PSW TECHNOLOGIES INC, 10-K405, 2000-03-14

PSW TECHNOLOGIES INC
10-K405, 2000-03-14
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(MARK ONE)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[_]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: 000-22327

PSW TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 74-2796054
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200, AUSTIN TEXAS 78730
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(512) 343-6666
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

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

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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on February 29,
2000 as reported on the Nasdaq National Market, was approximately $167.5
million (affiliates being, for these purposes only, directors, executive
officers and holders of more than 5% of the Registrant's Common Stock).

As of February 29, 2000, the Registrant had outstanding 9,785,163 shares
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.

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PART I

ITEM 1. BUSINESS

The discussion and analysis below contains 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 risks and
uncertainties, such as statements for the plans, objectives, expectations and
intentions of PSW. Such forward- looking statements are generally accompanied
by words such as "plan," "estimate," "expect," "believe," "could," "would,"
"anticipate," "may," or other words that convey uncertainty of future events
or outcomes. These forward-looking statements and other statements made
elsewhere in this report are made in reliance on the Private Securities
Litigation Reform Act of 1995. The section below entitled "Additional Factors
That May Affect Future Results, Financial Condition and Market Price of our
Common Stock" sets forth certain factors that could cause actual future
results of the Company to differ materially from these statements.

OVERVIEW

We are an e-business services firm that offers strategic consulting skills
with deep technology and integration expertise. This combination enables us to
utilize existing and new technologies to provide reliable, flexible and
scalable e-business solutions. Our alliances with leading Internet and
interactive television technology providers allow us to gain a thorough
understanding of their products and perspective on other products as well as
next-generation technologies. Using our technology insight and skills, we
assist our clients to define, design, develop and deploy e-business solutions
that enhance their competitive position.

In 1999, our new management team began executing a strategy of providing
high value-added e-business services and emphasizing relationships with
leading technology providers aligned with our e-business focus. We have four
national practices:

. eStrategy. We help clients create e-business strategies;

. eSolutions. We design, develop and deploy next-generation e-business
solutions;

. ePerformance. We address the reliability, scalability and manageability
required for high volume e-business solutions; and

. eTV and Broadband. We deliver interactive television and broadband
solutions, extending the reach of e-business to mass audiences.

We form strategic alliances with leading technology providers such as
Vignette, Mercury Interactive and Scientific-Atlanta. We believe the nature of
these alliances enables us to help develop "ecosystems" centered around
leading technology providers in which we serve as a catalyst for the
widespread adoption of the provider's products. We call these ecosystems
"exponential networks" or "exponets" for short. Exponets allow us to enter new
markets, gain early access to emerging technologies, jointly market products
and services with leading technology providers and gain enhanced access to
vendor training and support. For example, during the fourth quarter of 1999,
we became a Vignette Consulting Alliance Partner, and now we are engaged by a
number of companies using Vignette's software as part of their e-business
solution. Additionally, in conjunction with Vignette's Professional Services
group, we launched a joint e-performance service offering at Vignette's
international sales meeting.

Our clients include both Fortune 1000 companies and early stage companies
whose business strategies are designed and built around the Internet. For
example:

. Concur Technologies. We built a universal engine for document exchange
which would enable users with different protocols to use Concur's
business-to-business procurement network, called Concur Commerce
Network. The Concur Commerce Network was named one of Information Week's
1999 Products of the year.

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. Commerce.TV. We designed, built and tested Commerce.TV's set-top box
based software and developed an e-commerce application that allows cable
television subscribers to buy products and services over the television.

. good2cu.com. good2cu.com engaged us to create a portal that could be
used by its credit union clients. Our solution enables good2cu.com to
provide its client members with access to marketing, content and
competitive analysis tools through one on-line destination.

INDUSTRY BACKGROUND

The market for e-business services is characterized by significant e-
business growth and demand for increasingly advanced solutions.

Significant e-Business Growth. The Internet has fundamentally changed the
way consumers and businesses communicate, obtain information, purchase goods
and services and transact business. International Data Corporation estimates
that the amount of worldwide e-commerce conducted over the Web will increase
from $50 billion in 1998 to $1.3 trillion in 2003. The demand for e-business
services is expected to continue growing significantly as the number of
Internet users and enterprises conducting business over the Internet
increases, new technologies emerge and new business models are adopted.
International Data Corporation estimates that total spending by U.S. companies
for Internet consulting, application development and testing, and network and
systems migration will expand from $3.6 billion in 1998 to $29.9 billion in
2003.

