building and signage, all of which shall be noted by Tenant on the Redesign Plan. Landlord shall have five (5) business days following receipt of such Redesign Plan to provide written notice of approval or disapproval of the Redesign Plan. If Landlord fails to notify Tenant of Landlord’s approval or disapproval of the Redesign Plan within such 5 business day period, the Redesign Plan will be deemed approved. If Landlord disapproves the Redesign Plan within the 5 business day period, then Landlord shall specify the revisions required for approval in Landlord’s written notice and Tenant shall revise the Redesign Plan and submit it to Landlord until the Redesign Plan is approved. Tenant shall have five (5) business days following receipt of any such disapproval by Landlord to revise the Redesign Plan and submit such revision to Landlord. Landlord shall provide to Tenant available CAD-based electronic files in Landlord’s possession of all base building related engineering drawings, including structural, mechanical, electrical and plumbing, so that Tenant’s Design Consultants may utilize same, as a base, in the preparation of their own plans and specifications as may be required for Tenant’s permitting and construction of the Premises. Within 30 days of the Effective Date, Landlord shall pay to Tenant an $0.08 per square foot allowance for Tenant’s Architect to test-fit Tenant’s program ( “ Test-Fit Allowance ” ). The Final Plans shall include all information and specifications reasonably necessary for Landlord to fully review the work described therein and shall conform to all applicable laws and requirements of public authorities and insurance underwriters’ requirements. All contractors utilized by Tenant for the performance of the Tenant Improvements shall be reputable, licensed contractors and Tenant shall have the right, but not the obligation, to competitively bid all work performed in connection with the Tenant Improvements. Prior to selection by Tenant, the names of all general contractors and major subcontractors shall be submitted to Landlord for Landlord’s approval, which approval shall not be unreasonably withheld, conditioned or delayed. For the purposes of this Section 1.02(b) it shall be deemed unreasonable for Landlord to withhold, condition or delay approval of any general contractor or major subcontractor unless Landlord actually knows such general contractor or major subcontractor to have (i) failed to complete construction in a timely manner, or (ii) failed to complete construction in a good and workmanlike manner, or (iii) demonstrated an inability to work cooperatively with contractors employed to do work within the Complex. If Tenant bids the work, Landlord may select one contractor to bid to be the general contractor in connection with the Tenant Improvements.

Upon completion of the Tenant Improvements, Tenant shall cause Tenant’s Design Consultants to provide Landlord with redlined drawings via CAD showing “as built” conditions.

(c) All subsequent changes in the Final Plans shall be subject to the reasonable approval of Landlord but only to the extent such changes substantially deviate from Final Plans.

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Such changes shall not be considered to substantially deviate from the Final Plans if Tenant substitutes material of equivalent grade and quality or if such changes are necessitated by conditions met during the course of construction. If Landlord approves any change in the Final Plans, Tenant shall construct, at Tenant’s sole cost and expense, the Tenant Improvements in accordance with such change. If Landlord disapproves such change in the Final Plans, Landlord shall state specifically the reasons for such disapproval, and Tenant shall withdraw such request or propose an alternative modification. If Landlord fails to approve or disapprove any requested change within five (5) business days of receipt, such change to the Final Plans shall be deemed approved.

(d) Landlord shall provide Tenant with an improvement allowance of Thirty Five Dollars ($35.00) per rentable square foot (the “ Tenant Improvement Allowance ” ). Tenant shall pay Landlord’s designated representative ( “ Construction Coordinator ” ) a construction coordination fee ( “ Construction Coordination Fee ” ) equal to one and one half percent (1 ¹ / 2 %) of the total cost of the Tenant Improvements but not more than one and one half percent (1 ¹ / 2 %) of the Tenant Improvement Allowance. The Construction Coordination Fee will be withheld from the Tenant Improvement Allowance paid by Landlord to Tenant. The Construction Coordinator shall attend weekly construction meetings and be responsible for the overall coordination between the Landlord and the Tenant.

(e) The Tenant Improvement Allowance shall be applied against Tenant’s Costs for the Tenant Improvements and for no other purpose. “ Tenant’s Costs ” shall mean all costs and expenses incurred by Tenant in connection with the completion of the Tenant Improvements, including, without limitation: (i) Tenant’s out-of-pocket contract or purchase price(s) for materials, components, labor and services plus (ii) Tenant’s Design Consultants’ fees and costs, plus (iii) fees for all required permits and approvals. Prior to payment of the Tenant Improvement Allowance, the total amount of Tenant’s Costs shall be subject to reasonable examination by Landlord, and Tenant shall provide Landlord with copies of all invoices which Tenant has approved, and other backup documentation reasonably requested by Landlord relative thereto. The Tenant Allowance shall be payable as the Tenant Improvements progress, within 30 days of submission by Tenant to Landlord of invoices from the contractors performing the work and other vendors. The Tenant Improvement Allowance shall be fully advanced against the first dollars of Tenant’s Costs before Tenant is required to fund any deficiency. To the maximum extent possible under applicable law, Tenant’s financial contribution to the cost of constructing the Tenant Improvements will fund (and thus Tenant will own and depreciate) the components that are identified as IRC Section 1245 Property (5 and 7 year tax lives). To the maximum extent possible under applicable law, Landlord’s financial contribution to the cost of constructing the Tenant Improvements will fund (and thus Landlord will own and depreciate) the components that are identified as IRC Section 1250 Property (39 year tax life). The parties agree and intend that any amount received in cash or treated as a rent reduction by the Tenant from the Landlord will be a qualified lessee construction allowance within the meaning of IRC Section 110 and the regulations promulgated thereunder for all purposes of this Agreement. In the event that Tenant fails to utilize the entire Tenant Improvement Allowance, Tenant shall be entitled to a refund or credit against the Minimum Rent payable hereunder until the Tenant Improvement Allowance is exhausted. In the event that Tenant’s Costs exceed the amount of the Tenant Improvement Allowance, Tenant shall be solely responsible for such excess costs. Regardless of whether the Tenant Improvement Allowance is exhausted, Tenant shall be responsible for paying its general contractor and all other

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contractors and subcontractors, as the case may be, pursuant to, and in accordance with the timeframes set forth in, the contracts between Tenant and its general contractor and all other contractors and subcontractors. All such obligations shall remain those of Tenant, and not of Landlord. All requests for the Tenant Improvement Allowance shall be made within eighteen (18) months from the Commencement Date or the same shall be forfeited by Tenant.

(f) Landlord shall have the right, but not the obligation, to inspect any of Tenant’s construction of the Tenant Improvements, if any, to ensure compliance with the provisions of this Section.

II. Tenant Improvements Option II .

(a) Landlord, at Tenant’s sole cost and expense (but subject to the Improvement Allowance as hereinafter defined) shall, prior to the Commencement Date, construct all of the tenant improvements to the Premises as identified in the Final Plans (hereinafter defined) including any exterior renovations to the Building entrance (collectively, the “ Tenant Improvements ” ). The foregoing work shall be performed by or on behalf of Landlord in a good, workmanlike manner in accordance with the Final Plans and all applicable laws, ordinances and governmental regulations. Except as provided in this Section (a) or as otherwise provided in this Lease (including, without limitation, Landlord’s obligations with respect to HVAC systems and components and representations and warranties respecting compliance with laws and Hazardous Materials (as defined below)), Landlord shall have no other obligation to perform any improvements to the Premises or to make any representation and warranty.

(b) Tenant’s preliminary plans and specifications for the Tenant Improvements to the Premises (the “ Preliminary Plans ” ) which plans were prepared by Meyer Design ( “ Tenant’s Architect ” ) are attached hereto as Exhibit “B” and which Preliminary Plans shall be subject to modification by Tenant’s Architect. Landlord hereby approves the Preliminary Plans attached. Tenant’s Architect shall prepare more detailed construction drawings and Tenant’s design consultants (together with Tenant’s Architect, “ Tenant’s Design Consultants ” ) shall prepare detailed mechanical, electrical, plumbing and structural plans for the Tenant Improvements to the Premises (collectively, the “ Proposed Tenant’s Plans ” ), all of which shall be submitted to Landlord for its approval on or before December 2, 2009 (the “ Proposed Tenant Plan Submission Date ” ), and which approval shall not be unreasonably withheld, conditioned or delayed. Landlord shall have five (5) business days following receipt of such Proposed Tenant’s Plans to provide written notice of approval or disapproval of the Proposed Tenant’s Plans. If Landlord fails to notify Tenant of Landlord’s approval or disapproval of the Proposed Tenant’s Plans within such 5 business day period, the Proposed Tenant’s Plans will be deemed approved. If Landlord disapproves the Proposed Tenant’s Plans within the 5 business day period, then Landlord shall specify the revisions required for approval in Landlord’s written notice and Tenant shall revise the Proposed Tenant’s Plans and submit them to Landlord until the Proposed Tenant’s Plans are approved (the “ Final Plans ” ). Tenant shall have five (5) business days following receipt of any such disapproval by Landlord to revise the Proposed Tenant’s Plans and submit such revision to Landlord. On a plan ( “ Redesign Plan ” ) separate and distinct from the Final Plans, so as not to delay the permitting

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process and the timing for the completion the Tenant Improvements, Tenant may include a redesign and modernization of the exterior main entrance/vestibule of the Building. The Redesign Plan may include structural and cosmetic changes and removal or pruning of trees to increase visibility of the Building and signage, all of which shall be noted by Tenant on the Redesign Plan. Landlord shall have five (5) business days following receipt of such Redesign Plan to provide written notice of approval or disapproval of the Redesign Plan. If Landlord fails to notify Tenant of Landlord’s approval or disapproval of the Redesign Plan within such 5 business day period, the Redesign Plan will be deemed approved. If Landlord disapproves the Redesign Plan within the 5 business day period, then Landlord shall specify the revisions required for approval in Landlord’s written notice and Tenant shall revise the Redesign Plan and submit it to Landlord until the Redesign Plan is approved. Tenant shall have five (5) business days following receipt of any such disapproval by Landlord to revise the Redesign Plan and submit such revision to Landlord. Landlord shall provide to Tenant available CAD-based electronic files in Landlord’s possession of all base building related engineering drawings, including structural, mechanical, electrical and plumbing, so that Tenant’s Design Consultants may utilize same, as a base, in the preparation of their own plans and specifications as may be required for Tenant’s permitting and construction of the Premises. Landlord shall provide Tenant’s Architect with an $0.08 per square foot allowance to test-fit Tenant’s program ( “ Test-Fit Allowance ” ). The Final Plans shall include all information and specifications necessary for Landlord to fully review the work described therein and shall conform to all applicable laws and requirements of public authorities and insurance underwriters’ requirements. All work shall be furnished, installed and performed by Landlord, on an open shop basis utilizing a general contractor selected by Landlord (which may be an affiliate of Landlord) after competitive bidding, as required below, for Landlord’s Cost (as hereinafter defined). “ Landlord’s Cost ” shall mean all costs and expenses incurred by Landlord in connection with the completion of the Tenant Improvements, including, without limitation: (i) Landlord’s out-of-pocket contract or purchase price(s) for materials, components, labor and services plus (ii) an amount equal to three percent (3%) of the hard costs described in (i), as Landlord’s construction management fee, plus (iii) Tenant’s Design Consultants’ fees in excess of the Test-Fit Allowance, plus (iv) fees for all required permits and approvals.

Upon completion of the Tenant Improvements, Tenant shall cause Tenant’s Design Consultants to provide Landlord with redlined drawings via CAD showing “as built” conditions.

Tenant may designate an individual to be present when the bids are first opened, and to facilitate in the bid process, including the opportunity to negotiate, refine and evaluate such bids. Landlord shall accept bids on all work for the Tenant Improvements on a guaranteed maximum sum bid from a licensed general contractor selected by Tenant and at least two (2) licensed general contractors of Landlord’s choosing. The cost charged for the Tenant Improvements shall not exceed the lowest bid received that satisfies all of the construction requirements identified in the Final Plans, (and the projected timing established for the completion of the Tenant Improvements) except for subsequent changes due to field conditions, qualifications and/or changes initiated by Tenant (in which case the cost of such work shall be limited to the actual cost plus a pre-negotiated mark-up for overhead and profit, which mark-up shall be shared with the contractors at the time the bid packages are disseminated). Tenant may not request a change to the Final Plans if such change will extend the estimated timing for Substantial Completion unless Tenant agrees in writing to stipulate that for purposes of calculating the Rent Commencement Date, the Commencement Date shall be the date

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the Tenant Improvements would have been Substantially Complete, but for such change. Landlord shall provide a one (1) year warranty against defective or non-conforming work, and shall pass through and assign to Tenant any warranties received by Landlord from the contractors or subcontractors. Landlord shall repair and replace, as necessary, any defective work and materials or work and materials not in conformance with the Final Plans which is identified by Tenant in writing on or before the first anniversary of the Commencement Date.

(c) Tenant may request any subsequent changes in the Final Plans, provided that if they deviate substantially from the approved Final Plans, such changes shall be subject to the consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Such changes shall not be considered to deviate substantially from the approved Final Plans if Tenant substitutes material of equivalent grade and quality or if such changes are necessitated by conditions met during the course of construction. If Landlord approves any change in the Final Plans (or if consent is not required), Landlord shall construct the Proposed Tenant Improvements in accordance with such change. If Landlord disapproves such change in the Final Plans, Landlord shall state specifically the reasons for such disapproval, and Tenant shall cause Tenant’s Architect to promptly make any changes in the Final Plans and resubmit, within five (5) working days of receipt of Landlord’s disapproval, such changes or rely upon Landlord’s earlier approval of the Final Plans without changes reasonably required by Landlord. If Landlord fails to approve or disapprove any requested change within five (5) business days of receipt, such change to the Final Plans shall be deemed approved.

(d) Landlord shall provide Tenant with a construction allowance (the “ Tenant Improvement Allowance ” ) of Thirty Five Dollars ($35.00) per rentable square foot of the Premises, the first dollars of which shall be applied towards Landlord’s Cost for the Tenant Improvements before Tenant is required to fund any deficiency. To the maximum extent possible under applicable law, Tenant’s financial contribution to the cost of constructing the Tenant Improvements will fund (and thus Tenant will own and depreciate) the component s that are identified as IRC Section 1245 Property (5 and 7 year tax lives). To the maximum extent possible under applicable law, Landlord’s financial contribution to the cost of constructing the Tenant Improvements will fund (and thus Landlord will own and depreciate) the components that are identified as IRC Section 1250 Property (39 year tax life). The parties agree and intend that any amount received in cash or treated as a rent reduction by the Tenant from the Landlord will be a qualified lessee construction allowance within the meaning of IRC Section 110 and the regulations promulgated thereunder for all purposes of this Agreement.

(e) In the event that Landlord’s Cost as approved by Tenant exceeds the amount of the Tenant Improvement Allowance, then, after the Tenant Improvement Allowance is exhausted, Tenant shall reimburse Landlord for such excess from time to time, but no more frequently than once every month, during the progress of the work within thirty (30) days after receipt of Landlord’s invoice(s) therefor. In the event that Landlord’s Cost is less than the amount of the Tenant Improvement Allowance, Tenant shall be entitled to receive a credit against Minimum Rent until the Tenant Improvement Allowance is exhausted.

(f) All payments due to Landlord pursuant to the provisions of this Section 1.02 shall constitute Additional Rent (as hereinafter defined) hereunder, payable in accordance with the provisions hereof. In the event of nonpayment of such Additional Rent by Tenant, Landlord shall have all of the rights and remedies set forth in this Lease.

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1.03 In the event Landlord has not paid (i) Tenant any portion of the Tenant Improvement Allowance or (ii) Tenant’s Broker the commission due to it in accordance with Section 26 of this Lease, within seventy five (75) days of when such payment is due, Tenant shall have the right to offset against the next monthly installment, or installments, if necessary, of Minimum Monthly Rent, the unpaid or unfunded amount, together with interest at eight percent (8%) per annum, until such amount is set off in full. Tenant will then be responsible to pay itself or the third party, including the broker, the amount set off, and Landlord shall indemnify and hold Tenant harmless for any such offset pursuant to this Section 1.03 and Landlord will have no claim against Tenant for unpaid rent to the extent such has been used to fund the cost of the Tenant Improvements or brokerage commission.

1.04 At all times during the Term, subject to periodic closure for repairs and remodeling, Landlord shall provide a first class, full service sit down cafeteria of at least 8,000 rentable square feet in the Building from 7:00 a.m. through 2:00 p.m., Monday through Friday (the “ Cafeteria Hours ” ). The Cafeteria shall be available for all tenants in the Complex and shall be operated by a reputable Cafeteria operator (of the kind and quality of Aramark or a similar institutional operator). Landlord shall provide Tenant with a reasonable opportunity to discuss menu selection with the cafeteria operator. In conjunction with the cafeteria, Landlord shall make available the outside area adjacent to the Cafeteria for outdoor seating with appropriate furniture provided by Landlord and, upon reasonable request from Tenant, if such outdoor seating is insufficient, Landlord shall provide additional outdoor seating with appropriate furniture. Upon notice of at least two (2) business days to Landlord, provided there is no conflict with another Complex tenant’s use of the cafeteria, Tenant shall have the right to use the cafeteria during non-meal hours for company events and presentations at no additional cost. Tenant shall also have the right to extend the Cafeteria Hours (the “ Extended Cafeteria Hours ” ) for the exclusive use by Tenant by (a) paying the actual, documented costs associated with the Extended Cafeteria Hours as Additional Rent or (b) contracting directly with the cafeteria operator for the Extended Cafeteria Hours and paying any associated costs directly. The foregoing notwithstanding, if additional tenants desire to use the Cafeteria during the Extended Cafeteria Hours, other than the use of any vending machines which may be located within the Cafeteria, then all such costs shall be included in Operating Expenses and paid on a pro rata basis by all tenants of the Complex utilizing the Cafeteria during the Extended Cafeteria Hours. Landlord, Tenant and the Cafeteria operator shall cooperate to establish a policy for monitoring use of the Cafeteria during Extended Cafeteria Hours to ensure all associated costs are included in Operating Expenses if appropriate. Tenant acknowledges that Landlord currently has an exclusive contract with Compass Group North America for the provision of Cafeteria and vending services to the Complex and, so long as such contract is in effect, Tenant shall contract with Compass Group North America for the provision and servicing of any vending machines within the Premises. Landlord’s contract with Compass Group North America for services to the Complex expires on October 31, 2014, and Landlord will consult with Tenant before Landlord extends, renews or terminates such contract. Upon the expiration of such contract, Landlord shall ensure that any future contracts do not restrict Tenant’s selection of a vendor for the provision and servicing of vending machines within the Premises.

1.05 At all times during the Term, Landlord shall make available within the Complex a

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Fitness Center for use by all tenants of the Complex and their employees. The Fitness Center size shall be no smaller than 1,500 rentable square feet. The Fitness Center shall be equipped with fully functioning machinery and weights (which shall be replaced as appropriate from time to time in order to ensure that the Fitness Center is, at all times, equipped with state of the art equipment) and shall otherwise be maintained in a first class manner. The Fitness Center shall include men’s and women’s locker rooms and shower facilities. The costs of operating the Fitness Center shall be included in the Building’s Operating Expenses; provided, however, that Landlord shall not make a profit from the operation of the Fitness Center, and neither Tenant nor Tenant’s employees shall be required to pay any fees for the use of the Fitness Center. The Fitness Center shall be subject to such reasonable rules and regulations as Landlord shall designate from time to time, taking into account insurance, liability and safety concerns. Landlord will provide Tenant with the opportunity to have reasonable input into the types of equipment, programs and supervision installed in or made available within the Fitness Center. Anything to the contrary contained herein notwithstanding, Tenant shall be entitled to use additional space within the Premises as a Fitness Center and for related uses.

1.06 Tenant shall have the right to use up to 88% of the roof area of the Building, immediately above the third floor of Tenant’s Premises ( “ Rooftop Rights ” ), and Landlord shall provide Tenant reasonable access to run the necessary cable and piping for Tenant’s Rooftop Rights. Tenant acknowledges that the Cafeteria and the Fitness Center, which are physically located within the same Building, shall have access to the remaining 12% of the roof area. The Rooftop Rights shall be at no additional cost to Tenant. Tenant shall be responsible for restoring the area used in connection with its Rooftop Rights to its original condition prior to the expiration or earlier termination of the Lease Term. The Rooftop Rights and any activities related thereto, including but not limited to the installation methodology and weight and size of cable, piping and other equipment, and the specific activities of Tenant, will be subject to Landlord’s approval, which shall not be unreasonably withheld, conditioned or delayed, and any required Township approval. The Rooftop Rights shall be solely for Tenant’s personal use for its business, not for resale or profit, and Tenant’s Rooftop Rights may not be assigned or subleased to any third party except in connection with a permitted assignment of the Lease or sublease of all or a portion of the Premises. Landlord shall ensure the roof is in good condition at the time of the Lease Commencement Date and Landlord shall make any modifications, repairs or maintenance recommended by its engineer at Landlord’s sole cost and expense prior to the Commencement Date.

2. TERM; RENEWAL .

2.01 (a) The term of this Lease (the “ Term ” ) shall commence on the Commencement Date and terminate on the Initial Expiration Date (the “ Initial Expiration Date ” ). Notwithstanding the Commencement Date, the contractual obligations created by this Lease shall come into full force and effect on its Effective Date.

(b) [This alternative shall apply if Tenant opts to perform its own Tenant Improvements] The “ Commencement Date ” shall be August 1, 2010. Notwithstanding the foregoing, in the event that Tenant Improvements are not Substantially Complete on or before the Commencement Date due to a delay caused by any acts or omissions in the reasonable control of Landlord (a “ Landlord Delay ” ), then the Rent Commencement Date shall be extended by one day for each day of the first 30 days attributable to such Landlord Delay and, thereafter, the Rent

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Commencement Date shall be extended by two days for each day attributable to such Landlord Delay. The Tenant Improvements shall be considered “ Substantially Complete ” when Tenant’s Architect certifies that all of Tenant Improvements are substantially complete in accordance with the Final Plans except for minor finishing work, decoration or adjustment which do not substantially interfere with Tenant’s occupancy or Tenant’s ability to complete any improvements to the Premises to be made by Tenant ( “ Punchlist Items” ). Upon Substantial Completion of the Tenant Improvements, the parties shall execute an instrument, substantially similar to the form attached hereto as Exhibit “C” , formally establishing the Commencement Date, Rent Commencement Date and Expiration Date of this Lease, as well as the acceptance of the Premises by Tenant ( “ Lease Term Certification ” ).

(b) [This alternative shall apply if Tenant opts for Landlord to perform the Tenant Improvements] The “ Commencement Date ” shall be the earlier of (i) the date Tenant commences operation of its business in the Premises or (ii) the date that is six (6) weeks after the date the Tenant Improvements are Substantially Complete and all approvals necessary for Tenant’s occupancy of the Premises have been given by all applicable governmental and regulatory authorities, but in no event earlier than August 1, 2010. When Landlord believes the Tenant Improvements are Substantially Complete, Landlord shall provide Tenant with not less than five (5) days’ prior written notice to schedule a walk through of the Premises with Tenant for the purpose of identifying all minor finishing work, decoration or items which can be adjusted without substantially interfering with Tenant’s occupancy or Tenant’s ability to complete any improvements to the Premises to be made by Tenant ( “ Punchlist Items ” ). The Tenant Improvements shall be considered “ Substantially Complete ” when Tenant’s Architect certifies that Landlord has performed or completed substantially all of the Tenant Improvements in accordance with the Final Plans except for the Punchlist Items, and all work necessary for a certificate of occupancy or similar permit or approval, other than furnishing the Premises, is complete. Landlord shall work diligently to ensure (i) the Tenant Improvements for the first floor data center are Substantially Complete on or before May 3, 2010, (ii) the Tenant Improvements for the remainder of the first floor and the second floor are Substantially Complete on or before May 28, 2010, (iii) the Tenant Improvements for the third floor are Substantially Complete on or before June 25, 2010, and (iv) the Tenant Improvements pursuant to the Redesign Plan are Substantially Complete on or before August 1, 2010 (each a “ Scheduled Completion Date ” and collectively the “ Scheduled Completion Dates, ” and each of the foregoing phases is referred to as a “ Tenant Improvement Phase ” ). Landlord shall use best efforts to complete all Punchlist Items within thirty (30) days after Substantial Completion of the applicable Tenant Improvement Phase or, if such completion is not feasible for any reason not within the reasonable control of Landlord, as soon as conditions permit, and Tenant shall afford Landlord access to the Premises for such purpose pursuant to the terms of this Lease, provided that Landlord does not interfere with Tenant’s use or occupancy of the Premises. Landlord shall obtain a certificate of occupancy or similar permit or approval issued by the applicable governmental authorities authorizing the lawful use of the Premises for their intended purpose by Tenant. Landlord shall coordinate with the Township to obtain such certificate of occupancy or similar permit or approval as soon as is commercially reasonable following the date Tenant completes the furnishing of the Premises. Notwithstanding the foregoing, in the event that (i) the specified Tenant Improvements are not Substantially Complete on or before the applicable Scheduled Completion Date due to Tenant’s refusal, upon Landlord’s request, to modify the Final Plans to address long lead time items which cannot be delivered in a timely manner (i.e., if Tenant specifies a specialty item

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which has a delivery date that does not comply with the Project Schedule and Tenant is unwilling to change such item for a comparable item which will so comply), or (ii) Tenant’s failure to respond in a reasonable time to a written notice from Landlord indicating that Tenant’s act or omission will cause a delay in completion of the Tenant Improvements, or (iii) the Final Plans are not completed by Tenant’s Design Consultants to meet the Township’s requirements and approvals such that Landlord shall not receive a building permit from the Township by December 29, 2009 (provided that a building permit for the Redesign Plans need not have been obtained until February 1, 2010) (each, a “ Tenant Delay ” ), then for purposes of calculating the Rent Commencement Date, the Commencement Date shall be deemed to be the date the Commencement Date would have occurred but for the Tenant Delay. In the event of a Tenant Delay, Landlord shall continue construction on all portions of the Tenant Improvements not directly affected by such Tenant Delay. Upon Substantial Completion of the Tenant Improvements, the parties shall execute an instrument, substantially similar to the form attached hereto as Exhibit “C” , formally establishing the Commencement Date, Rent Commencement Date and Expiration Date of this Lease, as well as the acceptance of the Premises by Tenant ( “ Lease Term Certification ” ).

(c) [This Section 2.01(c) shall be applicable only if Tenant opts for Landlord to perform the Tenant Improvements] The outside dates for Substantial Completion of each of the Tenant Improvement Phases are (i) June 3, 2010 for the Tenant Improvements for the first floor data center, (ii) June 28, 2010 for the Tenant Improvements for the remainder of the first floor and the second floor, (iii) July 25, 2010 for the Tenant Improvements for the third floor, and (iv) November 1, 2010 for the Tenant Improvements pursuant to the Redesign Plans (each, an “ Outside Date ” and collectively, the “ Outside Dates ” ). If the Tenant Improvement Phases are not Substantially Complete on or before any applicable Outside Date (as such Outside Dates may be extended for Tenant Delays or Force Majeure as hereinafter provided) and if either of the following conditions occur: 1) Tenant is unable to extend the terms of its existing leases at 300 Welsh Road, Horsham, Pennsylvania and 550 Blair Mill Road, Horsham, Pennsylvania to, but not beyond, May 1, 2011 (the “ Existing Leases ” ) in each case on the same terms as existed immediately prior to the natural expiration of such leases (represented by Tenant to be October 1, 2010 in the case of 300 Welsh and March 31, 2011 in the case of 550 Blair Mill), or 2) if at any time Landlord agrees in writing that the Tenant Improvements cannot feasibly be completed by May 1, 2011 (as extended by the period of any Tenant Delay or Force Majeure Events) or if the Tenant Improvements are not actually completed by May 1, 2011 (as extended by the period of any Tenant Delay or Force Majeure Events); then if either of the conditions set forth in Clauses 1 or 2 occur, Tenant shall have the right to terminate this Lease by delivering prior written notice to Landlord ( “ Tenant’s Termination Notice ” ), such notice to be delivered: a) in the case of failure under Clause 1 above, within thirty (30) days after failure to achieve the applicable Outside Date (as extended by the period of any Tenant Delay or Force Majeure Event); or b) in the case of Clause 2 above, not later than May 31, 2011 (as extended by the period of any Tenant Delay or Force Majeure Event); provided, however, that if and to the extent the failure to achieve Substantial Completion by any Outside Date is attributable to a Tenant Delay or an act of God, industry-wide labor strike or other cause beyond the reasonable control of Landlord (a “ Force Majeure Event ” ), then the applicable Outside Date shall be extended by one day for each day attributable to such Tenant Delay or Force Majeure Event, but then only to the extent actually caused by such Tenant Delay or such Force Majeure Event; provided, further, however, that in no event shall any one or more Force Majeure Events serve to extend the Outside Dates more than fifty (50) days in the aggregate (and in no event more than fifty

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(50) days beyond the applicable Outside Date for Substantial Completion of the Tenant Improvements). For purposes of this Lease, in the event Landlord is claiming a Tenant Delay or Force Majeure which will extend the time for its performance it must notify Tenant in writing of such event within five (5) days after the occurrence thereof, which notice shall identify the nature of the delay and likely impact on Outside Dates. Failure to timely notify Tenant shall constitute a waiver of any claimed delay. Landlord shall use good faith efforts to try and mitigate the impact of any delay. Notwithstanding the foregoing, if following Tenant’s delivery of a Termination Notice, the applicable Tenant Improvements are Substantially Completed by Landlord prior to the expiration of the thirty (30) day period following delivery of such Tenant’s Termination Notice, then, in such event, Tenant’s Termination Notice with respect to such specific failure shall be null and void and of no effect, as if Tenant had not delivered Tenant’s Termination Notice. In addition to the foregoing termination right, if the Tenant Improvement Phases are not Substantially Complete on or before thirty (30) days following the applicable Outside Date or Outside Dates (as extended by any Tenant Delay or Force Majeure Events) and Tenant has not delivered a Tenant Termination Notice, Tenant shall have the right to delay the Commencement Date to May 1, 2011 or, if the Substantial Completion for the last of the Tenant Improvements is later than May 1, 2011 (as extended by the period of any Tenant Delay or Force Majeure Events), the actual date of Substantial Completion for the last of the Tenant Improvements (the “Delayed Commencement Date” ) by delivering a written notice to Landlord ( “Delay Option Notice” ) within thirty (30) days after completion of the thirty (30) day period following the applicable failed Outside Date or date of Substantial Completion for the last of the Tenant Improvements, if applicable, and, in such case, Landlord shall have the option to pay the Existing Lease Additional Liability (hereinafter defined), if any, and, if Landlord opts to pay the Existing Lease Additional Liability, the Rent Commencement Date shall be March 1, 2012, subject to adjustment as set forth herein. As soon as possible after delivering its Delay Option Notice, Tenant shall deliver to Landlord the Existing Leases and all relevant related documentation; within fifteen (15) days of receiving the last of all such documentation, Landlord shall notify Tenant in writing whether Landlord chooses to pay the Existing Lease Additional Liability. If Landlord fails to notify Tenant of their decision within the fifteen (15) day notice period, then it will be deemed that Landlord has elected not to pay Existing Lease Additional Liability. If Landlord chooses not to pay the Existing Lease Additional Liability (or is deemed to have chosen not to pay the Existing Lease Additional Liability), Tenant shall have the option to terminate the Lease by providing written notice of such termination to Landlord within fifteen (15) days of its receipt of Landlord’s refusal or deemed refusal to pay the Existing Lease Additional Liability. If Tenant fails to notify Landlord of their decision within the fifteen (15) day notice period, then it will be deemed that Tenant has elected not to terminate the Lease.

In the case of Clause 1 of this Section 2.01(c), the condition set forth in such clause shall not be deemed to have occurred, and Tenant shall therefore not have the right to terminate this Lease, if both (A) the only change during the negotiated extension terms of the Existing Leases is that the rent on either location has increased or that either rent is payable beyond May 1, 2011 (such increases rent or rent payable beyond May 1, 2011 defined as “Existing Lease Additional Liability” ) and (B) Landlord agrees in writing to pay all of the Existing Lease Additional Liability. Tenant shall include Landlord in the negotiations with the landlords in connection with the Existing Leases and if Landlord expresses a willingness to pay the Existing Lease Additional Liability then Tenant shall provide Landlord with all pertinent documents as they relate to Tenant’s existing leases, extension terms and holdover. If Landlord agrees to pay Existing Lease Additional Liability, then Landlord shall have final approval of extension terms or holdover option and Tenant shall make best efforts to minimize any increase in costs associated with extension terms or holdover.

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2.02 Tenant shall have the option to extend the Initial Term for two (2) separate, consecutive renewal periods totaling an aggregate of ten (10) years (each, a “Renewal Option” ), under and subject to the following terms and conditions:

(a) The first renewal term (the “First Renewal Term” ) shall be for a period of either three (3), four (4), five (5), six (6) or seven (7) years, at Tenant’s option, commencing on the day immediately following the Initial Expiration Date, and expiring at midnight on the day immediately preceding the third (3 ^rd ), fourth (4 ^th ), fifth (5 ^th ), sixth (6 ^th ) or seventh (7 ^th ) anniversary thereof, as the case may be ( “First Renewal Expiration” ). The second renewal term (the “Second Renewal Term” ) shall be for a period of ten (10) years less the number of years of the First Renewal Term, commencing on the day immediately following the First Renewal Expiration, and expiring at midnight on the day immediately preceding the third (3 ^rd ), fourth (4 ^th ), fifth (5 ^th ), sixth (6 ^th ) or seventh (7 ^th ) anniversary thereof, as the case may be. The First Renewal Term and the Second Renewal Term are collectively referred to as the “Renewal Terms” (and each a “Renewal Term” ). If Tenant fails to exercise any Renewal Option, all subsequent Renewal Options shall be null and void and of no further force and effect.

(b) Tenant must exercise each Renewal Option, if at all, by written notice to Landlord delivered at least three hundred sixty five (365) days prior to the expiration date of the then current Term of this Lease, time being of the essence.

(c) As a condition to Tenant’s exercise of each Renewal Option at the time Tenant delivers to Landlord its notice of election to exercise the applicable Renewal Option, there shall be no continuing Event of Default that remains uncured.

(d) Each Renewal Term shall be on the same terms and conditions contained in this Lease, except that (i) the Minimum Rent shall be ninety five percent (95%) of the Fair Market Rental Rate (as hereinafter defined) for the Premises, (ii) Tenant shall either (1) be granted a concession package for new comparable leases (including tenant improvement allowance, free rent build-out period and other concessions then given in the Fort Washington, Pennsylvania market) or (2) receive a rent reduction equal to the payment necessary to amortize the value of such concessions at eight percent (8%) over the Renewal Term, (iii) the Base Year shall be revised to be the first full calendar year of each Renewal Term, and (iv) Tenant may reduce the total space of the Premises to no less than 70,000 rentable square feet when exercising such Renewal Option, so long as the space surrendered to Landlord is contiguous on one floor and leasable as a distinct space.

(e) Except for the specific Renewal Options set forth above, there shall be no further privilege of renewal.

(f) As used herein, the “Fair Market Rental Rate” shall mean the per square foot base rental rate, including annual escalations, then being charged by Landlord in new leases for comparable space in the Building or the Complex or, if no comparable space exists in the

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Building or the Complex, then being charged in new leases by landlords for comparable space in Class “A” office buildings in the Fort Washington, Pennsylvania market, for leases commencing on or about the commencement of the applicable Renewal Term, taking into consideration the use, location and floor level of the applicable building, leasehold improvements provided, the term of the lease under consideration, the extent of services provided thereunder, market concessions such as rent abatement and rent credit, resetting of the Base Year for Operating Expenses and other adjustments to the base rental, and any other relevant term or condition in making such evaluation. Landlord shall determine the Fair Market Rental Rate using its good faith judgment and shall provide written notice of such rate within fifteen (15) business days after Tenant’s exercise notice pursuant to this Section.

(g) Within twenty (20) days after receipt of Landlord’s notice, Tenant shall advise Landlord that (a) it accepts Landlord’s determination of the Fair Market Rental Rate, or (b) it rejects Landlord’s determination of the Fair Market Rental Rate. If Tenant fails to advise Landlord within said twenty (20) day period, Tenant shall be deemed to have rejected the Fair Market Rental Rate determined by Landlord on the twentieth day (the “Deemed Rejected Date” ). If Tenant rejects or is deemed to have rejected Landlord’s determination of the Fair Market Rental Rate, Tenant shall, at its cost and expense, engage the services of an independent real estate appraiser, having an MAI designation, with knowledge and experience of rental values of similar properties in the area to perform an appraisal to determine the Fair Market Rental Rate of the Premises for the Renewal Term. Such appraiser shall render his or her appraisal report to Landlord and Tenant not later than thirty (30) days after the date of Tenant’s notice to Landlord rejecting Landlord’s determination of the Fair Market Rental Rate of the Premises or after the Deemed Rejected Date, as the case may be. If the Fair Market Rental Rate determined by the appraiser shall not be acceptable to Landlord, Landlord shall have the right, at its cost and expense, to engage the services of an appraiser, having similar qualifications as those set forth above, to determine the Fair Market Rental Rate of the Premises for the Renewal Term. Such appraiser selected by Landlord shall render his or her appraisal report to Landlord and Tenant not later than thirty (30) days after the date Landlord receives the appraisal report prepared by the appraiser selected by Tenant. In the event that Landlord’s appraiser shall determine a Fair Market Rental Rate which shall not differ by more than ten (10%) percent from the Fair Market Rental Rate determined by Tenant’s appraiser, the Fair Market Rental Rate of the Premises shall be deemed to be the Fair Market Rental Rate determined by Tenant’s appraiser. If Landlord’s appraiser shall determine a Fair Market Rental Rate which shall differ more than ten (10%) percent from the Fair Market Rental Rate determined by Tenant’s appraiser, then the two appraisers shall select a third appraiser (independent of the first two appraisers and of the Brokers), having similar qualifications as those set forth above, and Landlord and Tenant shall engage the services of such third appraiser to perform an appraisal to determine the Fair Market Rental Rate of the Premises, with Landlord and Tenant each to pay one-half of the cost of such third appraiser. The appraiser for Landlord and the appraiser for Tenant shall select such third appraiser within ten (10) days after Landlord notifies Tenant that such third appraiser is required. Such third appraiser shall be instructed to render an appraisal report to Landlord and Tenant not later than thirty days (30) after the date of his or her engagement. The Fair Market Rental Rate of the Premises for the Renewal Term shall be the Fair Market Rental Rate determination of the appraiser selected by Landlord or Tenant whose determination is closer to the determination of the third appraiser. The Fair Market Rental Rate of the Premises, as agreed upon by the parties or as determined as hereinabove provided, shall be final and binding upon both Landlord and Tenant.

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3. SECURITY DEPOSIT .