Demand for Increasingly Advanced Solutions. Initially, companies used the
Internet as a means of advertising or promoting their business. These
companies typically published Web sites with static information referred to as
"brochure-ware" with the objective of enhancing internal and external
communication. Companies either used their own internal design and information
technology resources or hired on-line advertising agencies and Web design
firms to create their initial Web presence.

The next stage involved the development of Web sites that allowed processing
of limited types of transactions over the Internet. Companies generally viewed
the Internet as another channel or extension of their core business. These
Internet solutions often integrated enterprise-wide client/server applications
into front-end Web sites. Companies typically hired traditional services or
systems integration firms in conjunction with Web design shops to build these
Web sites.

Many companies now recognize that the Internet has become strategic and
important for maintaining competitive advantage in a dynamic marketplace. They
realize that the Internet is transforming how many businesses operate and that
a new Web-centric business model, now commonly referred to as e-business, is
emerging. E-business combines the reach of the Internet with emerging and
existing technologies to enable companies to strengthen relationships with
customers and business partners, create new revenue opportunities, improve
operating efficiencies and enhance communication. Companies now seek to hire
e-business services firms that can combine strategic thinking, consulting
skills and technology expertise to rapidly develop innovative business models
and provide solutions requiring deeper integration of existing applications
and our ability to handle increased volumes of transactions and traffic. These
skills have become increasingly important to companies and a key
differentiating factor between services firms.

We believe the next-generation of e-business will offer dynamic and
interactive content that integrates data, video and audio. Similarly, we
believe that computing will be pervasive as business is transacted across
multiple

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communication platforms, including television sets, personal computers and
mobile devices. As a result, we believe that companies will need firms that
can develop innovative strategies and design systems that integrate new
technologies across these many platforms and can handle higher volumes of
transactions and traffic. Additionally, with the proliferation of new
technology, companies will require guidance to select and integrate
appropriate technologies.

PSW SOLUTION

Extensive Technology Expertise: We Understand. We are technologists with a
deep understanding of software development and integration. Our technical
expertise enables us to provide solutions that integrate:

. Application Architectures. We develop open architectures that allow
companies to integrate new applications and the flexibility to easily
add and change content sources in order to quickly respond to changing
market conditions. These application architectures are configured to
maximize scalability and flexibility using common operating systems such
as Unix and NT.

. Interactive Applications. We identify the appropriate interactive
applications needed to fulfill our clients' business requirements. Our
technology expertise allows us to select the appropriate pre-packaged
applications, design and build custom applications and combine and
integrate them to create the desired functionality, including the
presentation of personalized content and e-commerce capability.

. Content Services. We enable interactive applications to utilize many
types of content, including information from internal databases and
external complementary service providers as well as external data, video
and audio feeds.

. Communication Platforms. We design our solutions to enable our clients
to reach a large audience by delivering content and services over the
Internet and through television. We intend to expand our expertise to
enable our clients to deliver content and services to mobile devices as
these technologies develop.

Innovative and Forward-Thinking: We Envision. We help companies understand
the business opportunities offered by adopting an e-business strategy. Using
our technology expertise, we typically work with companies to develop a
sustainable strategy and customized solution that will facilitate their
transition to, and continuing evolution as, an e-business. We evaluate
interactive applications and other technologies currently available in order
to help our clients select the ones most appropriate. Through our alliances
with technology providers such as Vignette, Mercury Interactive and
Scientific-Atlanta, we have gained a thorough understanding of their market
leading products and, more importantly, valuable insight into the creation and
application of other next-generation technologies. We use our technological
insight to help companies develop e-business solutions that incorporate
today's leading interactive applications and other technologies as well as
position companies to take advantage of next-generation technologies.

Rapid and Reliable Execution: We Deliver. Utilizing the PSW Approach and our
deep technology expertise, we deliver e-business solutions in rapid timeframes
to meet client requirements. The PSW Approach provides an iterative framework
for helping a client quickly define its strategy and design, develop and
deploy an e-business solution. Our thorough understanding of our alliance
partners' technologies enables us to customize and integrate their products
quickly and reduces the overall time needed to deploy an e-business solution.
To further accelerate a client's adoption and implementation of an e-business
solution, we have also developed the

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Digital Rethink Framework. This framework is a ready-to-use package of
integrated, interactive applications that can be quickly deployed with minimum
customization. To further increase the speed and reliability of our execution,
we employ knowledge management systems and processes to capture the
intellectual capital we gain through our collective experiences and to
disseminate it throughout our organization.