3.01 Tenant has deposited with Landlord, upon the signing of this Lease by Tenant, the Security Deposit to be retained by Landlord as security for the faithful performance and observance by Tenant of the covenants and conditions of this Lease. The Security Deposit will be an amount equal to twenty percent (20%) of the Tenant Improvement Allowance which will be reduced to two (2) months’ rent upon the first anniversary of the Rent Commencement Date. Landlord will refund the difference to Tenant on the first anniversary of the Rent Commencement Date; provided however, if such amount has not been refunded to Tenant by the date which is thirty (30) days next following the first anniversary of the Rent Commencement Date, then Tenant may deduct such refund (together with interest at the rate of eight (8%) percent per annum) from the payments of Minimum Monthly Rent and Additional Rent next becoming due under this Lease until the refund, with interest, shall be recovered. Upon the occurrence and during the continuance of an Event of Default and after notice and an opportunity to cure, Landlord may use, apply or retain the whole or any part of the Security Deposit to the extent required (a) for the payment of any Minimum Monthly Rent, Additional Rent (as such terms are hereinafter defined) and any other charges as to which Tenant is in default, or (b) on account of any sum which Landlord may expend or may be required to expend by reason of Tenant’s default in respect of any of the covenants or conditions of this Lease. Should Landlord use, apply or retain the whole or any part of the Security Deposit, pursuant to the provisions of this Section 3.01, Tenant has the obligation to replenish that portion of the Security Deposit which has been expended within ten (10) days of notice by Landlord of same. Provided no Event of Default has occurred and is continuing, the Security Deposit shall be returned to Tenant within thirty (30) days after Expiration Date and after surrender of the entire Premises to Landlord.

3.02 In the event of a sale of Landlord’s interest in the Building to a bona fide purchaser who shall, in writing, assume the obligations of Landlord under this Lease, Landlord shall have the right to transfer the Security Deposit to such purchaser and Landlord shall thereupon be released by Tenant from all liability for the return of such Security Deposit, and Tenant agrees to look solely to the new Landlord for the return thereof.

4. USE OF PREMISES .

4.01 The Premises shall be occupied and used for the Permitted Use, and for no other purpose.

4.02 Tenant shall not (a) do or permit anything to be done in or about the Premises which will unreasonably obstruct or interfere with the rights of other tenants or occupants of the Building, (b) injure or unreasonably disturb them, or (c) allow the Premises to be used for any use other than the Permitted Use.

4.03 Tenant shall not do, permit or suffer in, on, or about the Premises the sale of any alcoholic liquor without the written consent of Landlord first obtained.

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4.04 Tenant shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises and its occupancy and shall promptly comply with all governmental orders and directions for the correction, prevention and abatement of any violations in or upon the Premises that are particular to Tenant’s manner or method of use as opposed to office uses generally, all at Tenant’s sole expense. Nothing herein shall require that Tenant be responsible for curing any violations existing as of the Commencement Date, all of which shall be resolved by Landlord at its sole cost and expense, unless such violations were caused by the work performed by Tenant in connection with the Tenant Improvements or attributable to the Final Plans.

4.05 Tenant shall not (a) do or permit anything to be done on or about the Premises, or (b) bring or keep anything into the Premises, which will in any way increase the rate, or invalidate or prevent the procuring of any insurance protecting against (x) loss or damage to the Building or any of its contents by fire or other casualty or (y) liability for damage to property or injury to persons in or about the Building or any part thereof.

5. MINIMUM RENT; ADDITIONAL RENT .

5.01 Minimum Rent .

Subject to adjustments described in this Section 5, commencing on the Rent Commencement Date , Tenant shall pay the Minimum Rent , in advance, in equal monthly installments (the “Minimum Monthly Rent” ) , on the first day of each calendar month during the Term. If the Rent Commencement Date shall fall on a day other than the first day of a calendar month, the Minimum Monthly Rent shall be apportioned pro-rata on a per diem basis for the period between the Rent Commencement Date and the first day of the following calendar month; such apportioned sum shall be paid on the Rent Commencement Date. Notwithstanding the foregoing, Tenant shall be liable for the payment of all Tenant Electric (as defined below), for all months of the Term, commencing on the Commencement Date. Rent shall be paid to Landlord at the Payment Address , or to such other party and such other place as Landlord may designate in writing.

5.02 Electricity .

(a) Tenant shall pay and be responsible for, as additional rent ( “Additional Rent” and, collectively with the Minimum Rent, the “Rent” ) hereunder, all electricity consumed within Tenant’s Premises (the “Premises Electric” ), and Tenant’s Complex Common Proportionate Share of the Complex Common Electric (together, the Premises Electric and Tenant’s Complex Common Proportionate Share of the Complex Common Electric, being the “Tenant Electric” ) which is the cost of all electricity and gas consumed in the Premises, as well as Tenant’s share of the electric and gas attributable to the Complex Common Areas, as defined in the Basic Lease Provisions as follows:

(i) The usable area of the Premises shall be separately metered for electricity. Tenant Electric shall be equal to the cost of electricity for the Premises as determined by such meters and Tenant’s Complex Common Proportionate Share of the electric servicing the Complex Common Areas, which are the Cafeteria, the central/core area connecting the three

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buildings of the Complex internally (the “HUB” ), exterior garage, parking, and drive areas, lit monument signs servicing the Complex, the on-site Complex management office, and the fitness center. All electricity and gas costs shall be charged to Tenant at Landlord’s actual costs with no mark up, billing fee, service fee or other sum payable to Landlord or any third party.

(ii) Subject to the provisions of this Section 5.02, Tenant Electric shall be calculated monthly by Landlord and is payable within thirty (30) days of invoicing.

(b) Notwithstanding the foregoing, Landlord may, at its option, from time to time, but no more frequently than once every twelve (12) months, estimate the monthly cost for Tenant Electric, and bill Tenant for such estimated monthly amount. All such estimated amounts shall be paid together with the monthly payment of Minimum Monthly Rent, and Landlord shall annually, on or before March 1, deliver to Tenant a statement indicating the actual amount of Tenant Electric. If such statement reveals that any additional payments are due to Landlord on account of Tenant Electric for that period, Tenant shall pay such deficiency to Landlord at that time without further demand. If the statement reveals that Tenant has overpaid Tenant Electric for such period, Landlord shall credit such overpayment against the current monthly Minimum Monthly Rent and/or the current monthly estimate of Tenant Electric payment then due or refund such amount promptly if at the end of the Term.

(c) Although Minimum Rent is not due for the first ten (10) months following the Commencement Date, Tenant’s obligations to pay the cost of all Tenant Electric shall commence on the Commencement Date.

5.03 Operating Expenses .

(a) Commencing on the first day of the calendar year following the Base Year, but in no event prior to the Commencement Date, Tenant shall also pay to Landlord as Additional Rent hereunder (i) Tenant’s Proportionate Share of any increase incurred by Landlord in the cost of operating and maintaining the Building (which for this application excludes the costs applicable to the Cafeteria and the Fitness Center) and (ii) Tenant’s Complex Common Proportionate Share of any increase incurred by Landlord in the cost of operating and maintaining the Complex Common Areas (the “Operating Expenses” ), during any calendar year, or part of such calendar year in which this Lease is in effect, which exceeds such costs incurred for the Base Year ( “Expense Share” ). Tenant shall not be entitled to an Additional Rent credit if Operating Expenses during any calendar year, or part of such calendar year in which this Lease is in effect, are less than such costs incurred for the calendar Base Year. The Base Year Operating Expenses shall include all categories of line item expenditures reasonably anticipated to be incurred in the Base Year, and Landlord may not defer any such expenses beyond the Base Year if such deferment would artificially reduce the Base Year Operating Expenses below a typical year’s expenses for all anticipated services. Landlord shall not recover more than the actual Operating Expenses paid by Landlord in connection with the operation of the Building or the Complex for any year and Landlord shall not make a profit from the collection of Operating Expenses from the tenants in the Complex. Any repair and maintenance costs included in Operating Expenses shall be consistently applied to all tenants in the Complex throughout the Term (i.e. if Tenant is billed separately for any item of maintenance and repair, Landlord shall charge all other tenants in the Complex separately for such work and may not include the same in Operating Expenses).

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(b) Operating Expenses shall include, without limitation, (i) real estate taxes and similar taxes or assessments in lieu thereof ( “Real Estate Tax Expenses” ); (ii) water and sewer rents, taxes and charges against the Building; (iii) public and private assessments, levies or charges; (iv) the cost of heat, light, power, elevator service, utility taxes, fuel, labor (including, without limitation, salaries, wages and all fringe benefits made to or on behalf of any and all employees or agents of Landlord performing on site services rendered in connection with the operation, repair, maintenance, protection and management of the Building, and the Building’s share of expenses for the Complex Common Areas, all of which expenses shall not exceed the market rate for such services for other comparable office buildings in the area of the Building); permits, supplies, parts, tools, equipment, insurance, management fees, maintenance and service contracts with independent contractors; (v) capital improvements and major repairs/replacements made for the purpose of reducing energy costs, but only to the extent of actual savings; and (vi) all other items properly constituting direct operating costs according to generally accepted accounting principles consistently applied (hereafter “GAAP” ), as determined by an independent certified public accountant, whether similar or dissimilar to the foregoing. All utility costs included in Operating Expenses shall be charged to Tenant at Landlord’s actual costs with no mark up, billing fee, service fee or other sum payable to Landlord and any cost or expense of the nature included in Operating Expenses shall be included no more than once.

(c) Operating Expenses shall not include capital expenditures (unless such capital expenditure actually results in energy savings and then only to the extent of savings); depreciation or amortization or interest paid on any mortgage, or ground rents paid under land leases; any costs incurred in the ownership of the Building or Complex, as opposed to the operation and maintenance of the Building or Complex, including income taxes, excess profit taxes, franchise taxes, capital stock taxes or similar taxes on Landlord’s business; commissions payable to leasing brokers, Tenant Electric pursuant to Section 5.02, and electric costs directly metered to or paid by other tenants; items or services provided to individual tenants, not offered or available to other tenants of the Building; wages, salaries or other compensation paid to employees above the level of Senior Property Manager or executive personnel of Landlord or Management Company; leasing commissions, finder’s fees and all other leasing expenses incurred in procuring tenants in the Building or the Complex; preparation of income tax returns; corporation, partnership or other business form organizational expenses; filing fees; general corporate overhead, general administrative expenses, or other such expenses; any costs incurred in removal, cleaning, abatement or remediation of any environmental hazard or condition in violation of any environmental law (except to the extent caused directly by Tenant); the cost of correcting code violations existing as of the Commencement Date; legal fees for the negotiation or enforcement of leases; expenses in connection with services or other benefits of a type which are not Building standard but which are provided to another tenant or occupant; any items to the extent such items are required to be reimbursed to Landlord by Tenant (other than through Tenant’s Additional Rent), or by other tenants or occupants of the Building or by third parties; the cost of constructing tenant improvements or installations for any tenant in the Building, including any relocation costs; principal payments of any mortgage and other non-operating debts of Landlord, brokerage commissions, origination fees, points, mortgage recording taxes, title charges and other costs or fees incurred in connection with any financing or refinancing of the Building or the securing or defense of Landlord’s title to the

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Building; advertising and promotional expenses, including brochures with respect to the Building; cost of repairs or replacements occasioned by fire, windstorm or other casualty, the costs of which are covered by insurance maintained or required to be maintained by Landlord under this Lease or reimbursed by governmental authorities in eminent domain or reimbursed by third parties (other than through Operating Expenses); overhead and profit increment paid to subsidiaries or affiliates of Landlord for services on or to the Building, to the extent that the costs of such services exceed market-based costs for such services rendered by unaffiliated persons or entities of similar skill, competence and experience; penalties, fines, legal expenses, or late payment interest incurred by Landlord due to violation by Landlord, or Landlord’s agents, contractors or employees, of either the payment terms and conditions of any lease or service contract covering space in the Building or Landlord’s obligations as owner of the Building (such as late payment penalties and interest on real estate taxes, late payment of utility bills) provided that Tenant has remitted when due, its share of such invoices; any compensation paid to clerks, attendants or other persons in any commercial concession operated by Landlord in the Building from which Landlord receives any form of income whatsoever, whether or not Landlord actually makes a profit from such concession; costs incurred in connection with correcting latent defects in the Building, or in repairing or replacing Building equipment, where such repair or replacement results from original defects in design, manufacture or installation rather than from ordinary wear and tear or use; rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature other than equipment used in providing janitorial services and not affixed to the Building; structural repairs to the foundations, walls or roof of the Building; or lease concessions, including rental abatements and construction allowances granted to other tenants.

(d) Operating Expenses (other than Real Estate Tax Expenses addressed in Section 5.03(e)) for each year including the Base Year shall be determined as if the Building and the Complex, where appropriate, had been fully occupied and Landlord had been supplying services to 100% of the rentable square footage of the Building and the Complex. The extrapolation of Operating Expenses shall be performed by appropriately adjusting allocation of Operating Expenses as impacted by changes in the occupancy of the Building and the Complex (as applicable); provided, however, such adjustment shall not result in Landlord collecting sums in excess of the actual cost of Operating Expenses.

(e) Real Estate Tax Expenses for each year including the Base Year shall be determined as if the Building and the Complex had been at least 95% occupied and Landlord had been supplying services to at least 95% of the rentable square footage of the Building and the Complex or the first full calendar year that the Building and the Complex are assessed as a fully occupied and fully assessed Building and the Complex. The extrapolation of Real Estate Tax Expenses shall be performed by appropriately adjusting allocation of Real Estate Tax Expenses as impacted by changes in the occupancy of the Building and the Complex (as applicable); provided, however, such adjustment shall not result in Landlord collecting sums in excess of the actual cost of the Real Estate Tax Expenses.

(f) If this Lease expires or terminates other than at the end of a calendar year, the Expense Share under this Section 5.03 for the year during which the Lease expires or terminates shall be pro-rated and shall be paid on demand notwithstanding the expiration or termination of this Lease before the demand is made for such Expense Share.

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(h) Landlord shall furnish to Tenant on or before December 31 of each calendar year during the Term, a reasonable estimate of the Expense Share to become payable by Tenant under this Section 5.03 for the next succeeding calendar year, or in the absence of such reasonable estimate by December 31, Tenant shall continue to remit the estimated monthly amount being paid in the then current year, until the estimate is provided, but in no event more than one hundred and twenty (120) days after the end of each calendar year, and bill Tenant for such estimate in monthly installments. All such estimated amounts shall be paid together with the monthly payment of Minimum Monthly Rent. Within one hundred and twenty (120) days after the end of each calendar year of this Lease, and one hundred and twenty (120) days after the expiration of this Lease, Landlord shall deliver to Tenant a statement from Landlord of the actual amount of Expense Share due Landlord under this Section 5.03 for the preceding calendar year (or, if the notice is given after the expiration of the Lease, for the applicable portion of the preceding calendar year and/or the then current calendar year, as the case may be) (the “Expense Statement” ). If such Expense Statement reveals that any Expense Share is due Landlord, Tenant shall pay such deficiency to Landlord at that time without further demand. If the statement reveals that Tenant has overpaid the amount of Expense Share, Landlord shall credit such overpayment against the next payment of Expense Share to come due (or if the statement is delivered after the expiration of the Lease, and all sums due Landlord under the Lease have been paid in full, Landlord shall refund such overpayment to Tenant at that time).

(i) Upon seven (7) days prior written notice delivered to Landlord, Landlord shall give Tenant the opportunity during normal business hours to engage an auditor of Tenant’s choosing to audit Landlord’s books and records relating to Operating Expenses for no more than the previous two (2) calendar years, provided Tenant thereafter diligently and promptly completes such inspection, and such inspection privilege shall not delay Tenant’s obligation to pay on account all sums due pursuant to any Expense Statement. Tenant may not exercise its right under this Section 5.03(i) more than once during any twelve (12) month period. In the event that Tenant reasonably disputes an Expense Statement and the dispute is not amicably resolved within thirty (30) days after Tenant’s notice of dispute, and after Tenant has provided Landlord with an audit report and all information reasonably requested by Landlord in connection with such audit and specifically the disputed items, then either party may refer the dispute to an independent certified public accounting firm mutually acceptable to Landlord and Tenant, and the determination of such accounting firm shall be final, binding and conclusive on Landlord and Tenant. The cost of such audit by said accounting firm shall be paid as follows (i) Tenant shall pay the cost of such audit if it is determined that Landlord’s original determination of the actual Operating Expenses was correct, (ii) Tenant and Landlord shall share equally the cost of such audit if it is determined that Landlord’s original determination of the actual Operating Expenses was not in error by more than four percent (4%); and (iii) Landlord shall pay the cost of such audit if it is determined that Landlord’s original determination of the actual Operating Expenses was in error by more than four percent (4%). Pending resolution of any dispute, Tenant shall pay its Expense Share in accordance with the Expense Statement furnished by Landlord.

(j) Tenant shall have the right from time to time to contest or appeal, at Tenant’s sole cost and expense, the amount or validity, in whole or in part, of any tax included in the Real Estate Tax Expenses, by appropriate proceedings diligently conducted by Tenant in good faith, but

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only after payment of the Real Estate Tax Expenses. Tenant shall notify Landlord of Tenant’s intention to contest such tax prior to filing any applications, affidavits or other documentation required in connection with such effort. Landlord shall reasonably cooperate with Tenant (including signing applications and the like, if so requested by Tenant).

5.04 Except as excluded pursuant to Section 5.03(c), if any law, ordinance or regulation now or hereafter imposes a tax, assessment, levy or other charge (all of which are hereinafter called “Impositions” ) directly or indirectly on Landlord with respect to (a) this Lease or the value thereof, (b) the use or occupancy of the Premises by Tenant, or (c) the Minimum Monthly Rent, Additional Rent or any other sums payable by Tenant under this Lease or upon this transaction, Tenant agrees to pay Landlord, as Additional Rent hereunder and upon demand, the amount of all such Impositions. If Tenant is prohibited by law from paying such Impositions, Landlord shall have the right, at its election, to terminate this Lease by written notice to Tenant; provided, however, Landlord shall be required to provide to Tenant not less than twelve (12) months’ prior written notice of such termination.

6. COVENANT TO PAY RENT AND ADDITIONAL RENT .

Except as otherwise set forth in this Lease, Tenant shall, without any demand therefor, and without setoff, deduction or counterclaim, pay the Minimum Monthly Rent, the Additional Rent and all other sums which may become due by Tenant under this Lease, on the first of each month in advance, or at the times, at the place and in the manner otherwise herein provided. All sums which may be due by Tenant under this Lease shall be payable as Rent for all purposes, whether or not they would otherwise be considered Rent. Without limiting the generality of the foregoing, if Tenant shall be in default, after the expiration of applicable notice and grace periods, in the performance of any of its obligations hereunder, Landlord, in addition to any other rights it may have in law or equity or under this Lease, may, but shall not be obligated to, cure such default on behalf of Tenant. Tenant shall reimburse Landlord for any sums paid or costs incurred by Landlord in curing such default, including interest at the rate of eight (8%) percent per annum on all actual out-of-pocket costs incurred by Landlord as aforesaid, which costs together with interest thereon shall be deemed Additional Rent hereunder.

7. ASSIGNMENT AND SUBLETTING .

7.01 Except as otherwise permitted by the terms of this Lease, Tenant shall not assign, mortgage, pledge or encumber this Lease, or sublet all or any part of the Premises without, on each occasion, first obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord’s written consent to any assignment of this Lease shall take the form of a written agreement to be entered into by Landlord and Tenant’s assignee evidencing such party’s agreement to be bound by the terms and conditions of this Lease. Notwithstanding the foregoing, Tenant may, from time to time, sublease up to twenty percent (20%) of the Premises in the aggregate without Landlord consent, so long as the use of such subleased space is for a Permitted Use and Tenant shall provide Landlord with written notice of any such sublease.

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7.02 In the event Tenant desires to do any of the foregoing in Section 7.01 (but subject to Tenant’s right to sublease up to twenty percent (20%) of the Premises without Landlord’s consent), Tenant shall give Landlord at least ten (10) days, but no more than one hundred and eighty (180) days, prior written notice thereof ( “Tenant’s Section 7.02 Notice” ). Such notice shall set forth (i) the names of the parties involved, (ii) in the instance of a sublease, whether or not the entire square footage of the Premises is proposed to be sublet, and (iii) the proposed effective date of such transaction ( “Proposed Effective Date” ). If Landlord fails to respond to Tenant’s Section 7.02 Notice within five (5) days of receipt, Landlord shall be deemed to have approved Tenant’s proposed assignment of the Lease or mortgage, pledge, encumbrance or sublease of all or any part of the Premises.

7.03 Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the Rent specified in this Lease and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. The foregoing notwithstanding, in the event of any assignment of the Lease to a tenant with a net worth equal or greater than the net worth of Tenant as of the Effective Date who shall, in writing, assume and agree to perform all of the obligations of Tenant under this Lease, Tenant shall be released from all further obligations under this Lease that accrue after the date of such assignment and assumption. Upon the occurrence of an Event of Default (as hereinafter defined), if the Premises, or any part of them, are then assigned or sublet, then, in addition to any other remedies provided in this Lease or provided at law or in equity, Landlord may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant under this Lease. Tenant, for itself and its successors and assigns, hereby irrevocably constitutes and appoints Landlord as Tenant’s agent to collect such rents. No such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant’s obligations under this Lease, including Tenant’s obligation to pay any unpaid balance of Rent due or to become due hereunder.

7.04 Subject to Section 7.01 of this Lease, Tenant shall have no right to make (and Landlord shall have the absolute right to refuse consent to) any assignment of this Lease or sublease of any portion of the Premises, if (a) at the time of either Tenant’s notice of the proposed assignment or sublease or the proposed commencement date thereof, there shall exist any uncured material Event of Default of Tenant, or (b) the proposed assignee or sublessee is an entity:

(i) with which Landlord is already in negotiation for space in the Complex as evidenced by the issuance of a written proposal given within the prior thirty (30) days and such space is suitable for the prospective tenant;

(ii) which is incompatible with the character of occupancy of the Building; or

(iii) which would subject the Premises to a use which would:

(A) require any addition or modification of the Premises or the Building in order to comply with building code or other governmental regulations (unless the expense of such addition or modification will be assumed by a party other than Landlord); or

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(B) involve a violation of any provision of this Lease.

7.06 No assignment will be valid unless the assignee shall first execute and deliver to Landlord an assumption of liability agreement regarding liabilities first accruing after the date of the assignment in such reasonable form and with such terms, covenants and conditions as may be reasonably required by Landlord.

7.07 Any purported assignment, mortgage, pledge or encumbrance of this Lease, or subletting of the Premises, which does not comply with the provisions of this Section 7, shall be void.

7.08(a) An assignment within the meaning of this Lease is intended to mean not only the voluntary action of Tenant, but also any action against Tenant by a third-party, such as a levy, sale on execution or other legal process against Tenant’s leasehold interest.

(b) Anything in this Lease to the contrary notwithstanding, Tenant may, without the consent of Landlord, assign this Lease or sublet, from time to time, a portion or portions of the Premises to an affiliate (i.e., either a 50% or more ownership interest by the same parties owning 50% or more of Tenant’s ownership interest, or another business entity which controls or is controlled by or is under common control with Tenant), parent or subsidiary corporation or other entity of Tenant or to a corporation or other entity which acquires all or substantially all of its assets or its stock or other ownership interests or with which it may be consolidated or merged (“Affiliate”), provided that in the case of any assignment (as opposed to a sublet), (i) either Tenant or such assignee has a net worth equal to or greater than Tenant’s net worth as of the Effective Date and (ii) such assignee shall, in writing, assume and agree to perform all of the obligations of Tenant under this Lease, and it shall deliver such assumption with a copy of such assignment to Landlord within thirty (30) days thereafter, and provided further that Tenant shall not be released or discharged from any liability under this Lease by reason of such assignment except as otherwise provided in this Lease.

8. ALTERATIONS AND FINISHING.

8.01 Except as otherwise provided in this Lease (including Tenant Improvements which are addressed in Section 1), no alterations which would impair the Building systems or structure of the Building (collectively the “Alterations” ) shall be made to the Premises by or on behalf of Tenant unless Tenant shall first submit on each occasion a detailed description thereof to Landlord and Landlord shall consent thereto in writing, such consent not to be unreasonably withheld, conditioned or delayed. Landlord shall have ten (10) business days following receipt of Tenant’s request for approval of such Alterations to provide written notice of approval or disapproval of the Alterations. If Landlord fails to notify Tenant of Landlord’s approval or disapproval of the Alterations within such ten (10) business day period, the Alterations will be deemed approved. All contracts entered into by Tenant for the performance of construction or construction related activities in the Premises, including, but not limited to the Alterations, must contain a provision that all alterations, additions or improvements made are solely for the Tenant’s immediate use and

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benefit and that such alterations, additions or improvements are not for the Landlord’s immediate use and benefit. All Alterations made by or on behalf of Tenant and all fixtures attached to or used in connection with the Premises, upon the completion or installation thereof, (a) immediately shall be and become a part of the Premises and the property of Landlord, without payment therefor by Landlord, and shall remain at the Premises (provided that nothing herein shall prevent Tenant from taking depreciation or claiming interest in changes made by Tenant) or (b) shall be removed at the cost of Tenant before the expiration or sooner termination of this Lease, but only if the alteration was other than typical office buildout, the Landlord’s consent was required therefor and, as a condition of such consent, Landlord required such removal. Tenant shall repair all damage to the Premises caused by the installation and/or removal.

8.02 In the event Landlord consents to the making of any such Alteration by Tenant, the same shall be made using a reputable, licensed contractor at Tenant’s sole cost and expense.

8.03 Notwithstanding the foregoing, without obtaining Landlord’s consent, Tenant shall have the right to install in the Premises trade fixtures required by Tenant in its business and to remove such trade fixtures upon termination of this Lease; provided, however, that no such installation or removal shall impair the structural portions of the Premises or the Building. Tenant shall repair and restore before the expiration or sooner termination of this Lease, any damage or injury to the Premises caused by the installation and/or removal of any such trade fixtures.

9. LIENS .

9.01 Tenant shall not suffer or permit any liens to stand against the Premises, the Building or any part thereof, by reason of any work, labor, services or materials supplied to, or claimed to have been supplied to, Tenant or anyone holding the Premises, the Building or any part thereof through or under Tenant.

9.02 No work performed by Tenant pursuant to this Lease, whether in the nature of erection, construction, alteration or repair, shall be deemed to be for the immediate use and benefit of Landlord so that no mechanic’s or other lien shall be allowed against the Building or interest of Landlord by reason of any consent given by Landlord to Tenant to improve the Premises. Tenant shall promptly pay all persons furnishing labor or materials with respect to any work performed by Tenant or its contractors on or about the Premises. If any mechanic’s or other liens shall at any time be filed against the Premises or the Building by reason of work, labor, services or materials performed or furnished, or alleged to have been performed or furnished, to Tenant or to anyone holding the Premises through or under Tenant, and regardless of whether any such lien is asserted against the interest of Landlord or Tenant, Tenant shall within thirty (30) days cause the same to be discharged or canceled of record or bonded unless Landlord is responsible for such costs. If Tenant shall fail to cause such lien forthwith to be so discharged or canceled or bonded after being notified of the filing thereof, then in addition to any other right or remedy of Landlord, Landlord may bond or discharge the same by paying the amount claimed to be due, and the actual amount so paid by Landlord, shall be immediately due and payable by Tenant to Landlord as Additional Rent. Nothing herein shall be deemed to preclude Tenant from contesting in good faith any liens.

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9.03 Should any lien be filed for work claimed to be done at the request of Tenant, Tenant must discharge or cancel of record or bond over such lien within thirty (30) days at its own expense unless Landlord is responsible for such costs.

10. NOTICE OF BREAKAGE .

Tenant shall give to Landlord prompt written notice of any accident, breakage or defects, of which Tenant has knowledge, concerning the wiring, plumbing, heating or cooling apparatus, elevators, or other Building systems and related apparatus located in the Building or the Premises.

11. REPAIRS AND CONDITIONS OF PREMISES .

11.01(a) During the Term, Tenant shall keep the Premises, and upon expiration of this Lease shall leave the Premises, in the same condition as of the Commencement Date, permitted Alterations and non-structural alterations, ordinary wear and tear and damage by fire or other casualty and obligations of Landlord excepted. For that purpose and except as otherwise provided in this Lease (including, without limitation, Section 17.02), Tenant will promptly make all necessary non-structural and non-base Building repairs and replacements to the Premises whether foreseen or unforeseen, ordinary or extraordinary. Subject to Section 14.05 of this Lease, Tenant shall be responsible for, and shall pay to Landlord within thirty (30) days of a receiving an invoice for such repairs, the cost of repair and restoration of any damage to any ducts, pipes, wires or other building systems, components, structural components and equipment caused by the gross negligence or willful misconduct of Tenant or its employees, agents, contractors, customers or invitees. Tenant will use every reasonable precaution against fire and other damage, and will give Landlord prompt notice of any damage to the Premises.

(b) At least thirty (30) days before the last day of the Term, Landlord shall arrange to meet Tenant for a joint inspection of the Premises. In the event of Landlord’s failure to arrange or attend such joint inspection prior to Tenant vacating the Premises, Tenant shall be deemed to have properly surrendered the Premises without liability at the expiration or sooner termination of the Lease.

(c) At or prior to the expiration or other termination of this Lease, Tenant will remove all its personal property from the Premises, so that Landlord may again have and possess the Premises. Upon expiration of the Lease and surrender of the Premises, should Tenant fail to remove materially all of its personal property from the Premises, Landlord may (but is not obligated to) dispose of Tenant’s personal property left in the Premises, without any liability to Tenant whatsoever. Tenant shall be responsible for all reasonable out-of-pocket costs and damages which may be incurred or assessed by Landlord for the removal or retention of such personal property, and shall remit promptly to Landlord sums due in connection with same within thirty (30) days after notice by Landlord. The provisions of this Section 11.01 shall survive the expiration or earlier termination of this Lease.

11.02 Landlord shall be responsible for all maintenance and repairs of the Building and

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Premises as described in Section 17 of this Lease, whether ordinary or extraordinary, foreseen or unforeseen, except to the extent caused by Tenant’s negligence or willful misconduct. Landlord is not responsible for any maintenance of personal property, trade fixtures, office equipment, private heating or air conditioning units not included in the Tenant Improvements or installed with Landlord’s knowledge or improvements not approved by Landlord. Landlord shall not be liable for any damages resulting from any failure to make any repairs or to perform any maintenance, unless such failure shall persist for an unreasonable time (and in no event for more than thirty (30) days) after written notice (except in an emergency, in which event the requirement for written notice is hereby waived) of the need for such repairs or maintenance is given to Landlord by Tenant unless Landlord otherwise has knowledge of the same. Non-emergency maintenance and repairs shall be performed Monday through Friday during Business Hours. Without limitation of the foregoing, any condition which renders all or a portion of the Premises unusable, including, without limitation any failure of the Building HVAC system to operate in accordance with Section 17 of this Lease, shall constitute an emergency requiring repair by Landlord within 24 hours of Landlord’s receipt of notice of such failure and Minimum Monthly Rent shall abate if such failure is not corrected within 24 hours and shall continue until Tenant is again able to use the Premises in the ordinary course of operating its business for the Permitted Use.

12. HAZARDOUS MATERIALS .

12.01 “Hazardous Materials ” shall include, without limitation, asbestos, petroleum or petroleum derivatives, or those biologically or chemically active, or other hazardous substances, hazardous wastes or materials, listed or described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901 et seq.) and all other federal, state or local laws, and the regulations adopted under these acts or similar laws, regulations, statutes, ordinances regulating any such substances or human health or the environment ( “ Environmental Laws ”). Tenant shall not, through act or omission, cause or permit the escape, disposal or release of any Hazardous Materials in violation of law. Tenant shall not allow the storage or use of Hazardous Materials in any manner not sanctioned by law, or by the highest standards prevailing in the industry for the storage and use of Hazardous Materials, nor allow to be brought into the Building any Hazardous Materials, except to use in the ordinary course of Tenant’s business and normal materials used in the commercial office environment, in commercially acceptable quantities, including but not limited to items such as janitorial supplies, copier and printer toner. In addition, Tenant shall execute affidavits, representations and the like, from time to time at Landlord’s request, in a form reasonably acceptable to Tenant concerning Tenant’s best knowledge and belief regarding the presence of Hazardous Materials on or in the Premises. To the extent required by law, Landlord shall investigate and remediate any Hazardous Materials located prior to the Commencement Date, or due to the actions or omissions of a third party (excluding Tenant’s agents), in, on or under the Building, Complex or Premises.

12.02 Landlord represents and warrants that (i) to the best of Landlord’s knowledge, there are no Hazardous Materials located in, on or under the Building, Complex or Premises and there have been no violation of Environmental Laws governing the use of Hazardous Materials at the Building, Complex or Premises, (ii) neither Landlord nor any other person or party has heretofore used, generated, manufactured, produced, or, to the best of its knowledge, stored, released,

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discharged or disposed of on, under or about the Building or the Complex or transported to the Building or Complex, any Hazardous Materials beyond normal materials used in the commercial office environment, in commercially acceptable quantities, including but not limited to items such as janitorial supplies, copier and printer toner, and (iii) to the best of Landlord’s knowledge, there will be no Hazardous Materials in the Premises, beyond normal materials used in the commercial office environment, in commercially acceptable quantities, including but not limited to items such as janitorial supplies, copier and printer toner, when same is delivered to Tenant. Landlord shall not bring or otherwise cause to be brought or permit any of its agents, employees, contractors, or invitees to bring in, on or about any part of the Premises, Building or Complex any Hazardous Materials, beyond normal materials used in the commercial office environment, in commercially acceptable quantities, including but not limited to items such as janitorial supplies, copier and printer toner.

12.03 Landlord shall indemnify Tenant and hold it harmless from and against any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or other expenses, fees (including, but not limited to attorney fees and consultant fees), or charges of any character or nature arising from or related to (i) the breach of any representation of Landlord in Section 12.02, or (ii) the presence of Hazardous Materials located in, on, upon or about the Building, Complex or Premises prior to the Commencement Date, or due to the actions or omissions of a Landlord or any third party (excluding Tenant’s agents) in, on or under the Building, Complex or Premises at any time during the Term.

12.04 The provisions of this Section 12 shall survive the expiration or earlier termination of the Lease.

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13. FIRE OR OTHER CASUALTY .

13.01 If, during the Term or any renewal or extension thereof, either the Building is so damaged by fire, or any other cause such that the Building or the Premises is rendered substantially unfit for occupancy (whether or not the Premises themselves are damaged) and cannot be restored within 365 days of the casualty as reasonably determined by an independent architect, then, at Landlord’s option and upon sixty (60) days prior written notice from Landlord, this Lease shall terminate, as of the date of the occurrence of such damage. In such case, Tenant shall pay the Rent apportioned to the date of such termination, Landlord shall repay to Tenant all pre-paid Rent for periods beyond such termination date, and Landlord may enter upon and repossess the Premises without further notice. Notwithstanding the foregoing, if Tenant is unable to find suitable alternative space within such sixty (60) days, and if the Premises are deemed safely inhabitable by the local authorities and the insurance company that insured against such casualty, the termination date shall be extended by such additional period as may be necessary to enable Tenant to find new space, not to exceed a total of one hundred eighty (180) days. Tenant shall continue to pay all Rent required under this Lease for the period it continues to occupy the Premises or a portion thereof; provided, however, in the instance of Tenant’s partial occupancy, Rent shall be proportionally reduced. The effective date of the Lease termination shall not change the effective date of any abatement of rent as otherwise provided herein, which date shall be tied to the date of the casualty.

13.02 If Landlord does not elect to terminate this Lease in accordance with the provisions of Section 13.01, Landlord shall, within thirty (30) days of the date of any casualty, notify Tenant in writing of an independent architect’s reasonable estimate of the anticipated date of completion of the repairs required to restore the Building and the Premises to substantially the same conditions as existed prior to such casualty ( “Landlord’s Repair Notice” ). If Landlord fails to furnish such notice, or such notice states that such damage cannot reasonably be repaired within one hundred eighty (180) days of the date of the casualty, Tenant shall have the right to terminate this Lease by sending written notice to Landlord within thirty (30) days of receiving Landlord’s Repair Notice if sent or within sixty (60) days of the date of any casualty if Landlord fails to furnish Landlord’s Repair Notice.

13.03 If (a) Landlord does not elect to terminate this Lease in accordance with the provisions of Section 13.01 and Tenant does not elect to terminate this Lease in accordance with the provisions of Section 13.02, or (b) the Building shall be damaged so that such damage renders neither the Building nor the Premises substantially unfit for occupancy (as reasonably determined by an independent architect), Landlord shall, at its sole cost and expense, repair the damage to the Building and the Premises to substantially the same condition of the Building and the Premises immediately prior to such damage, and Landlord may enter and possess all or any portion of the Premises for that purpose. For so long as Tenant is deprived of the use of the Premises or any part thereof by reason of damage by fire or other casualty, the Minimum Monthly Rent and Additional Rent shall be abated in the proportion to the number of square feet of the Premises rendered substantially unfit for occupancy (or the entire Premises if partial occupancy is not reasonably feasible). If the repairs to the Building and Premises are not substantially completed by the date originally specified in Landlord’s Repair Notice, except to the extent caused by a delay directly attributable to Tenant’s acts or omissions and only to the extent attributable to such act or omission, (or if at any time it becomes readily apparent that the Building and the Premises will not be

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completed by such date), Tenant shall be entitled to terminate this Lease upon thirty (30) days prior written notice to Landlord ( “Tenant’s Casualty Termination Notice” ); provided, however, that if the restoration to the Building and Premises is in fact completed within such 30 day period, Tenant’s Casualty Termination Notice will be null and void and the Lease shall continue in full force and effect.

14. INSURANCE .

14.01 Tenant shall, at its sole cost and expense, maintain and keep in force throughout the Term, insurance for (a) all of Tenant’s property in the Premises, (b) business interruptions with a limit of liability representing the loss of at least approximately six months of income, and (c) commercial general liability insurance with minimum limits of $2,000,000 combined single limit/$2,000,000 aggregate, with per occurrence limits of $1,000,000 for personal injury and $500,000 for property damage, or such larger amounts as Landlord may prudently require from time to time. Each of the aforesaid policies shall name the Landlord and the Management Company as additional insureds and be issued by an insurance company with a minimum Best’s rating of “A:VII” or better during the Term. At or before the Commencement Date, and upon any material change in coverage, Tenant shall provide Landlord with certificates evidencing such insurance coverage and naming Landlord and the Management Company as additional insureds under such liability policies. Tenant’s certificate will provide for a ten (10) day notice of cancellation to Landlord, prior to any insurance being cancelled. The above provisions notwithstanding, Tenant shall be entitled to self insure Tenant’s personal property.