STRATEGY

Our goal is to be a leading e-business solutions provider. To achieve this
goal, we are pursuing the following strategies:

Attract New Clients and Expand Existing Client Relationships. We must
continue to target and attract clients that are innovators, early technology
adopters and market leaders. Through new and existing alliance partnerships,
we hope to gain referrals and to attract clients that seek solution providers
with extensive knowledge of our partners' products and technologies. We will
also seek to gain new clients through our informal relationships with venture
capital firms that are funding emerging technology companies. We believe that
our established record of delivering high-quality e-business solutions will
increase the amount, scope and sophistication of services requested by
existing clients. We believe client satisfaction reinforces our growing
reputation as an innovative provider of e-business solutions.

Expand Technology Expertise. We will continue to enhance our technology
expertise by identifying new technologies that we believe will have
significant impact on the evolution of e-business and by expanding existing
product development relationships with selected leading technology providers.
We believe our participation in the product development process gives us a
deep and thorough understanding of a provider's products and underlying
technologies and insight into next-generation technologies. Our Digital
Rethink Center, Benchmarking Center and regional ePerformance Centers of
Excellence will continue to serve as knowledge centers that fuel strategic and
technical innovation by accelerating the exchange of ideas.

Develop Exponets. We believe our alliance partner model provides us with a
competitive advantage. Our alliances are deeper and more strategic than a
traditional vendor relationship. We form partnerships with technology
providers who we believe offer products that have significant market potential
and enhance our ability to provide innovative solutions. These relationships
can include a range of activities, including joint marketing, product
development services, product deployment and integration of their products
into e-business solutions and providing client feedback to help our partners
enhance their products. We believe the nature of these alliances enables us to
help develop "ecosystems" centered around a leading technology provider in
which we serve as a catalyst for the widespread adoption of the provider's
products. We call these ecosystems "exponential networks" or "exponets" for
short. By nurturing exponets and fostering interconnections between them, we
will create an opportunity to access more potential clients, generate
additional revenue and establish ourselves as a thought leader.

Enhance Brand Awareness. We believe that enhancing market recognition of our
solutions will increase our visibility with potential clients, alliance
partners and prospective employees. We believe that maintaining a reputation
for delivering innovative e-business solutions will enhance our ability to win
repeat business from our existing clients and to attract new clients. We are
currently in the process of changing our name to Concero to brand our company
and our services to reflect our e-business capabilities. Our brand development
programs will be designed to reinforce our position as a national company with
a proven record of delivering e-business solutions.

Hire and Retain Qualified Professionals. Attracting and retaining
professionals is essential to our growth. We attract, hire, develop and retain
personnel by emphasizing the skills and values required to provide our
services. We have increased our team of dedicated recruiters to support our
growth and have implemented an employee referral program which provides many
new hires. To retain our professionals, we will continue to foster our company
culture, provide ongoing training and career development opportunities and
provide competitive compensation.

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Grow Through Acquisitions. We intend to pursue acquisitions that provide
access to complementary skills or additional talented professionals, expand
our geographic presence and increase our client base. Acquisitions will be
driven by market opportunity and client need.

SERVICES

We deliver our services through our eStrategy, eSolutions, ePerformance and
eTV and Broadband practices.

eStrategy. We help clients develop e-business strategies. By using our
Digital Rethink process, clients are able to explore the business
opportunities offered by emerging technologies. Through Digital Rethink, we
work with clients to develop e-business strategies that address their business
objectives.

eSolutions. We define, design, develop and deploy innovative, custom e-
business solutions to meet our clients' business needs. Our solutions utilize
open architectures that allow clients to integrate new interactive
applications and quickly respond to changing market conditions. Using our
technology expertise, we identify and select the appropriate technology
products, design and build custom applications and combine and integrate them
to meet the client's desired functionality. We also integrate interactive
applications to enable the use of many types of content, including information
from internal databases and external complementary service providers as well
as external data, video and audio feeds. Additionally, our solutions often
incorporate application architectures that allow clients to reach a large
audience by delivering content and services over the Internet, through
television and through mobile devices as these technologies develop.