14.02 Whenever Tenant shall undertake any alterations, additions or improvements to the Premises, the Tenant shall ensure that the aforesaid insurance coverage extends to and includes liability for injuries to persons and damage to property arising in connection with such work, including, without limitation, liability under any applicable laws, statutes or regulations.

14.03 Tenant will not do or commit, or suffer or permit to be done or committed, any act or thing whereby, or in consequence whereof, (a) the policy or policies of insurance of any kind on or in connection with the Building containing the Premises shall become void or suspended, or (b) the insurance risk on such Building according to the insuring companies, shall materially increase. Tenant shall pay as Additional Rent any increase of premiums for such policy or policies, payable to any current or substitute insurers, caused by any breach of this covenant.

Landlord represents to Tenant that Landlord’s insurer has approved the Permitted Use and that such Permitted Use will not cause any increase in premium.

14.04 Landlord shall obtain and maintain the following insurance during the Term of this Lease: (i) replacement cost insurance including “special form” property insurance on the Building covering the full replacement value of the Building including the Tenant Improvements, subject only to a commercially reasonable deductible, and (ii) commercial general liability insurance (including bodily injury and property damage) covering Landlord’s operations in amounts consistent with other landlords of similar buildings in Fort Washington, Pennsylvania. Upon request from Tenant, Landlord shall provide Tenant with certificates evidencing such insurance coverage.

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14.05 Waiver of Subrogation : To the extent of the insurance coverage required pursuant to the provisions of this Lease, in this Section 14 or otherwise, each of the parties hereto hereby releases the other and the other’s principals, employees, contractors and agents from any and all liability for any injury, loss or damage which may be inflicted upon the person or property of such releasing party, even if such loss or damage shall be brought about by the fault or negligence of the other party, its principals, employees, contractors or agents (“Waiver”). Each party shall obtain an endorsement to its insurance policies permitting such Waiver. Such Waiver shall be kept current at all times and shall provide that no cancellation shall be effective until after thirty (30) days’ written notice to the benefiting party. Proof of such Waiver shall be noted on Tenant’s certificate to Landlord. The provisions of this Section 14.05 shall survive the expiration or earlier termination of the Lease.

15. INDEMNIFICATION .

15.01(a) Tenant shall protect, defend, indemnify and hold harmless Landlord and its principals, employees, contractors and agents from and against any and all losses, claims, liability, damages or costs (including court costs and attorney’s fees incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) Tenant’s improper use of the Premises, (ii) the improper conduct of Tenant’s business, (iii) any activity, work or things done, permitted or suffered by Tenant or its agents, licensees or invitees in or about the Premises or elsewhere contrary to the requirements of the Lease, (iv) any negligence or willful act of Tenant or any of Tenant’s agents, contractors, employees or invitees, except to the extent caused by Landlord or any of Landlord’s agents, contractors, employees or invitees; and (v) any actual or asserted failure of Tenant, or persons acting under, through, on behalf of, or at the direction of Tenant, to keep, observe, or perform any provision of this Lease.

(b) Landlord shall defend, indemnify and hold harmless Tenant and its principals, employees, contractors and agents from and against any and losses, claims, liability, damages or costs (including court costs and attorney’s fees incurred in defense of any such claim or any action or proceeding brought thereon) arising from (i) Landlord’s improper use of the Building or Complex Common Areas, (ii) the improper conduct of Landlord’s business, (iii) any activity, work or things done, permitted or suffered by Landlord in or about the Premises or elsewhere contrary to the requirements of the Lease, (iv) any negligence or willful act of Landlord or any of Landlord’s agents, contractors, employees or invitees except to the extent caused by Tenant or any of Tenant’s agents, contractors, employees or invitees; and (v) any breach or default in the performance of any obligation of Landlord’s part to be performed under the terms of this Lease.

15.02 The provisions of this Section 15 shall survive the expiration or earlier termination of the Lease.

16. COMPLIANCE WITH LAW . Landlord represents and warrants to Tenant that, as of the Commencement Date, the Premises, the Building, and the Complex will comply with all applicable restrictions, laws, rules, regulations, codes, and ordinances, including, without limitation, the Americans With Disabilities Act, except with respect to modifications, if any, mandated by Tenant’s particular method or manner of use as distinguished from general office use.

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17. SERVICES .

17.01(a) Tenant shall have access and use of the Premises and Building including all essential building services such as elevators, heating, ventilation and air conditioning (“HVAC”), electrical power and water 24 hours a day, 365 days per year. Certain nonessential building services such as building security guards and on-site engineers and property managers shall be generally made available between the hours of 7:00 a.m. to 6:00 p.m., Monday through Friday, excluding New Year’s Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day ( “Business Hours” ). To the extent Tenant requires HVAC during other than Business Hours, it shall not be charged any additional cost, other than the cost of metered electricity to the Premises for such usage and, to the extent included in Operating Expenses, the costs of repairing and maintaining the HVAC system. Without limiting the generality of the foregoing, in no event will Tenant be charged for any excess wear and tear on the HVAC system for additional usage or any fee to turn on any Building system.

(b) Landlord shall maintain and operate and repair and replace, as necessary, all HVAC apparatus sufficient to maintain a comfortable temperature in the Premises under ordinary office operations consistent with other Class A suburban office buildings and otherwise in accordance with the performance specifications set forth on Exhibit “D” , subject to any limitations mandated by federal, state or local regulatory authorities. Notwithstanding the foregoing, Tenant shall not be billed for HVAC outside of Business Hours, except for the additional metered electric usage incurred as a result of such use. Landlord covenants that the HVAC specifications, as set forth on Exhibit “D” attached hereto, will be met at all times during the Lease Term, provided that the Final Plans meet the same specifications set forth as items 1 through 3 in Exhibit “D” . Landlord will ensure that the Building HVAC system, including all units, controls and related components, is in good operating condition on the Commencement Date. Within ten (10) days of the Effective Date Landlord shall provide a report or survey from a reputable independent engineering firm acceptable to Tenant as to the current condition of the HVAC system in the Building (the “Engineering Analysis” ), Without limiting the generality of the foregoing, Landlord shall, at its sole cost and expense, replace or repair, as necessary, any and all damaged, defective or malfunctioning roof top or perimeter HVAC units and components as of the Commencement Date or as otherwise identified on the Engineering Analysis to ensure that as of the Commencement Date, such units operate consistent with a Class A suburban office buildings and will otherwise meet the performance specifications set forth on Exhibit “D” .

17.02 Landlord shall at all times during the Lease term operate and maintain the Building and Complex in a manner consistent with other Class A suburban office buildings. Without limiting the generality of the foregoing, Landlord will provide at its cost subject to reimbursement as Operating Expense (but subject to the limitations set forth in Section 5): (i) janitorial services consistent in time and scope with other Class A suburban office buildings and in accordance with the specifications set forth on Schedule 17.02 ; (ii) hot and cold water sufficient for drinking, lavatory, toilet and ordinary cleaning purposes; (iii) electricity as provided in Section 17.03; (iv) replacement of lighting tubes, lamp ballasts and bulbs; (v) extermination and pest control when necessary;

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(vi) maintain, repair and replace the roof and structural components of the Building and all building systems including, without limitation, the Building HVAC System, plumbing, electrical, elevators and other systems and equipment in the Building and within the Premises; and (vii) maintenance of Complex Common Areas in a first class manner consistent with other Class A suburban office buildings, including lighting, snow and ice removal, lawn care, landscaping, parking lot and sidewalk maintenance, repair and replacement.

17.03 Landlord shall furnish sufficient electrical power to the Premises for lighting, typical office equipment including copiers, desktop computers, copy machines and the like, as well as Tenant’s data center and test kitchen/ food laboratory including walk in freezers, stoves and other appliances. Except as provided above, Tenant shall not install or operate in the Premises any electrically-operated equipment which will require electrical capacity in excess of typical office uses, without on each occasion first obtaining Landlord’s prior written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed.

17.04 The elevators shall at all times comply with industry standards established by BOMA for wait times and travel times; provided, however, the operation of any of the elevators may be interrupted, changed or suspended for reasonable periods of time given the circumstances in case of accidents; strikes; labor disturbances; governmental restrictions, prohibitions or other regulations; or for repairs, maintenance or replacements as long as reasonable alternative access to the Premises is provided. To the extent possible, all maintenance, repairs and replacements shall be scheduled during other than Normal Business Hours. If Tenant requires any maintenance normally performed during Normal Business Hours to be performed during other than Normal Business Hours, Tenant shall be responsible to pay overtime costs attributable to such non-Normal Business Hour repairs.

17.05 Except as otherwise provided in Section 13, Landlord shall not be responsible or liable in any way for, and Tenant agrees that there shall be no abatement of rent in the event of any failure, interruption, suspension or inadequacy in quantity or quality of, heat, air conditioning, cleaning, electricity, or elevator service, or any other services, resulting from causes beyond Landlord’s reasonable control; provided, however if such suspension or inadequacy renders the Premises reasonably unsuitable for conduct of Tenant’s business, and Tenant does not occupy the Premises for the normal operation of Tenant’s business, Minimum Monthly Rent shall abate in its entirety (or proportionally in the event of Tenant’s partial occupancy) if such suspension or inadequacy is not corrected within twenty-four (24) hours of Landlord receiving notice of such suspension or inadequacy (which notice may be delivered by telephone) and shall continue until Tenant resumes use of the Premises for the normal operation of its business, at which point such abatement shall cease. In each instance, however, Landlord shall exercise best efforts to eliminate the cause of interruption and to effect restoration of service, and, in either event, Landlord shall give Tenant reasonable notice, when practicable, of the commencement and anticipated duration of such interruption.

17.06 Tenant recognizes that Landlord may, at Landlord’s sole option, elect to provide additional services or amenities for the tenants of the Building from time to time beyond those (a) expressly required in this Lease, or (b) generally provided by landlords in Class A suburban office buildings ( “Special Services ” ); provided such additional services are made available to tenants in a non-discriminatory manner. ( By way of illustration only, Special Services might include items such

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as the following: (i) free ice cream or free newspaper delivery, (ii) additional guard service, or (iii) additional services, such as janitorial services, provided to a specific tenant, at such tenant’s expense.) Tenant hereby agrees that Landlord’s discontinuance of any such Special Services shall not constitute a default of Landlord under this Lease nor entitle Tenant to any abatement of or reduction in rent. Landlord agrees to provide reasonable advance written notice to Tenant of such discontinuance of services or amenities. Landlord may (but, except as set forth in this Lease, shall not be obligated to) furnish such additional work or service, and Tenant agrees to pay Landlord such charges, on such terms, as may be agreed upon, including any tax imposed thereon. Such charges shall be Landlord’s actual cost plus reasonable overhead for such additional work or service.

17.07 In addition to janitorial services to be provided pursuant to Section 17.02, Tenant shall have the option, in Tenant’s sole discretion, to request that Landlord provide additional janitorial services for the Premises during non-business hours as a Special Service and Landlord shall competitively bid all janitorial service work to be performed as a Special Service to Tenant. Tenant shall be responsible for all costs related to such Special Service furnished to Tenant in accordance with Section 17.06.

17.08 Should Tenant require use of Building security or a Building engineer outside of Business Hours or any Special Services, Tenant shall provide reasonable advance notice of such requirement to Landlord. Landlord may (but shall not be obligated to) furnish such additional work or service, and Tenant agrees to pay Landlord such charges, on such terms, as may be agreed upon, including any tax imposed thereon. In no event shall such charge be less than Landlord’s actual cost plus reasonable overhead for such additional work or service and, where appropriate, a reasonable allowance for depreciation of any systems being used to provide such work or service. If Landlord is unable or unwilling to provide such Special Services, Tenant shall be permitted to contract directly for the provision of the requested work or service, provided such work or service (a) is consistent with Tenant’s Permitted Use and (b) would not cause a violation of any lease with another tenant in the Complex and provided Landlord advises Tenant of such potential violation when declining to permit such Special Service.

17.09 If (a) the Premises are regularly occupied by more than one person per 100 square feet of usable area or (b) atypical heat-generating machines or equipment are used by Tenant in the Premises which cause the building systems to fail to perform up to the required specifications, Landlord shall provide Tenant with written notice of such failure and consult with Tenant regarding the necessity of installing additional HVAC equipment. If Tenant is unable to modify its use of the Premises such that building systems are not overloaded by excessive demand, Landlord reserves the right to install supplementary air-conditioning units in or for the benefit of the Premises. The cost thereof, including the costs of installation, operation and maintenance, shall be paid upon demand by Tenant to Landlord as Additional Rent.

17.10 Landlord covenants that the emergency power equipment described on Exhibit “E” shall be available to the Premises at all times during the Term.

17.11(a) Landlord shall make available to Tenant, its employees and invitees, that number of parking spaces equal to the Parking Allotment including 10 reserved spaces located at a mutually agreed upon location adjacent to the Building. Tenant, its employees and invitees shall

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comply with the reasonable regulations promulgated by Landlord from time to time relating to parking. Landlord shall not be required to reserve or police the use of the Building’s parking areas ( “ Parking Areas ” ); provided that Landlord may, at its option, limit access to the Parking Areas, by mechanical gates or otherwise, to ensure that only authorized users are admitted to the Parking Areas. Landlord shall not (i) grant any other tenants of the Complex a greater percentage of parking spaces per square foot of leased space in the Complex than those granted to Tenant, (ii) grant any other tenants of the Complex a greater percentage of reserved parking spaces per square foot of leased space in the Complex than those granted to Tenant or (iii) grant any other tenant priority over Tenant with respect to any particular parking area (except for reserved spaces in compliance with (ii)). Tenant, its employees and invitees shall not park in any spaces designated for use by the handicapped, unless legally permitted to do so, or in any spaces designated as reserved for parties other than Tenant or visitors. Landlord, at Landlord’s option, may institute a “stacking” plan in the Parking Areas.

(b) The use of the Parking Areas shall be at the sole risk of Tenant its principals, employees, agents and invitees. The provisions of this Section 17.11(b) shall survive the expiration or earlier termination of the Lease.

17.12 Tenant runs multiple work shifts and thus, Tenant’s hours of business operation will include hours outside of Business Hours. Tenant shall contact Management Company for any emergencies occurring during Business Hours and shall contact 610-666-0700, extension 200 for any emergencies occurring outside of Business Hours.

17.13 Landlord makes those certain representations regarding the Building and agrees to provide those certain services set forth on Exhibit “E ” .

18. LANDLORD’S RIGHT TO ENTER .

18.01 Provided same shall not cause unreasonable interference with Tenant’s business operations, Tenant will permit Landlord, Landlord’s agents or employees, or any other person or persons authorized by Landlord, following reasonable prior notice thereof, except in the case of an emergency, to (a) inspect the Premises at any time during normal Business Hours, (b) enter the Premises at any reasonable times for making alterations, improvements or repairs to the Building or the Premises (including without limitation all ducts, pipes, wires and building equipment), or for any other reasonable purpose in connection with the operation or maintenance thereof, or (c) to exhibit the Premises to prospective purchasers and lenders and, during the last twelve (12) months of the Term, to prospective tenants (collectively, “ Landlord Entry ” ). For the purposes of this Section 18.01, reasonable prior notice shall be not less than one (1) business day. Landlord is not required to give notice to enter the Premises in case of an emergency, but Landlord shall advise Tenant if such entry has been made.

18.02 Nothing contained herein shall imply any duty upon the part of Landlord to do any work which, pursuant to any provision of this Lease, Tenant is required to perform.

18.03 No Landlord Entry pursuant to the terms hereof shall be treated as a deprivation of

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Tenant’s use of the Premises. Landlord shall not be liable for reasonable inconvenience, annoyance, or disturbance to Tenant by reason of making such Landlord Entry; provided, however, that Landlord shall make all reasonable efforts to avoid interfering with Tenant’s use of the Premises. Anything in this Section 18.03 to the contrary notwithstanding, Landlord’s Entry shall be subject to Section 17.05 above.

19. TENANT DEFAULT/LANDLORD’S REMEDIES .

19.01(a) It shall be an “ Event of Default ” if:

(i) Tenant does not pay in full within five (5) days of when due any and all installments of Minimum Monthly Rent, Additional Rent, or any other charge or payment due hereunder, and such default continues for ten (10) days following written notice from Landlord;

(ii) Tenant fails to perform or otherwise breaches any covenant, condition, agreement or obligation herein contained, and such failure continues for a period of thirty (30) days after written notice to Tenant thereof, or if such failure is not susceptible to cure within such 30 days, then, to the extent Tenant is diligently and continuously prosecuting the same to completion, such additional time as is reasonably necessary to cure such failure ( “ Notice of Default ” ); or

(iii) Tenant files a petition in bankruptcy or for reorganization or for an arrangement with creditors under any federal or state act, a bill in equity or other for the appointment of a receiver, trustee, liquidator, custodian, conservator or similar official for any of Tenant’s assets; or a petition is filed or any proceeding is commenced against Tenant under any bankruptcy or insolvency code or laws and such petition or proceeding is not dismissed within ninety (90) days.

(b) It shall be an “ Event of Material Default ” if Tenant fails to pay Minimum Monthly Rent hereunder as and when due for a period of sixty (60) consecutive days.

(c) Notwithstanding the provisions of Sections 19.01(a)(i) and (ii), Tenant shall not be entitled to receive a Notice of Default regarding the same facts and circumstances more than twice in any twelve (12) month period.

19.02 Upon the occurrence of an Event of Default, Landlord shall have the right to:

(a) intentionally deleted;

(b) intentionally deleted;

(c) re-enter the Premises, without further demand or notice; remove all persons and all or any property therefrom by summary dispossession proceedings or other suitable action or proceeding at law or in equity, without being liable to indictment, prosecution or damages therefor; and repossess and enjoy the Premises, together with all additions, alterations and improvements thereto. Upon recovering possession of the Premises, Landlord, at its option, may terminate this Lease or make such alterations and repairs as may be necessary in order to relet the Premises or any part or parts thereof. Such reletting may be in Landlord’s name or otherwise, to such person or

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persons, for such term or terms, at such rent or rents, and upon such other terms and conditions as in Landlord’s sole discretion may deem advisable. Upon each such reletting all rents received by Landlord therefrom shall be applied:

(i) first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord;

(ii) second, to the payment of any costs and expenses of such reletting, including brokerage fees, attorney’s fees and the cost of alterations and repairs; and

(iii) third, to the payment of Rent due and unpaid hereunder.

The residue, if any, shall be held by Landlord and applied in payment of future Rent as it may become due and payable hereunder. If the rent received from such reletting during any month shall be less than the Rent to be paid during that month by Tenant hereunder, Tenant shall pay the deficiency to Landlord upon notice and without further demand. Landlord shall use commercially reasonable efforts to relet the Premises to mitigate Landlord’s damages; provided however, Landlord shall not be liable if Landlord shall be unable to relet the Premises or, or any part or parts of the Premises, despite Landlord’s diligent efforts to do so. Notwithstanding the foregoing, Landlord shall be under no obligation to relet the Premises prior to letting other unleased space in the Complex. No such re-entry or taking possession of the Premises, the making of alterations and/or improvements thereto, or the reletting thereof shall be construed as an election on the part of the Landlord to terminate this Lease, unless written notice of such intention is given to Tenant. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for Tenant’s previous breach.

(b) terminate this Lease without any right on the part of Tenant to cure any breach or forfeiture by subsequent payment of any sum due or performance of any other condition, term or covenant breached.

19.03 In addition to, and not in lieu of, any of the foregoing rights granted to Landlord, in the instance of an Event of Material Default:

(a) accelerate, in whole or in part, the payment of Rent and all other charges, costs and expenses due hereunder for the entire unexpired balance of the Term ( “ Accelerated Payment ” ). Upon demand, Tenant shall promptly pay such Accelerated Payment and any and all amounts provided for herein which are already due and payable or in arrears;

(b) UPON THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE OR TENANT’S RIGHT OF POSSESSION BY REASON OF AN EVENT OF MATERIAL DEFAULT, TENANT HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY PROTHONOTARY OR ATTORNEY OF ANY COURT OF RECORD AS ATTORNEY FOR TENANT, AND ANY PERSONS CLAIMING THROUGH OR UNDER

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TENANT, TO CONFESS JUDGMENT IN EJECTMENT AGAINST TENANT, AND ALL PERSONS CLAIMING THROUGH OR UNDER TENANT, FOR LANDLORD’S RECOVERY OF POSSESSION OF THE PREMISES, FOR WHICH THIS LEASE SHALL BE SUFFICIENT WARRANT. WHEREUPON, IF LANDLORD SO DESIRES, A WRIT OF EXECUTION OR OF POSSESSION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDINGS WHATSOEVER. IF FOR ANY REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED, THE SAME SHALL BE DETERMINED, CANCELLED OR SUSPENDED, AND POSSESSION OF THE PREMISES REMAIN IN OR BE RESTORED TO TENANT, OR ANY PERSON CLAIMING THROUGH OR UNDER TENANT, LANDLORD SHALL HAVE THE RIGHT, UPON SUBSEQUENT EXPIRATION OR TERMINATION OF THIS LEASE OR TENANT’S RIGHT OF POSSESSION FOR ANY REASON, INCLUDING, BUT NOT LIMITED TO, A SUBSEQUENT EVENT OF DEFAULT, AS HEREINBEFORE SET FORTH, TO CONFESS JUDGMENT IN EJECTMENT ONE OR MORE ADDITIONAL TIMES TO RECOVER POSSESSION OF THE PREMISES.

19.04 IN ANY ACTION TAKEN PURSUANT TO SECTION 19.03(b) HEREOF, IF LANDLORD SHALL FIRST CAUSE TO BE FILED IN AN AFFIDAVIT, MADE BY IT OR ON ITS BEHALF, SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE OF SUCH FACTS. IF A TRUE COPY OF THIS LEASE (OF WHICH SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE) IS FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY NOTWITHSTANDING. TENANT RELEASES LANDLORD, AND ANY AND ALL ATTORNEYS WHO MAY APPEAR FOR TENANT, FROM ALL PROCEDURAL ERRORS IN, AND ALL LIABILITY FOR, ANY PROCEEDINGS TAKEN BY LANDLORD, BY VIRTUE OF THE WARRANT OF ATTORNEY CONTAINED IN THIS LEASE.

19.05 Any action taken by Landlord under this Section 19 shall not operate as a waiver of any right or remedy which Landlord would otherwise have against Tenant for Rent hereby reserved or otherwise, and Tenant shall remain responsible to Landlord for any loss and/or damage suffered

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by Landlord by reason of Tenant’s default or breach. The failure of Landlord to insist, in any one or more instances, upon the performance of any of the covenants or conditions of this Lease, or to exercise any right or privilege herein conferred, shall not be construed as thereafter waiving or relinquishing any such covenants, conditions, rights or privileges, and the same shall continue and remain in full force and effect. Landlord’s express written waiver of any one default or right shall not constitute waiver of any other default or right.

19.06 The receipt of all or a portion of any rent by Landlord, from Tenant or any assignee or subtenant of Tenant, which is then, or thereafter may become, payable hereunder, shall not operate as a waiver of the right of Landlord subsequently to enforce the payment of Rent or any other obligations under this Lease, by such remedies as may be appropriate. Such receipt shall not waive or void the right of Landlord at any time thereafter, subject to the notice and cure rights contained in this Lease, to elect to terminate this Lease, on account of any assignment, subletting, or transfer of this Lease without consent or deemed consent, or any other breach of any covenant or condition herein, unless evidenced by Landlord’s express written waiver.

19.07 Any mention in this Section 19 of the Rent herein reserved after the termination of this Lease, or Tenant’s possession by re-entry, summary dispossession proceedings or any other method as herein provided, shall be deemed to refer to the Minimum Monthly Rent, Additional Rent, and such additional sums as Tenant shall be obligated to pay to Landlord under any of the terms, covenants and conditions of this Lease, whether or not designated or indicated herein to be payable as Rent.

19.08 Subject to the provisions of Section 18, in the event of any breach of this Lease by Tenant, Landlord, following reasonable prior notice to Tenant (except in the case of an emergency), may enter the Premises and cure such breach for the account and at the expense of Tenant. If Landlord elects to cure such breach or is forced to incur any expenses arising out of such breach by Tenant (including, without limitation, reasonable attorney’s fees and disbursements in connection with the enforcement of Landlord’s rights under this Lease or otherwise), the sum or sums so paid by Landlord shall be reimbursed by Tenant to Landlord within thirty (30) days of receipt of an invoice therefor, together with interest at the rate set forth in Section 6 hereof.

19.09 All remedies available to Landlord hereunder and at law and in equity shall be cumulative and concurrent. No taking or recovering possession of the Premises, shall deprive Landlord of any remedies or actions against Tenant for Minimum Monthly Rent, Additional Rent, or charges or damages for the breach of any covenant or condition herein contained. The bringing of any such action for Minimum Monthly Rent, Additional Rent, charges or damages for the breach of covenant or condition, nor the resort to any other remedy or right for the recovery thereof, shall not be construed as a waiver or release of the right to insist upon forfeiture and to obtain possession.

20. LANDLORD DEFAULT/TENANT’S REMEDIES . If there is a default with respect to any of Landlord’s covenants, warranties or representations under this Lease, and if the default continues more than thirty (30) days after notice in writing from Tenant to Landlord specifying the default or, if a default persists for more than twenty four (24) hours following notice from Tenant regarding the failure of HVAC, electric, plumbing, mechanical or other critical building systems

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(which notice may be given by telephone), Tenant may, at its option, cure such default and make any repairs or replacements necessary and, if Landlord has not paid Tenant the actual, documented cost provided such cost is reasonable, for such cure within thirty (30) days of Tenant’s expenditure, Tenant may deduct such actual cost thereof from the next accruing installment or installments of Minimum Monthly Rent payable hereunder until Tenant shall have been fully reimbursed for such expenditures. All amounts due from Landlord to Tenant hereunder shall bear interest at the interest rate set forth in Section 6 of this Lease, if not paid within thirty (30) days of Landlord’s receipt of Tenant’s invoice for such work. If this Lease terminates prior to Tenant’s receiving full reimbursement, Landlord shall pay the unreimbursed balance to Tenant upon such termination. Copies of all notices of default shall be sent to Landlord’s lender at Deutsche Banc Mortgage Capital, LLC, c/o Capmark Finance, Inc., 116 Welsh Road, Horsham, Pennsylvania 19044.

21. SUBORDINATION; NON-DISTURBANCE .

21.01 Subject to the provisions of this Section 21, this Lease and Tenant’s rights hereunder shall be subject and subordinate at all times to the lien of any mortgages now existing or hereafter created on or against the Premises and/or the Building, and all renewals, modifications, consolidations and extensions thereof, without the necessity of any further instrument or act on the part of Tenant. Tenant agrees, at the election of any mortgagee, to attorn to the holder of any mortgage to which this Lease is subject and subordinate.

21.02 As a condition to the subordination of this Lease to any future mortgage or ground lease, Landlord shall obtain for the benefit of Tenant a subordination, non-disturbance and attornment agreement from every mortgagee to which Landlord grants a mortgage of the Property hereafter and from every ground lessor that may hereafter acquire fee title to the Building or the Complex. Each SNDA shall be acceptable to Tenant in both form and substance and shall be recorded at Landlord’s sole cost. Without limiting the generality of the foregoing, the mortgagee shall acknowledge the Improvement Allowance and free rent concessions made available to Tenant and shall agree to be subject to the rights of offset contained herein should Landlord fail to provide the Improvement Allowance. Notwithstanding the foregoing, the holder of any mortgage may at any time subordinate its mortgage to this Lease, without Tenant’s consent, by notice in writing to Tenant. Thereupon this Lease shall be deemed prior to such mortgage without regard to their respective dates of execution and delivery, and such mortgagee shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution and delivery of the mortgage and assigned to such mortgagee.

21.03 The word “mortgage” is used herein to include any lien, ground rent (if Landlord’s interest is or becomes a leasehold estate) or encumbrance on the Premises and/or the Building, or any part of, interest in, or appurtenance to any of the foregoing. The word “mortgagee” is used herein to include the holder of any mortgage, ground lease or encumbrance, including any representative or servicing agent of any such mortgagee.

21.04 Notwithstanding the foregoing, within thirty (30) days of Landlord’s receipt of an executed copy of this Lease from Tenant, , Landlord shall obtain a non-disturbance agreement for the benefit of Tenant on a form of agreement reasonably acceptable to the current mortgagee and

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Tenant ( “NDA” ). Without limiting the generality of the foregoing, the mortgagee shall acknowledge the Improvement Allowance and free rent concessions made available to Tenant and shall agree to be subject to the rights of offset contained herein should Landlord fail to provide the Improvement Allowance. If Landlord does not obtain the NDA within such thirty (30) day period, this Lease shall terminate immediately upon the conclusion of such thirty (30) day period.

22. CONDEMNATION .

If, during the Term or any renewal or extension thereof, all or substantially all of the Building is taken or condemned for a public or quasi- public use, or a portion of the Building or a portion of the Complex is taken such that access to the Premises from the adjacent public right of way is permanently and materially impaired and reasonable alternate access is not provided by Landlord within five (5) days or the parking shall be diminished by fifty percent (50%) and alternative parking reasonably acceptable to Tenant is not provided within five (5) days (a “Parking Impairment” ), Landlord or Tenant may terminate this Lease in its entirety by providing written notice to the other party and this Lease shall terminate as of the date when possession is surrendered to the condemnor, and the Rent reserved hereunder shall abate and cease for the balance of the Term. If, during the Term or any renewal or extension thereof, less than all or substantially all of the Building, is taken or condemned for a public or quasi- public use, but Landlord shall determine it is economically infeasible to continue operation of the Building or Tenant shall determine it is economically infeasible to operate or conduct business in the uncondemned portion of the Premises, or if there shall occur a Parking Impairment, Landlord or Tenant may terminate this Lease in its entirety by providing written notice to the other party, and this Lease shall terminate as of the date when possession is surrendered to the condemnor, and the Rent reserved hereunder shall abate and cease for the balance of the Term. If neither party elects to terminate this Lease in its entirety upon such taking or condemnation, this Lease shall terminate only as to the part of the Premises taken or condemned, as of the date when possession is surrendered to the condemnor, and the Rent reserved hereunder shall abate in proportion to the square feet of the Premises taken or condemned. In any such event, Tenant waives all claims for leasehold damages, diminution of the value of Tenant’s leasehold interest and all other damages of any kind against Landlord and against the condemnor, except that Tenant may pursue a claim against the condemning authority, but not Landlord, for loss of business, cost of relocation or cost of removal of Tenant’s trade fixtures, furniture and equipment and the unamortized value of all other improvements installed by Tenant in the Premises, at its sole cost and expense, during the Term.

23. TENANT CERTIFICATE .

23.01 Tenant and Landlord each agree, from time to time, but no more than twice every calendar year, within ten (10) days after receipt of a written request from the other party, to execute, acknowledge and deliver to the requesting party a written instrument from an authorized officer or agent, stating and certifying (a) that this Lease is unmodified and in full force and effect; (b) the date to which Minimum Monthly Rent, Additional Rent and other charges have been paid in advance, if any; (c) the amount of any prepaid Rent or credits due Tenant, if any; (d) the Commencement Date and the Expiration Date; and (e) whether, to the best knowledge of the certifying party, the other party is in default in the performance of any covenant, agreement or condition of this Lease.

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23.02 It is intended that any such statement delivered pursuant to this Section 23 may be relied upon by the party to which it is addressed and any (a) prospective purchaser of the Building or any mortgagee thereof, (b) assignee of (i) Landlord’s interest or Tenant’s interest in this Lease, or (ii) any mortgage upon the fee of the Premises or the Building, or any part thereof.

23.03 If Landlord or Tenant fails, within the ten (10) day period set forth in Section 23.01 to deliver the certificate, the requesting party shall send a second request to the other party stating therein that the responding party’s failure to deliver the requested statement within five (5) business days following the date of the second request shall constitute a default of the responding party’s obligations under this Lease.

24. FINANCIAL STATEMENTS OF TENANT OR GUARANTORS .

From time to time during the Term, but no more frequently than once every calendar year, Tenant shall deliver to Landlord audited or reviewed financial statements for its most recent fiscal years ended, tax returns and unaudited financial statements certified by such party for the most recent quarter ended covering the period beginning with the end of last provided year ended financial statement up to the date of the most recently available financial statements, consisting of at least a balance sheet, income statements and statements of changes in financial position, prepared in accordance with generally accepted accounting principles. Anything contained in this Lease to the contrary notwithstanding, the provisions of this Section shall not apply so long as tenant is a publicly-traded company.

25. NOTICES .

All notices ( “Notice” ) required or permitted hereunder must be in writing and hand delivered or sent by certified mail, return receipt requested, postage prepaid, or by overnight mail service, with receipt postage prepaid, furnishing a written record of attempted or actual delivery. Notice shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth below, or at such other address as last specified by written notice delivered in accordance with this Section 25, or, if to Tenant, at either its aforesaid address or its last known registered office whether or not actually accepted or received by the addressee. Notices shall be addressed to the parties as follows:

(a) If to the Tenant, at the Tenant Notice Address(es); and

(b) If to the Landlord, at the Landlord Notice Address(es)

If requested by Landlord or to the extent required under Section 20, Tenant shall send copies to Deutsche Banc Mortgage Capital (at the address identified in Section 20) or such other mortgagee designated by Landlord, a copy of notices to Landlord. Either party may at any time, by notice given as aforesaid, change the address to which notices shall be sent.

26. BROKERS .

Landlord and Tenant each warrant and represent to the other that they have not dealt with

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any real estate brokers or agents in connection with this Lease except Tenant’s Broker and Landlord’s Broker (collectively, the “Brokers ” ), if any, and no brokerage fees or other commissions are due to any other parties in connection therewith. Landlord agrees to pay the Brokers their respective commissions in accordance with separate agreement(s) between Landlord and Brokers, and Landlord indemnifies Tenant from any claims of the Brokers for same. Tenant and Landlord shall each indemnify and hold the other harmless from any cost, expense or liability (including costs of suit and reasonable attorneys’ fees) incurred in connection with any compensation, commission or fee claimed by any other real estate broker, finder, attorney, or agent, other than the Brokers, in connection with this Lease. The provisions of this Section 26 shall survive the expiration or earlier termination of this Lease.

27. DEFINITION OF “LANDLORD”; LIABILITY OF LANDLORD.

27.01 The word “Landlord” is used herein to include the person(s) named above as Landlord, any subsequent owner of such Landlord’s interest in the Building, as well as their respective heirs, personal representatives, successors and assigns, each of whom shall have the same rights, remedies, powers, authorities and privileges as it would have possessed, had it originally signed this Lease as Landlord.

27.02 No owner of such interest in the Building, whether or not named herein, shall have any liability hereunder after it ceases to hold such interest, except for such obligations which may have theretofore accrued. If Landlord is in breach or default with respect to Landlord’s obligations under this Lease or otherwise, Tenant shall look solely to the interest of Landlord in the Building and the Complex (including the proceeds from any sale of the Building or the Complex) for the satisfaction of Tenant’s remedies (including rent and insurance). The obligations of Landlord under this Lease are not intended to and shall not be personally binding on, nor shall any resort be had to the private properties of, any of Landlord’s (or, as the case may be, its property manager’s) partners, directors, officers, shareholders, employees, agents or beneficiaries.

28. DEFINITION OF “TENANT” .

Subject to any release of any Tenant in connection within any assignment of the Lease pursuant to Section 7, the word “Tenant” is used herein to include the person(s) named above as Tenant, as well as its successors and assigns, each of whom shall be under the same obligations, liabilities and disabilities, and have such rights, privileges and powers as it would have possessed, had it originally signed this Lease as Tenant. No such rights, privileges and powers shall inure to the benefit of any assignee of Tenant, unless such assignment complies with the requirements of Section 7 hereof.

29. RULES AND REGULATIONS .

The rules and regulations attached to this Lease as Exhibit “F” , and such additions or modifications thereof as may from time to time reasonably be made by Landlord upon written notice

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to Tenant, shall be deemed a part of terms and conditions of this Lease; provided, however, in the event of any conflict between the terms of this Lease and the Rules and Regulations, this Lease shall govern. Anything to the contrary contained in this Lease notwithstanding, Landlord shall not be permitted to modify or amend the rules and regulations in any manner which would impair the rights of Tenant under the Lease or increase Tenant’s obligations under the Lease. Tenant covenants that said rules and regulations will be faithfully observed by Tenant, Tenant’s employees, and all others visiting the Premises or claiming under Tenant. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of any such rules and regulations. Landlord covenants that, unless the context requires otherwise, said rules and regulations will be evenly applied to Tenant and all other tenants or occupants of the Building and the Complex in a reasonable and non-discriminatory manner.

30. QUIET ENJOYMENT .

Tenant, upon paying the Minimum Monthly Rent, Additional Rent and other charges herein provided and observing and keeping all material covenants, agreements and conditions of this Lease applicable to Tenant shall quietly have and enjoy the Premises during the Term without hindrance or molestation by anyone claiming by or through Landlord, subject, however, to the exceptions, reservations and conditions of this Lease including, without limitation, the rights of the holder of any mortgage to which this Lease is subordinate.

31. TITLES FOR CONVENIENCE ONLY .

The titles appearing in connection with various sections of this Lease are for convenience only. They are not intended to indicate all of the subject matter in the text and they are not to be used in interpreting this Lease.

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32. SEVERABILITY .

If all or a portion of any provision of this Lease, or the application thereof to any person or circumstance, shall be held invalid or unenforceable to any extent, the remainder of this Lease, and the application of those provisions to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

33. GOVERNING LAW .

The law of the Commonwealth of Pennsylvania shall govern the interpretation and enforcement of this Lease, without reference to its conflict of laws principles.

34. HOLDING OVER .

34.01 If Tenant remains in possession of all or any part of the Premises after the expiration or termination of this Lease without Landlord’s written consent, Tenant shall become a tenant-at-sufferance and there shall be no renewal of this Lease by operation of law. During the period of any such hold-over, all provisions of this Lease shall be and remain in effect except that (i) the Minimum Monthly Rent payable hereunder shall be as follows: Day 1 to Day 30 of holdover, the then current Minimum Monthly Rent; Day 31 to Day 60 of holdover, 125% of the then current Minimum Monthly Rent, and Day 61 and thereafter of holdover, 150% of the then current Minimum Monthly Rent (the “Holdover Rate” ). Tenant shall pay all actual out-of-pocket damages sustained by Landlord by reason of such retention; provided, however, under no circumstances will Tenant be held liable for any claims made by Landlord for any indirect, incidental or consequential damages.

34.02 Acceptance by Landlord of any sums due pursuant to the provisions of the Section 34, shall not be construed as Landlord’s consent to Tenant’s holdover.