To further accelerate a client's adoption and implementation of our e-
business solution, we have developed the Digital Rethink Framework that
consists of a ready-to-use package of integrated, interactive applications
that can be quickly deployed with minimum customization. The Digital Rethink
Framework substantially reduces the time required to define an architecture
and select and integrate interactive and other applications. The framework
enables the key elements of e-business solutions, including e-commerce
transaction platforms, site analysis, content management, data management,
security and interactive capabilities.

ePerformance. We approach performance evaluation from the perspective of the
client's customer. We help companies enhance scalability, improve reliability
and manageability and ensure proper functioning of Web-based business
applications. We use leading testing tool software providers such as Mercury
Interactive and Segue to provide clients with attractive ePerformance
solutions. Our best practice life-cycle approach helps us to reduce the time
needed to test for and fix performance problems. ePerformance services are
delivered at the client location, our Benchmarking Center in Austin, and at
our three regional ePerformance Centers of Excellence.

eTV and Broadband. We deliver interactive television and other broadband
solutions to clients. We assist companies to integrate audio, video and data
and deliver that content over the Internet, through television, or, in the
future, through mobile devices. We have built an eTV Development Center where
we design, construct and showcase our eTV and cable network applications. We
believe we are positioned to be a leader in this industry through our work
with Scientific-Atlanta and others companies in the interactive television and
broadband industries. For example, Scientific-Atlanta named us the third-party
certification provider for their Explorer 2000 digital set-top box platform.

We also provide three of our clients with maintenance and support services
for their existing software products.

PSW APPROACH

Our solutions are delivered using a phased development process and
documented methodologies which together we call the PSW Approach. We believe
that successful solutions require a well designed development process and
methodologies to organize the project team to efficiently accomplish numerous
interrelated tasks. This phased approach also provides the client with several
cost/benefit checkpoints and helps to align client

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expectations with solution objectives. The methodologies are independent of
any specific technology and, therefore, provide a common structure across
solutions allowing our consultants to tap the experience, ideas and
measurements of other teams that have worked on similar engagements or on
projects with technology vendors. In addition, our methodologies documentation
includes a description of the team structure, roles and responsibilities of
both us and our client personnel as well as templates, samples, tools, tips
and techniques for completing deliverables.

The PSW Approach accelerates deployment of e-business solutions, improves
the quality of the solution and addresses business and technological
evolution. The methodology not only benefits the solution through the
development process, but also assists the client in maintaining and extending
the solution after deployment. The PSW Approach is designed to reduce risks to
ourselves and our client, to maximize client satisfaction and to allow us to
efficiently transfer expertise to the client.

The development process consists of the following phases: Digital Rethink,
Define, Design, Develop and Deploy.

Digital Rethink. During the Digital Rethink phase, we help companies define
their strategies, business models and action plans for using Internet,
interactive TV and Broadband technologies. We educate clients on the key
principles of the digital economy, covering areas such as branding,
personalization techniques, technology options and customer acquisition and
retention strategies.

Define. During the Define phase, we develop an operational plan and
technology architecture that supports the client's strategy. Our teams use one
of two architectural approaches in this phase, the Digital Rethink Framework
or a custom architecture. We develop custom architectures for clients if their
needs dictate a different set of software products or if they are already
using components that are not part of the Digital Rethink Framework.

Design. During the Design phase, we develop the detailed design
specifications and complete a baseline configuration of the software products
needed to create the technical solution. The project team designs components
that will be developed to complete the architecture. During this phase, we
deliver prototypes that help clients visualize their new e-businesses. This
process is typically iterative with feedback and testing results incorporated
throughout the process.

Develop. During the Develop phase, we build the technical solution that will
be deployed and perform tasks such as coding, testing and software
integration. Once the technical solution has been built, we use our
ePerformance expertise to thoroughly test it. At the end of this phase, we are
in position to deploy our solution.

Deploy. During the Deploy phase, we launch the completed technical solution
and we educate the client to provide ongoing support and maintenance. In
addition, we monitor the Web site and identify functional, technical and
performance improvements that can be incorporated into the next generation of
the Web site. This discovery process culminates in a project work plan for the
design and development of the next generation of the client's e-business
solution.

ALLIANCES

We believe that our alliances with leading technology providers such as
Vignette, Mercury Interactive and Scientific-Atlanta enable us to develop
extensive knowledge of their technologies and other applications as well as
provide additional insight into developing and deploying e-business solutions.
We believe our alliances are deeper and more strategic than a traditional
vendor relationship due to our involvement with our partners' product
development. These relationships encompass a range of activities, including:

. joint marketing;

. product development services;

. product deployment and integration of our alliance partners' products
into our clients' e-business solutions;

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. providing client feedback to help our partners enhance their products;
and

. integration and certification of third party applications for use with
our partners' products.

We have substantial alliances with:

Vignette Corporation. Vignette supplies software applications for building
e-businesses. Vignette's software applications are used by more than 500
dot.com and Fortune 500 companies.