35. INTENTIONALLY OMITTED.

36.	OFAC COMPLIANCE.

Each party to this Lease represents, warrants and covenants to the other that neither it nor any of its officers and directors and, to Tenant’s knowledge, without inquiry or investigation, Tenant’s shareholders:

(a) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Asset Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) (“Order”) and all applicable provisions of Title III of the USA Patriot Act (Public Law No. 107-56 (October 26, 2001));

(b) is listed on the Denied Persons List and Entity List maintained by the United States Department of Commerce;

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(c) is listed on the List of Terrorists and List of Disbarred Parties maintained by the United States Department of State;

(d) is listed on any list or qualification of “Designated Nationals” as defined in the Cuban Assets Control Regulations 31 C.F.R. Part 515;

(e) is listed on any other publicly available list of terrorists, terrorist organizations or narcotics traffickers maintained by the United States Department of State, the United States Department of Commerce or any other governmental authority or pursuant to:

(i) the Order;

(ii) the rules and regulations of OFAC, including, without limitation, the (A) Trading with the Enemy Act (50 U.S.C. App. 1-44); (B) International Emergency Economic Powers Act (50 U.S.C. §§ 1701-06); (C) unrepealed provisions of the Iraq Sanctions Act (Publ. L. No. 101-513); (D) United Nations Participation Act (22 U.S.C. § 287); (E) Cuban Democracy Act (22 U.S.C. §§ 60-01-10); (F) Cuban Liberty and Democratic Solidarity Act (18 U.S.C. §§ 2332d and 233); and (G) Foreign Narcotic Kingpin Designation Act (Publ. L. No. 106-120 and 107-108); all as may be amended from time to time; or

(iii) any other applicable requirements contained in any enabling legislation or other Executive Orders in respect of the Order (the Order and such other rules, regulations, legislation or orders are collectively called the “Orders” );

(f) is engaged in activities prohibited in the Orders; or

(g) has been convicted, pleaded nolo contendere, indicted, arraigned or custodially detained on charges involving money laundering, predicate crimes to money laundering, drug trafficking, or terrorist-related activities, or in connection with the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.).

37. ENTIRE AGREEMENT .

This Lease and the Exhibits which are attached hereto are hereby made a part hereof and set forth all the promises, agreements and conditions between Landlord and Tenant relative to the Premises and this leasehold. No rights, easements or licenses are acquired in the Building, or any land adjacent to the Building by Tenant, by implication or otherwise, except as expressly set forth in the provisions of this Lease and the Exhibits attached hereto. No subsequent alteration, amendment, understanding or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by both parties.

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38. AUTHORITY .

38.01 Landlord and Tenant each represent and warrant that (a) it has complied with all applicable laws, rules and governmental regulations relative to its right to do business in the state and (b) all persons signing on behalf of the Tenant and Landlord, as applicable, were authorized to do so by appropriate corporate, partnership, trust or other actions.

38.02 Each party agrees to furnish promptly upon request appropriate documentation evidencing the due authorization of Tenant to enter into this Lease.

39. EXAMINATION NOT OPTION.

Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound by this Lease until it has received a copy of this Lease duly executed by Tenant and has delivered to Tenant a copy of this Lease duly executed by Landlord. Until such delivery Landlord reserves the right to exhibit and lease Premises to other prospective tenants.

40. RECORDATION.

At Tenant’s request, Landlord shall execute, in recordable form, and Tenant shall have the right to record, a short form or memorandum of this Lease in substantially the form attached hereto as Exhibit “G” ; provided that Tenant shall pay all recording charges incident to such recording or registration and further provided that Tenant shall contemporaneously deliver into escrow with Landlord’s attorney a discharge in the form attached hereto as Exhibit “H” a discharge of short form or memorandum of lease to be held in escrow until the expiration or sooner termination of this Lease.

41. INTENTIONALLY OMITTED

42. CAPITALIZED TERMS NOT DEFINED HEREIN.

Capitalized terms not otherwise defined herein shall have the meaning set forth on the Basic Lease Provisions pages attached hereto and made part hereof.

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43. RIGHT OF FIRST OFFER.

Provided that an Event of Default has not occurred which remains uncured after the delivery of notice and beyond any applicable cure period, subject to the rights of other tenants in the Complex in effect as of the Effective Date and as more particularly set forth on Schedule 43 , Tenant shall have a right of first offer (the “ Right of First Offer ” ) to lease any space that becomes available in the Complex during the Term of the Lease (the “ First Offer Space ” ), upon the following terms and conditions:

(a) In the event that Landlord anticipates that any First Offer Space that is currently leased to a third party may become available during the Term, Landlord shall give Tenant written notice ( “Landlord’s Availability Notice” ) of the availability of such First Offer Space (the “Offered Space” ). Landlord’s Availability Notice shall state the date upon which the First Offer Space shall be available for Tenant’s occupancy, and Tenant shall thereupon have the right to tour the space. Within fifteen (15) days after Tenant’s receipt of Landlord’s Availability Notice, but no earlier than five (5) days after Tenant shall have toured the space (the later of such dates the “Response Date” ), Tenant shall give Landlord written notice pursuant to which Tenant shall elect (i) to lease the entire Offered Space on the terms and conditions set forth in Section 43(b), (ii) to lease a portion of the Offered Space on the terms and conditions set forth in Section 43(b) if such Offered Space can be separately demised, or (iii) to decline to lease the Offered Space. If Tenant fails to elect either clause (i) or clause (ii) by the Response Date, then Tenant shall be deemed to have declined to lease the Offered Space. In the event that Tenant declines (or is deemed to have declined) to lease the Offered Space, then Landlord shall be free to lease the Offered Space to any other party(ies) without any further obligation to Tenant hereunder; however, Tenant shall retain its first offer rights hereunder with respect to all and any part of the same or any other First Offer Space that may become available after such declination.

(b) If Tenant elects to lease the Offered Space in accordance with subparagraph (a) above (upon such election, the “Additional Space” ), then Landlord and Tenant shall execute an amendment to the Lease to provide for the inclusion of the Additional Space upon all of the same terms and conditions of the Lease, including but not limited to the Termination Date, as the same may be extended by Tenant hereunder, and calculation of Minimum Rent and Additional Rent at the rate set forth herein, shall apply to the Additional Space except that: (i) Tenant’s Proportionate Share shall be increased to take into account the square footage of the Additional Space and all other terms of the Lease affected by the addition of such square footage shall be adjusted accordingly, (ii) Landlord shall provide a Tenant Improvement Allowance equal to the Tenant Improvement Allowance provided in Section 1.02 of this Lease, prorated based upon the then remaining term of the Lease, (iii) Landlord shall provide the rental abatement period provided in Section 5 of this Lease, prorated based upon the then remaining term of the Lease, (iv) Tenant shall not be entitled to any other allowances, credits, options or other concessions with respect to the Additional Space, unless expressly agreed to by the parties.

(c) The effective date of the addition of the Additional Space to the Premises shall be the date that Landlord delivers possession of the Additional Space to Tenant in accordance with the terms of Landlord’s Availability Notice; provided, however, prior to commencement of the Term for the Additional Space, Tenant shall be provided with a reasonable period, not to exceed ninety (90) days, to complete construction of any necessary alterations and improvements in the Additional Space.

(d) Except as otherwise provided in Landlord’s Availability Notice and as specified herein, Tenant agrees to accept the Additional Space in its “AS IS” condition, in the then current physical state and condition thereof, without any representation or warranty by Landlord other than Landlord’s representation and warranty that such Additional Space shall be in compliance with all applicable laws, regulations and codes upon delivery to Tenant.

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(e) Notwithstanding anything herein to the contrary, Tenant’s Right of First Offer hereunder is subject to all expansion, extension, renewal, first offer, first refusal and other rights to lease, as applicable, which Landlord (or any predecessor to Landlord’s interest in the Building) has granted to other tenants and subtenants of the Building prior to the date of this Lease as set forth on Schedule 43 hereto. Thus, Landlord’s Availability Notice will be delivered to Tenant only after Landlord has appropriately notified and received negative responses from all parties referenced in Schedule 43, if any. Recognizing that Tenant may have a need for additional space prior to receipt of Landlord’s Availability Notice from time to time, Landlord agrees to respond to Tenant within ten (10) days after receiving Tenant’s written request for advice as to First Offer Space which will or may, subject to the rights set forth on Schedule 43 , become available in the next one hundred eighty (180) days. Tenant shall have the right to make such requests up to four (4) times each calendar year.

(f) The Right of First Offer shall terminate if fewer than thirty six (36) months remain in the Lease Term, as the Term may have been extended pursuant to this Lease; provided, however, if fewer than thirty six (36) months remain, but Tenant thereafter renews the Lease Term, the Right of First Offer shall be revived and again be in effect for so long as at least thirty six (36) months remain in the Lease Term.

44. SIGNAGE . Upon commencement of the Term, standard signage bearing Tenant’s name shall be provided by and placed by Landlord (a) on the existing directory located in the lobby of the Building, (b) at the Tenant’s main corridor suite entry door, and (c) standard signage on the new monument sign for the Building’s front courtyard. As long as the Premises remain at least 70,000 square feet, Tenant shall also have the exclusive right to install signage on the façade of the 600 Building at its sole expense, subject to any required municipal approval. Anything to the contrary contained herein notwithstanding, Landlord shall be deemed to have approved any signage approved by any municipal authority and Landlord shall cooperate with Tenant in obtaining approvals for such façade signage, at Tenant’s expense.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF, the parties hereto have executed this Lease under seal the day and year first above written.


*TENANT:*

NUTRISYSTEM, INC .

By:
Name:
Title:


*LANDLORD:*

B.R PROPERTIES OWNER, LP

	By:	B.R. Properties GP, LLC
		Its General Partner

		By:	B.R. Properties Manager, Inc.
			Its Manager

		By:
		Name:
		Title:

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EXHIBIT “A”

THE PREMISES

See attached three sheets

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EXHIBIT “B”

CONSTRUCTION PLANS

See attached three sheets

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EXHIBIT “C”

FORM OF LEASE TERM CERTIFICATION

THIS LEASE TERM CERTIFICATION is made as of the day of , 200 , by and between , a (“Landlord”), and , a (“Tenant”), and is intended to be a part of and incorporated into that certain Lease Agreement, dated as of , 200 , by and between Landlord and Tenant (“Lease”). Capitalized terms not defined herein shall have the meaning given to them in the Lease.

1. The parties hereto agree that:

A. The Commencement Date shall be , 200 ,

B. The Initial Expiration Date shall be , 200 ; and

2. Tenant hereby accepts the Premises from Landlord and acknowledges that the Premises comply with the requirements of the Lease.


TENANT :

		a


By:
		Name:
		Title:
		An Authorized Signatory


LANDLORD :

		a


By:		Acorn Development Corporation
Authorized Agent for Landlord


By:
Name:
Title:
		An Authorized Signatory

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EXHIBIT “D”

HVAC SPECIFICATIONS

Heating : Primary space heat is provided by an electric perimeter baseboard system manufactured by Orbit. Capacities are 100, 126, 134 and 187 watts per linear foot. Additional electric resistance heaters are located within the plenum return, which is located above the ceiling. The electric baseboards are controlled Honeywell zone controllers and sensors. Secondary heat is provided by the packaged rooftop unit. The unit has a 280 kw electric heat sections with four stages of control and a heating performance of 873,300 BTU per unit. Additionally, space heaters for the loading dock, entrance areas, and utility areas are provided by electric unit heaters.

Air conditioning : Primary air conditioning is powered by three 105 ton McQuay rooftop package units, model #RPS 105C. All units are equipped with a 100% enthalpy controlled economizer, six stages of cooling, power exhaust, DX cooling coils, 280 kw electric heat, direct communication to building automation system via LonWorks and factory mounted Variable Frequency Drives (both supply and return fans). Certain areas of the property such as data processing areas and the telecommunication rooms receive supplemental cooling from Liebert air conditioning units which shall remain in the Premises.

Ventilation and Distribution : Air distribution to all floors is via a ducted variable air volume (VAV) system to square and linear type diffusers. The ceiling plenum is used as an air return system. Air distribution is zoned as a stack or vertical air distribution system. Typically one rooftop unit provides ventilation and cooling for approximately one third of each floor. Central toilet exhaust is provided by roof mounted centrifugal fans manufactured by Cook – model ACE-B210C4B, rated at 2,875 cfm and model ACE-B245C6B, rated at 4,210 cfm.

Control System : The LonWorks Web server, now active and online, has been installed to control and monitor the nine new McQuay rooftop units and perimeter baseboard heat controllers. Future expansion of LonWorks control system to include the VAV boxes is possible. The LonWorks web server will be a Plexus Technologies Altitude server. A Dell personal computer located on-site will accommodate the running of the Altitude server with a LonWorks (LNS) driver. The Altitude server was originally created to operate with LonWorks based systems and over the years has expanded to include other protocols including the TAC Inet system. A typical web browser can also be used to view and/or change the control system parameters (based on user password levels). System messages, alarm summaries, trending (graphing) of system points and reports are included. Alarms may be set to multiple email addresses to assist in service response time and problem resolution.

HVAC:

1.	The heating, ventilating and air-conditioning (“HVAC”) system shall be designed to maintain conditions pursuant to codes and standards complying with the current

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requirements of NFPA, ASHRAE, SMACNA, and all local codes having jurisdiction. It is further defined by the following conditions:

Offices: Note: These conditions change outside of the immediate region.

Summer – 75° F dry bulb per NEC (National Energy Code) during outdoor temperatures of 95° F dry bulb and 75° F wet bulb.

ii.

Winter – 72° F dry bulb during outdoor temperatures of 0° F dry bulb

Mechanical Equipment and Electrical Rooms

Summer – 100° F dry bulb

ii.

Winter – 50° F dry bulb

Sound Control: Air conditioning systems will be designed to maintain the following maximum noise criteria (NC) levels:

Office Areas and Small Conference Rooms NC 35

ii.

Meeting Rooms NC 30

iii.

Lobby and Common Areas NC 40

iv.

No other Base Building system or equipment shall cause NC readings in excess of those stated above in any Tenant space. No Base Building system or equipment shall cause perceptible vibrations in any tenant space.

Ventilation requirements (Per ASHRAE 62-Current):

20 cfm per person, per 100 SF for office area.

ii.

Minimum of 75 cfm/water closet and urinal. Restrooms will be provided with 2 cfm per sq ft exhaust and supply by transfer air.

iii.

Landlord shall not permit any perceptible odor from any adjacent space in the building (including retail space) into Tenant space.

Occupancy:

Office Space – 1 person per 100 sq ft

ii.

Conference Room/Training Room – 1 person per 20 sq ft

Thermal Characteristics of the Building Envelope

Exterior walls R value = 12

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ii.

Roof R-value = 20

iii.

Building envelope shall meet or exceed International Energy Code.

Maintain positive pressure throughout entire facility.

2.	HVAC system shall be variable air volume (VAV). Air conditioning units shall be either:

•

Packaged Units (air or water cooled) complete with all the necessary integral heating and cooling medium, controls and appurtenances.

•

Modular Central Station Air Handling Units served by building heating and cooling medium.

Air conditioning units’ minimum necessary components shall consist of the following:

Air conditioning units with VAV supply fan, VAV return fan, cooling coil, heating coil, filters, outside air provisions to satisfy minimum ventilation requirements and airside economizer. Unit controls shall be Direct Digital Control (DDC) and be interfaced to the building automation system.

Supply duct risers and mains on each floor shall be externally wrapped with 1 ¹ / 2 ” fiberglass insulation incorporating an aluminum foil vapor barrier.

Exhaust fans for toilet rooms and janitor’s closets shall have continuous operation. Toilet rooms to be exhausted at a rate of 2cfm/sf. Transfer air ducts shall be acoustically lined.

VAV boxes, supply ductwork and diffusers for lobbies, restrooms and core areas. Unit heaters for entry vestibule and stairwells if required. Fan powered VAV boxes with heating coil for perimeter zones (at least 1 per 1,000 sf) and VAV boxes for interior zones at a minimum of 1 per 2500 sf. Installation of the VAV shutoff and fan powered VAV boxes with heating coils, controls, installation of the DDC communication loop.

In addition to minimum outside air connection, a maximum outside air connection will also be provided for 100% purging of floors on a scheduled basis to purge the floors of VOC’s.

Access to domestic chilled or condenser water, including vent and drainage risers and valved outlets on each Tenant floor, for Tenant’s supplemental cooling systems

Telecommunication Rooms to have provisions for 24x7 air conditioning.

3.	Building services shall include a Building Automation System (BAS) to interface with the HVAC systems to monitor equipment operation for maintenance and alarms. The BAS shall include DDC local panel for communication of HVAC equipment and devices to the building system.

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EXHIBIT “E”

Landlord’s Representations Regarding Building Services

Landlord represents and warrants that the services and equipment of the Building are as follows as of the Commencement Date and, without limitation of the requirements of the Lease and applicable laws and code, shall be so provided and equipped throughout the Term:

Emergency Power Equipment : The Building has the following emergency power equipment.

(a) Dual Feed Power : Landlord provides dual electric service with automatic transfer switch.

(b ) Two (2) Generators : Diesel Generator #1 is a model DGFC/87744A, which is a 200 KW/250 KVA generator. Diesel Generator #2 is a model DFCB 60 Hz, which is a 300 KW/375 KVA generator with a 300 gallon tank.

(c) Four (4) UPS Systems : UPS #1 – Series 300, three Phase 100 KVA; UPS #1A – NPower, three Phase 130 KVA; UPS #2 - Series 300, three Phase 15 KVA; UPS #3 - Series 300, three Phase 20 KVA. There is a battery power pack system with
six (6) cabinets.

Fire Safety : The Building is fully equipped with a wet sprinkler system and hard-wired fire alarm, monitoring system and emergency lighting.

Security : The Building is equipped with card key access on all perimeter doors. Current guard services provided by Landlord during Business Hours with the exception of Saturdays. Overnight guard service is paid directly by tenants interested in having that service.

Ceiling Height : The typical finished ceiling height is 9 feet.

Building Loads : The live load for the Building are 60 pounds per square foot for office space and 80 pounds per square foot for corridors and 100 pounds per square foot in the Lobby.

Telecommunications : The Building is serviced by Verizon, AT&T, Telcove, Synesys and XO Communications.

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EXHIBIT “F”

RULES AND REGULATIONS

1. The Parking Areas, driveways, sidewalks, lobbies, passages, elevators and stairways shall not be obstructed by Tenant or used by Tenant for any purpose other than parking of motor vehicles and ingress and egress from the Premises. Landlord shall in all cases retain the right to control or prevent access thereto of all persons whose presence, in the reasonable judgment of Landlord, shall be prejudicial to the safety, peace, character, or reputation of the Building or of any of the tenants. Tenant shall observe, and use only for their designated purpose all handicapped parking spaces, loading zones and fire lanes as established by Landlord from time to time. Tenant shall endeavor to supply Landlord, not more than twice a year, within thirty (30) days after request therefor from Landlord, with a list of all automobiles and other motor vehicles (and their license numbers) used by Tenant and Tenant’s employees and intended to be parked in the Parking Areas serving the Premises.

2. The toilet rooms, water closets, sinks, faucets, plumbing or other service apparatus of any kind shall not be used by Tenant for any purposes other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith by Tenant, or left by Tenant in the lobbies, passages, elevators or stairways.

3. Subject to Tenant’s signage rights under the Lease, nothing shall be placed by Tenant on the outside of the Building or on its window sills or projections. Skylights, windows, doors and transoms shall not be obstructed by Tenant. If Landlord has installed or hereafter installs any shades, blinds or curtains in the Premises, Tenant shall not remove them without the prior written consent of Landlord which consent shall not be unreasonably withheld, conditioned or delayed.