Our relationship with Vignette began in 1999 when they engaged us to provide
them with software development services. During the fourth quarter of 1999, we
became a Vignette Consulting Alliance Partner, and we are now engaged by a
number of companies using Vignette's software as part of their e-business
solutions. In January 2000, we launched, in conjunction with Vignette's
Professional Services group, a joint e-performance service offering at
Vignette's international sales meeting.

We share a number of clients with Vignette, including SBC Communications,
Nationwide Insurance, Entrepreneur.com, Miller Freeman PSN and good2cu.com.
Vignette software is incorporated into our Digital Rethink Framework.

Mercury Interactive Corporation. Mercury Interactive provides Internet
application testing products designed to help businesses evaluate and enhance
their customers' experiences.

We began working with Mercury in 1998 and we partnered with Mercury to beta
test Topaz, Mercury's application performance management solution for Web
sites. We also help our clients assess their e-business performance using
Mercury's tools. We are now one of Mercury's Channel Alliance Program partners
and a National Certified Service Provider. Our Mercury relationship includes
joint marketing and sales campaigns. We participated in Mercury's national
sales meeting in January 2000. In February 2000, we jointly sponsored a
national seminar series for optimizing e-business performance.

We share a number of clients with Mercury, including Tivoli Systems, Inc.,
Kana Communications and living.com. We also feature Mercury tools in our
Digital Rethink Framework.

Scientific-Atlanta, Inc. Scientific-Atlanta supplies broadband
communications systems, satellite-based video, voice and data communications
networks and worldwide customer service and support.

Scientific-Atlanta has been our customer since 1991. We have provided
Scientific-Atlanta with a variety of services, including systems architecture
consulting, software development strategy and assessment, assistance with
their development of analog network solutions for set-top boxes, and system
and network management projects related to the Scientific-Atlanta Explorer
family of digital set-top systems.

Scientific-Atlanta has chosen us as the third party certification provider
for their CreativEdge Application Developers program. We award CreativEdge
certification to an application after completing an extensive testing process
to ensure that the application, such as enhanced broadcasting or e-mail, is
stable within Scientific-Atlanta's digital set-top box environment. Our
participation in Scientific-Atlanta's CreativEdge Developers Program has
provided us access to interactive television application software providers
seeking expertise and assistance. As a result, we have been engaged by
companies such as Commerce.TV, DIVA and Intertainer to develop and assist with
the development of interactive, interactive set-top box applications.

We have a number of other alliance relationships with leading technology
vendors including Segue, Tivoli, Open Market and Microsoft. Our strategy is to
initiate, create and manage alliances with leading technology vendors with
products that we anticipate will have significant market opportunities.

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SALES AND MARKETING

We market e-business professional services through 19 dedicated marketing
and sales professionals who work closely with our regional and practice
directors. The marketing team works with the practice directors to secure new
opportunities and manage the sales process. The regional directors collaborate
with the sales professionals to form a joint sales approach for identifying
and winning new clients and follow-on business.

We approach sales on a regional basis. Our regional model enables the people
closest to the clients to perform both the sales and delivery functions and to
have complete account ownership. We believe that this regional focus will help
us develop strong market presence and name recognition in our local markets.

We believe that the opportunities afforded through the creation of e-
business span a broad range of industries. Accordingly, we market our services
both to Fortune 1000 corporations and to early stage companies whose business
models are designed and built around the Internet. We also selectively market
to technology providers.

We supplement our business development efforts with marketing and
communications activities. These activities include:

. direct mail and e-mail campaigns targeting corporate executives;

. public speaking engagements;

. attendance at industry conferences;

. participation in industry organizations; and

. joint marketing activities with alliance partners.

We are changing our name to Concero and launching our first major branding
campaign. Concero is a Latin word that means to connect, join or bring
together. We believe our new name reflects our business strategy of building
exponets where we connect our clients and alliance partners in broad and
interlocking technology ecosystems. We have engaged a national branding agency
and a public relations firm to assist with the branding and on-going awareness
activities.

The purpose of our ongoing marketing activities will be to deliver our
message to prospective and existing clients and to create awareness around the
new Concero brand. We believe increased market awareness will provide access
to a larger sales pipeline and recruiting pool and additional public relations
opportunities.

CLIENTS

The following is a representative list of our clients for each of our
practices:

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ESTRATEGY ESOLUTIONS EPERFORMANCE BROADBAND
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3M Concur Technologies Concur Technologies Commerce.TV
Crowley Maritime Dell Dell ICTV
good2cu.com good2cu.com living.com Intertainer
Miller Freeman
PSN Vignette Tivoli Scientific-Atlanta
Traq Wireless Warburg Dillon Read Warburg Dillon Read WebTV
</TABLE>

In addition, we provide maintenance and support services to IBM, including
Lotus, Northern Telecom and Compaq. In 1999, our five largest clients
accounted for 51% of our revenues.

EMPLOYEES AND CULTURE

As of February 29, 2000, we had 404 employees, 314 of whom were technical
staff performing consulting services and 90 were management and administrative
personnel performing marketing, sales, human resources, finance, accounting,
legal, information technology and administrative functions.

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We must continue to identify, recruit, hire, develop and retain outstanding
professionals. We believe our success in doing this will depend on our ability
to maintain our company culture, to provide ongoing training and career
development opportunities and to offer competitive compensation.

Recruiting. We dedicate significant resources to recruiting. We employ a
team of nine full-time recruiting professionals in several of our offices so
they can stay closely aligned with our local business needs. We emphasize
technical skills, teamwork, professionalism, commitment to learning and
leadership. We believe our employees provide the best source for strong
candidates and have developed an innovative employee referral program that
results in many new hires.

Career Development and Training. Our success depends on keeping our
workforce aware of the latest technologies and tools. We utilize many
different techniques, including classroom, self-paced and Web-based training.
We have made significant investments in educating our consultants on new
technologies, including XML and Java, and products from our technology
provider clients, Vignette and Mercury Interactive. We also concentrate on
developing project management, communication and people management skills. We
are committed to helping people grow and succeed in their careers. We have
defined multiple career paths so that our people can grow into senior
technology, project management and business development roles.

Compensation. We offer compensation packages that include competitive
salaries, benefits and bonuses. We believe that linking a portion of the
employee's compensation to our success through bonuses and stock options
fosters an entrepreneurial culture and encourages behavior that benefits our
clients, our team members and our company.

Culture. We cultivate our company culture through communicating and
nurturing the same values emphasized in our recruiting process. We hold a two-
day new employee orientation in Austin that focuses on describing our culture
and values, meeting other employees from all our locations and learning about
our strategic business initiatives. Each office conducts "all-hands" meetings
on a quarterly basis. We also utilize internal email newsletters to
communicate important events, news from client projects, and other key project
information as well as rewards and promotions. Periodic employee surveys help
us target new programs appropriately.

COMPETITION

We compete in the e-business services market, which is relatively new and
intensely competitive. We expect competition to intensify as the market
evolves and consolidates. We compete with companies in the following
categories:

. Internet services firms, such as iXL, Proxicom, Razorfish, Scient, US
Web and Viant;

. software engineering firms, such as Cysive;

. large systems integrators, such as Cambridge Technology Partners, EDS,
IBM and Sapient;

. management consulting firms, such as McKinsey and Boston Consulting
Group;

. the consulting divisions of Big Five accounting firms; and

. internal IT departments of current and potential clients.

Many of our competitors have longer operating histories, larger client
bases, longer relationships with clients, greater brand or name recognition
and significantly greater financial, technical, marketing and public relations
resources than we do. Several competitors have announced their intention to
offer a broader range of services than they currently provide.

We believe that the main competitive forces in the e-business services
industry are:

. the quality of e-business solutions;

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. the speed of development;

. technical and business expertise;

. project management skills;

. referenceable customer base;

. integrated methodologies;

. effectiveness of business development efforts; and

. brand recognition.

We believe that we compete favorably with respect to these factors.

Our industry has low barriers to entry. We do not own any technologies that
effectively preclude or inhibit competitors from entering our industry.
Existing or future competitors may develop solutions that are superior or
substantially similar to ours. The cost to develop and provide information
technology consulting services are relatively low. Therefore, we expect to
continue to face additional competition from new entrants into our industry.

INTELLECTUAL PROPERTY RIGHTS

We have developed proprietary methodologies, tools, processes and software
in connection with delivering our services. We believe the intellectual
capital we gain by our participation in the product development process of our
alliance partners and other technology providers gives us a competitive
advantage. We also have developed the Digital Rethink Framework as well as
reusable object-based applications for interactive and enhanced television
applications. We rely on a combination of trade secret, nondisclosure and
other contractual arrangements, and copyright and trademark laws, to protect
our proprietary rights. Existing trade secret and copyright laws afford us
only limited protection. We do not possess any patents.

We typically enter into confidentiality and non-disclosure agreements with
our employees and generally require that our clients enter into similar
agreements. These agreements are intended to limit access to and distribution
of our proprietary information. We cannot assure you that the steps we have
taken in this regard will be adequate to deter misappropriation of our
proprietary information or that we will be able to detect unauthorized use and
take appropriate steps to enforce our intellectual property rights.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL RESULTS AND
MARKET PRICE OF OUR COMMON STOCK

In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating the Company and its business.