4. Except as set forth in the Lease, no signs, lettering, insignia, advertisement, or notice, shall be inscribed, painted, installed, erected or placed in any portion of the Premises which may be seen from outside the Building, or on any windows or in any window spaces or any other part of the outside or inside of the Building, unless first approved in writing by Landlord, such approval not to be unreasonably withheld, conditioned or delayed. Except as set forth in the Lease, Tenant’s name on suite entrances shall be solely provided by Landlord, at Tenant’s expense. Tenant shall not erect or place or cause or allow to be erected or placed any stand, booth or showcase or other object in or upon the Premises and/or the Building without the prior written consent of Landlord.

5. Tenant shall not place additional locks upon any doors without first obtaining Landlord’s prior written consent and shall surrender all keys for all locks and all security cards and devices at the end of Tenant’s tenancy.

6. Tenant shall not do or commit, or suffer to be done or committed, any act or thing which, directly or indirectly, in any way shall (a) obstruct or interfere with the rights of other

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tenants, (b) injure other tenants, or (c) damage the Premises and/or Building. Tenant shall not use nor keep nor permit to be used or to be kept on the Premises or in the Building any matter having an offensive odor, nor any kerosene, gasoline, benzine, camphene, fuel or other explosive or highly flammable material. No birds, fish or other animals shall be brought into or kept in or about the Premises and/or Building. Landlord acknowledges that Tenant’s Permitted Use includes an experimental kitchen.

7. In order that the Premises may be kept in a good state of preservation and cleanliness, Tenant shall, during the continuance of its possession, permit Landlord’s employees and contractors, to clean the Premises. Landlord shall be in no way responsible to Tenant for (a) any damage done, to the furniture or other property of Tenant or others, by any of Landlord’s employees, or any other person, (b) for any loss of Tenant’s employees, or (c) for any loss of property of any kind in or from the Premises, except to the extent caused by Landlord’s negligence or willful misconduct. Tenant shall see each day that the windows are closed and the doors securely locked before leaving the Premises.

8. If Tenant desires to introduce signaling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices, Landlord shall direct where and how the same are to be placed. Except as so directed, no installation, boring or cutting therefor shall be permitted. All wires installed by Tenant must be clearly tagged at the distributing boards, junction boxes and other locations required by Landlord. Such tags shall include the number of the office to which said wires lead, and the purpose for which the wires respectively are used, and the name of the Tenant.

9. A directory on the ground floor of the Building will be provided by Landlord, on which the name of the Tenant shall be placed. All signage for such directory shall be approved in writing by Landlord.

10. Tenant shall not place in any location, any objects, the individual or collective weights of which are beyond the safe carrying capacity of the Building. Tenant shall be responsible for the cost of repairing any damage to the Building caused by delivery, removal, relocation or presence of furniture, safes or any other articles.

11. In case of unusual circumstances such as invasion, hostile attack, insurrection, mob violence, riot, public excitement or other commotion, explosion, fire or any casualty, Landlord reserves the right to bar or limit access to the Building for the safety of occupants or protection of property.

12. Landlord reserves the right to rescind, suspend or modify these and any other rules or regulations and to make such other rules or regulations as, in Landlord’s reasonable judgment, may from time to time be needful for the safety, care, maintenance, operation and cleanliness of the Building, or for the preservation of good order therein. Notice of any action by Landlord referred to in this Paragraph 12, shall be given to Tenant not less than thirty (30) days prior to its effective date and shall have the same force and effect as if originally made a part of the foregoing Lease.

13. The use of the Premises as sleeping quarters is strictly prohibited at all times.

Page 66 of 79

14. Cigarette, cigar or pipe smoking shall be limited to designated smoking areas and smoking shall not be allowed in the restrooms, fire towers, lobbies, hallways, elevators, common areas, or leased or vacant space of the Building, or within five (5) feet of any Building door.

Page 67 of 79

Exhibit “G”

Memorandum of Lease

PREPARED BY AND AFTER

RECORDING, RETURN TO:

Morgan, Lewis & Bockius LLP

1701 Market Street

Philadelphia, PA 19103

Attn: Eric L. Stern, Esquire

215.963.5178

Parcel Number:

SPACE ABOVE THIS LINE RESERVED FOR RECORDER’S USE

MEMORANDUM OF LEASE

THIS MEMORANDUM OF LEASE (this “Memorandum” ), dated , , is made and entered into by and between by and between B.R. PROPERTIES OWNER, L.P., a Delaware limited partnership ( “Landlord” ), and NUTRISYSTEM, INC., a Delaware corporation ( “Tenant” ).

The parties hereto have entered into that certain Agreement of Lease dated as of the date hereof ( “Lease” ) pertaining to that certain premises hereinafter described (the “Premises” ), with respect to which the following information is provided:


1.	Landlord .	B.R. Properties Owner, L.P.

2.	Tenant .	NutriSystem, Inc.

3.	Landlord’s Address .	B.R. Properties Owner, LP
		c/o Acorn Development Corp.
		400 Cresson Blvd, Suite 105
		P.O. Box 1150
		Oaks, PA 19456-1150
		With copies to:
		B.R. Properties Owner, LP
		c/o Bresler & Reiner, Inc.
		11200 Rockville Pike, Suite 502
		Rockville, MD 20852
		And
		Shaiman, Drucker, Beckman, Sobel & Stutman, LLP
		1845 Walnut Street, 15 ^th Floor
		Philadelphia, PA 19103
		Attn: Michael J. Stutman, Esquire

Page 68 of 79


	Tenant’s Address .	Prior to the Commencement Date (as defined in the Lease):
		NutriSystem, Inc.
		300 Welsh Road
		Horsham, PA 19044
		Attn: David Clark, CFO
		After the Commencement Date:
		NutriSystem, Inc.
		600 Office Center Drive
		Fort Washington, Pennsylvania 19034
		Attn: David Clark, CFO
		With copies to:
		Morgan Lewis & Bockius, LLP
		1701 Market Street
		Philadelphia, PA 19103
		Attn: James W. McKenzie, Jr., Esquire
4.	Date of Lease .	,

5.	Description of Premises . Approximately square foot premises within the building ( “Building” ) located at 600 Office Center Drive, Fort Washington, Pennsylvania, 19034, as more particularly described on Exhibit “A” attached hereto and made a part hereof, together with the nonexclusive right with Landlord and other occupants of the Building and the 600, 601 and 602 Office Center Drive, Fort Washington, Pennsylvania, 19034, complex (the “Complex” ) to use all area and facilities provided by Landlord for the use of all tenants in the Property (as defined in the Lease), including any driveways, sidewalks and parking, loading and landscaped areas.

6.	Commencement Date .	,

7.	Rent Commencement Date .	,

8.	Lease Term .	The period commencing on the Commencement Date and expiring on July 31, 2022.

9.	Right of Renewal .	Tenant has the right and option to extend the term of the Lease for two (2) additional periods for an aggregate period of ten (10) years

10.	Right of First Offer .	Tenant has a right of first offer with respect to vacant space in the Complex.

11.	No Modification of Lease .	Nothing in this Memorandum shall be deemed to modify any of the terms, covenants or conditions of the Lease.

IN WITNESS WHEREOF, Landlord and Tenant have caused this Memorandum to be duly executed as of the day and year first above written.


LANDLORD:			TENANT:

B.R. Properties Owner, L.P.		NutriSystem, Inc.

		By:
By:	B.R. Properties GP, LLC Its General Partner	Name: Title:

Page 69 of 79


By: B.R. Properties Manager, Inc., its Manager

By:
Name:
Title:


STATE OF_________________		)
		)
		)
COUNTY OF		)

Page 70 of 79

On this day of , 2009, before me, the undersigned notary public, personally appeared , known to me or proven on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity as the of B.R. Properties Manager, Inc., the Manager of B.R. Properties GP, LLC, the general partners of B.R. Properties Owner, L.P., a Delaware limited partnership and that, by his/her signature on the instrument, the entity on behalf of which he/she acted executed the instrument.

WITNESS my hand and official seal.



		Notary

My Commission expires:


STATE OF_________________		)
		)
		)
COUNTY OF		)

On this day of , 2009, before me, the undersigned notary public, personally appeared , known to me or proven on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity as the of NutriSystem, Inc., a Delaware corporation, and that, by his/her signature on the instrument, the entity on behalf of which he/she acted executed the instrument.

WITNESS my hand and official seal.



		Notary

My Commission expires:

[Legal Description to be attached]

Page 71 of 79

Exhibit “H”

Discharge of Memorandum of Lease

PREPARED BY AND AFTER

RECORDING, RETURN TO:

Morgan, Lewis & Bockius LLP

1701 Market Street

Philadelphia, PA 19103

Attn: Eric L. Stern, Esquire

215.963.5178 Parcel Number:

SPACE ABOVE THIS LINE RESERVED FOR RECORDER’S USE

Discharge of Memorandum of Lease

This Discharge of Memorandum of Lease, made and entered into as of this day of , , by and between B.R. Properties Owner, L.P., a Delaware Limited Partnership (“Landlord”), and NutriSystem, INC., a Delaware corporation (collectively referred to herein as, “Tenant”), in connection with that the Lease (“Lease”) made and entered into by and between Landlord and Tenant dated , 2009 for that certain premises within the building located at 600 Executive Drive, Fort Washington, Pennsylvania 19034 as more particularly described on Exhibit “A” attached hereto and made a part hereof. By presenting this Discharge for recording, Landlord certifies that (i) Landlord has given Tenant ten (10) days prior written notice of Landlord’s intent to record and (ii) the Lease term has expired or Landlord has properly terminated this Lease in accordance with its terms. Accordingly, that certain Memorandum of Lease evidencing the Lease, dated , and recorded in Montgomery County, Pennsylvania on , in Book , page , is terminated and discharged of record as of the date of this Discharge of Memorandum of Lease, and said Memorandum of Lease is of no further force and effect.

IN WITNESS WHEREOF, intending to be legally bound, the parties have executed this Discharge of Memorandum of Lease as of the day and year first above written.


LANDLORD:		TENANT:

B.R. Properties Owner, L.P.		NutriSystem, Inc.

		By:
By:	B.R. Properties GP, LLC	Name:
	Its General Partner	Title:
By:	B.R. Properties Manager, Inc., its Manager

By:
Name:
Title:


STATE OF_________________		)
		)
		)
COUNTY OF		)

Page 72 of 79

WITNESS my hand and official seal.



		Notary

My Commission expires:


STATE OF_________________		)
		)
		)
COUNTY OF		)

On this day of , 2009, before me, the undersigned notary public, personally appeared , known to me or proven on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity as the of NutriSystem, Inc., a Delaware corporation, and that, by his/her signature on the instrument, the entity on behalf of which he/she acted executed the instrument.

WITNESS my hand and official seal.



		Notary

My Commission expires:

[Legal Description to be attached]

Schedule 17.02

A.	Lobbies and Entrance Areas

Daily Cleaning:

•

Stone, ceramic tile, marble, terrazzo, or other stone or resilient flooring will be vacuumed or dry mopped and wet mopped.

Page 73 of 79

•

Waste receptacles will be emptied, and washed as necessary.

•

Carpets, including walk off mats will be vacuumed.

•

Wall surfaces will be spot cleaned.

•

Stainless steel, chrome, brass, and other brightwork will be cleaned and polished.

•

Entrance door and sidelight glass will be cleaned inside and outside.

•

Exterior of entrance areas will be swept. Smoking urns and outside trash receptacles will be emptied. Urns will be filed with fresh sand as needed.

•

Lobby areas will be maintained at all times in a manner reflecting professionalism and superior appearance.

Weekly Cleaning

•

Reachable picture frames, moldings, door and window frames will be dusted. Artwork will be returned to level position.

•

Door handles, doorknobs, switch plates, kick plates, etc. will be cleaned.

•

Vinyl tile and similar types of flooring will be spray buffed or burnished.

Monthly Cleaning

•

Reachable paneling, door trim, ornamental work, baseboards, entire doors, woodwork, diffusers, grilles, will be dusted.

•

Bases, corners, edges and carpeted areas will be detailed vacuumed.

Bi-Annually

•

Vinyl tile floors will be scrubbed or stripped and recoated.

•

Stone or hard floors will be machine scrubbed and rinsed.

B.	General Office Areas

Daily Cleaning

•

Waste receptacles (recyclable and non-recyclable) will be emptied and liners will be replaced as needed. Trash can liners will be neatly arranged. Trash will be removed from building and deposited in designated containers or compactors.

•

Furniture, workstations, fixtures, filing cabinets, etc. will be dusted. Work surfaces will be dusted provided they have been cleared of work papers and personal belongings.

•

Walls, doors, windowsills, ledges will be dusted.

•

Carpeting and rugs will be vacuumed and spot cleaned.

•

Vinyl tile floors will be dry mopped and damp mopped.

•

Interior partition glass will be spot cleaned.

•

Water coolers and fountains will be cleaned and sanitized.

Page 74 of 79

Monthly Cleaning

•

Stiff brush or vacuum all upholstered furniture.

•

Detail vacuum all edges and corners.

•

Grills and diffusers will be dusted.

•

Vinyl tile floors will be spray buffed or burnished.

Annually

•

Vinyl tile floors will be scrubbed or stripped and recoated.

C.	Private Offices & Conference Rooms

Daily Cleaning

•

Empty and clean all waste receptacles (recyclable and non-recyclable) replacing liners as needed. Trash can liners will be neatly arranged. Remove all building waste to designated refuse containers outside the buildings.

•

Hand dust all furniture, fixtures, filing cabinets, and other dust gathering objects. Desks to be dusted provided they have been cleared of work papers and personal belongings.

•

Spot clean walls, doors, windowsills, ledges, and wall areas.

•

Wipe clean all metal doorknobs, light switch plates, kick plates, and door saddles.

•

Vacuum all carpeting and rugs. Spot clean to remove spillage and stains.

•

Clean all “grease boards” with appropriate cleaner (unless “DO NOT ERASE” notation is left on board).

Weekly Cleaning

•

High dust including picture frames, moldings, door and window frames, and return artwork to level position.

•

Wipe clean all metal doorknobs, light switch plates, kick plates, and door saddles.

Monthly Cleaning

•

Stiff brush or vacuum all upholstered furniture.

•

Dust all paneling, door trim and other architectural louvers, ornamental work, baseboards, entire doors and woodwork, air diffusers and ceiling ventilation grilles.

•

Detail vacuum all edges and corners.

D.	Restrooms

Daily Cleaning

•

Thoroughly sanitize and wipe clean all toilets and urinals.

•

Clean, sanitize and polish all sinks and fixtures with a non-abrasive cleaner.

Page 75 of 79

•

All hand soap, paper towel, toilet paper, and sanitary napkin dispensers will be filled, sanitized and polished. Any over spray from cleaning product is to be wet mopped immediately.

•

Spot clean all partitions, tiled walls and vertical surfaces.

•

Empty, clean and sanitize all trash receptacles and sanitary disposal units.

•

Thoroughly clean all mirrors and bright work.

•

Wet mop to sanitize all floors.

Weekly Cleaning

•

High dust including moldings, door frames, ceiling ventilation grilles, and diffusers.

Quarterly

•

Machine scrub restroom floors

E.	Lunchroom, Breakrooms & Vending Areas

Daily Cleaning

•

Empty and clean all waste receptacles (recyclable and non-recyclable) replacing liners as needed. Remove all building waste to designated refuse containers outside the buildings.

•

Vacuum all carpeting moving tables and chairs as needed. Spot clean to remove spillage and stains.

•

Dry and wet mop all vinyl and similar types of flooring.

•

Wipe clean all vending machines as needed including spot cleaning glass display.

•

Clean and sanitize tables. Spot clean seating to remove spillage and stains.

•

Thoroughly clean and sanitize cabinet fronts, tray slides, counter tops, microwave ovens, etc.

•

Replenish hand soap and paper towels.

Weekly Cleaning

•

High dust including picture frames, moldings, door and window frames, and return artwork to level position.

•

Wipe clean all metal doorknobs, light switch plates, kick plates, and door saddles.

•

Spray buff or burnish vinyl tile floors.

•

Wash waste containers inside and out.

Monthly Cleaning

•

Detail vacuum all edges and corners.

•

Grills and diffusers will be dusted.

•

Stiff brush or vacuum all upholstered furniture; wipe clean all vinyl furniture.

Bi Annually

Strip or scrub re-coat vinyl tile floors.

Page 76 of 79

F.	Elevators

Daily Cleaning

•

Vacuum all cab floors, doors, tracks, and saddles.

•

Wipe clean any wood, plastic laminate or other hard finish vertical surfaces.

•

Sanitize and polish all stainless steel or other metal work on control panels and throughout the elevator cabs.

G.	Elevator Lobbies, Common Areas & Corridors

Daily Cleaning

•

Vacuum carpeting. Dry mop and damp mop hard floors.

•

Dust and wipe clean all baseboards, wood panels and trim.

•

All waste receptacles will be emptied and washed.

•

Dust and wipe clean all furniture, windowsills, picture frames and door frames removing smudges, fingerprints, stains, splash marks, dust, and dirt.

•

Spot clean all wall surfaces.

Weekly Cleaning

•

High dust including picture frames, moldings, door and window frames, and return artwork to level position.

•

Clean all paneling, door trim and other architectural louvers, ornamental work, baseboards, entire doors and woodwork, air diffusers, and ceiling ventilation grilles.

•

Detail vacuum all edges, baseboards, corners, and carpeted areas.

H.	Stair Towers

Daily Cleaning

•

Police for debris and mop for spillage.

Weekly Cleaning

•

Sweep or vacuum.

•

Wet mop stairs.

•

Spot clean wall surfaces within reach; dust horizontal surfaces within reach.

Page 77 of 79

Schedule 43

Existing Tenant Rights With Respect to Vacant Space

FORT WASHINGTON EXECUTIVE CENTER

9.18.09 ROFO/ROFR

601 FWEC

•

McNEIL

ROFO – Lease

Tenant has ROFO to lease specific spaces, subject to rights of existing tenants.

(1) 602 first floor 12,614 rsf

(2) 602 first floor 22,655 rsf

(3) 602 Entire second floor

(4) 601 Entire ground floor

(5) 601 Entire third floor

•

OMNIPOINT

Tenant (rooftop only) has non-exclusive roof top rights.

602 FWEC

•

ADT SECURITY

ROFO – Amendment 3,

Tenant has ROFO on all contiguous space, subject to rights of existing tenants.

-They also have non-exclusive 602 Roof Rights

•

FUHRMAN

Has non-exclusive 602 roof rights

Page 78 of 79

Exhibit 31.1

Certification of Chief Executive Officer of Nutrisystem, Inc.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Joseph M. Redling, certify that:

I have reviewed this quarterly report on Form 10-Q of Nutrisystem, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2010



				/S/ JOSEPH M. REDLING
				Joseph M. Redling
				Chairman, President and Chief Executive Officer
				(Principal Executive Officer)

Exhibit 31.2

Certification of Chief Financial Officer of Nutrisystem, Inc.

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David D. Clark, certify that:

I have reviewed this quarterly report on Form 10-Q of Nutrisystem, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2010



				/S/ David D. Clark
				David D. Clark
				Executive Vice President, Chief Financial Officer and Treasurer
				(Principal Financial Officer)

Exhibit 32.1

Statement of Chief Executive Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Joseph M. Redling, the Chief Executive Officer of Nutrisystem, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:

The Company’s Form 10-Q Quarterly Report for the period ended June 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date: August 5, 2010				/S/ JOSEPH M. REDLING
				Chairman, President and Chief Executive Officer
				(Principal Executive Officer)

Exhibit 32.2

Statement of Chief Financial Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, David D. Clark, the Chief Financial Officer of Nutrisystem, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated: August 5, 2010				/S/ DAVID D. CLARK
				Executive Vice President, Chief Financial Officer and Treasurer
				(Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company