RISKS THAT RELATE TO OUR BUSINESS STRATEGY

We are subject to a number of risks related to our business strategy. We
describe some of these risks below. If any of these risks materializes, our
business, financial condition and results of operations could be harmed, and
our stock price could fall.

We have refocused our business strategy. This may not be successful.

In August 1998 we began building a new management team. The new management
team has refocused our business strategy. This strategy is described in the
"Business" section of this Form 10-K. Some of the changes to our business
strategy include:

. expansion into new and largely untested business areas such as eTV and
broadband services;

11
<PAGE>

. realignment of our internal corporate structure on a geographic basis;
and

. a shift in focus of our client base from technology vendors to
technology users, and a shift from longer-term development and
maintenance arrangements to specific, shorter-term e-business project
engagements.

Our shift from ongoing development and maintenance engagements to strategic
engagements has favorably affected our average billing rates but negatively
affected our technical staff utilization rates. If we are unable to offset
decreases in our utilization rates through increases in our billing rates, our
profitability will be harmed. Adverse economic conditions, a lack of consumer
acceptance of eTV, broadband and other advanced technologies, increased
competition and other factors could hurt both our utilization rates and our
billing rates. As a result, it is too early to know whether the refocusing of
our business strategy will help us achieve long-term success. Companies that
implement major changes in their business strategy can face more challenging
risks and unexpected difficulties. These risks and difficulties apply
particularly to us because the market for our Internet and e-business
consulting services is new and rapidly evolving.

The success of our business strategy depends on our ability to identify
emerging technologies that will gain wide acceptance in future markets.

Our business strategy requires us to:

. identify promising technologies at an early stage in their development;

. accurately assess their long-term viability; and

. rapidly gain expertise in these technologies.

Our business may suffer if we invest time and resources in technologies that
ultimately do not reach widespread use or commercial success. Even if we
identify the best technologies, their widespread use and deployment may not
occur within a time span that is compatible with our business plans and
revenue expectations.

In particular, some of the technologies that we are focusing on heavily,
such as eTV and broadband, may not achieve business or consumer acceptance in
the near term, or at all. For example, companies promoting eTV and broadband
services may find that consumers are reluctant to use them, for reasons of
cost or complexity. As a result, we may use substantial resources developing
expertise in areas that will not yield substantial revenues or profits for us
in the next few years.

Our business strategy depends on our ability to create and maintain strategic
alliances with other e-business and technology companies. These alliances may
shift or terminate suddenly.

We currently maintain strategic alliances with other companies that help us
to gain access to new technology and business opportunities. This is one of
the principles of our exponet strategy. Like many in our industry, we
sometimes refer to these companies as our "partners", but they are not
partners in a legal sense. In particular, these companies are under no binding
obligation to remain in relationships with us or to continue to cooperate with
us, and these relationships are generally not exclusive.

Any of our alliance partners may choose to end the alliance, alter the terms
of the alliance in a way that harms our business or increase the level of
business they conduct with our competitors. Similarly, if one of our alliance
partners undergoes a management or ownership change, we could lose access to
critical technology and business opportunities. In addition to a decrease in
revenue, the publicity that could accompany these kinds of changes could have
a damaging effect on our stock price.

Moreover, our brand may be closely associated with the business success or
failure of some of our high-profile alliance partners, many of whom are
pursuing unproven business models in competitive markets. As a

12
<PAGE>

result, the failure or other difficulties of these companies may damage our
brand and hurt our business opportunities.

Some of our clients are emerging companies that have little or no operating
history and may lack the resources to pay our fees.

Because we focus on emerging technologies, we derive some of our revenues
from small companies, particularly start-up companies that have limited
operating histories and resources to pay our fees. Our business model
contemplates increasing the amount of business we do with these companies.
These companies often have little or no earnings or cash flow and are
generally considered to have a greater risk of failing than more established
businesses. As a result, these clients may not be able to pay for our services
in a timely manner, or at all. These effects would lead to an extension of our
collection period, which would harm our liquidity, and an increase in our bad
debt expense, which would harm our profitability.

We may make investments in clients or potential clients that are emerging
companies. These investments are risky, we have limited experience in making
these investments and we could lose all of our investment.

Although not a key part of our strategy, we may make strategic investments
in small, emerging clients or potential clients, either in cash or in kind. We
may also agree to take some or all of our fees in the form of equity
securities issued by these clients as part of our engagement. Investments in
such emerging companies are extremely risky and some or all of our investment
could be lost. We have limited experience in these investments or in managing
these arrangements.

Potential acquisitions could be difficult to integrate, disrupt our business,
dilute stockholder value and hurt our operating results.

As part of our growth strategy, we intend to pursue acquisitions of
businesses and technologies that are complementary to our core businesses. Our
ability to grow through acquisitions will depend on the availability of
attractive acquisition candidates, our ability to successfully compete for
these acquisition candidates and the availability of capital to finance these
acquisitions.

The benefits of an acquisition often may take considerable time to develop,
and the acquisition may never produce the intended benefits. Factors that
could cause an acquisition to be unsuccessful include:

. the loss of employees or clients of the acquired business, and thus a
loss of one of the key rationales for making the acquisition;

. our failure to appreciate the dynamics of markets in which we have
limited or no prior experience;

. the diversion of management's attention from our core businesses;

. any difficulties we experience in assimilating the operations of an
acquired business or in realizing projected efficiencies, cost savings
and revenue synergies;

. our failure to assess or discover liabilities;

. the dilution of our stockholders' equity and earnings per share,
particularly if we finance the acquisitions with equity; and

. an increase in our debt and contingent liabilities, which in turn could
restrict our ability to access additional capital when needed or to
pursue other important elements of our business plan.

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<PAGE>

If we fail to manage our growth, our resources may be strained and our
ability to implement our business strategy will be harmed.

Our growth could place significant demands on our management and other
resources. In order to manage our growth effectively, we must continue to
develop and improve our operational, financial and other internal systems, as
well as our business development capabilities, and we must continue to
attract, train, retain, motivate and manage our employees. We may not succeed
in these efforts.

RISKS THAT RELATE TO OUR BUSINESS

We are subject to a number of risks that are particular to our business and
that may or may not affect our competitors. We describe some of these below.
If any of these risks materializes, our business, financial condition and
results of operations could be harmed, and our stock price could fall.

Our key employees are critical to our continued success. The loss of any of
these employees could impair our ability to execute our strategy or grow our
business.

Our future success will depend in part upon the continued services of a
number of key management and technical employees. The loss of any of our key
personnel could hurt our ability to execute our strategy and grow our
business. We do not maintain key-person life insurance on any of our
employees. In addition, if one or more of our key employees resigns to join a
competitor or to form a competing business, we could lose existing or
potential clients. In the event we lose any of these employees, we may not be
able to prevent the disclosure or use of our proprietary technical knowledge,
practices and procedures.

We need to recruit, train and retain qualified employees to successfully grow
our business.

Our success depends on our ability to recruit, train, retain, motivate and
manage highly skilled employees. Qualified project managers, software
architects and senior technical and professional staff with the skills we need
are in great demand worldwide and are likely to remain a limited resource for
the foreseeable future. We may not be able to hire a sufficient number of
highly skilled employees. In addition, the highly competitive labor market may
require us to raise salaries faster than we have in the past, and faster than
we raise our billing rates.

We have experienced a high rate of attrition in the past, particularly
around the time of our management change. If we continue to experience high
rates of attrition, it will be even more difficult to execute our growth
strategy.

We may also be unsuccessful in training, retaining and motivating our
employees. If our employees do not achieve the required levels of performance,
our ability to manage and staff existing projects and to obtain new projects
might suffer.

We are changing our name.

We are changing our name to Concero Incorporated. Although we have filed a
trademark application for this name, we may be unable to protect our name or
prevent others from using our name. Our planned advertisement of the change
and promotion of our new brand may fail to reach important segments of our
potential customer base, and our marketing campaign may yield little results.

We may not be able to protect our intellectual property and proprietary
rights.

Our proprietary intellectual property consists of the business processes and
software that we develop to assist clients. Our efforts to protect our
proprietary rights may not be adequate to deter theft or misuse of our
intellectual property. We may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If
third parties infringe, misappropriate or copy our trade secrets, proprietary
processes, copyrights, trademarks or other proprietary information, we could
lose important competitive advantages.

14
<PAGE>

We could be subject to claims that we infringe the intellectual property
rights of others.

There has been a marked increase in patent and intellectual property
litigation in recent months, particularly involving competitors in the
technology sector. Although we are not aware that any of our activities
infringe the patent or other intellectual property rights of others, we have
not sought any formal assurances that this is the
case. Other parties may assert infringement claims against us or claim that we
have violated their intellectual property rights. These claims, even if not
true, could result in significant legal and other costs and may distract our
management. If we are required to stop using a particular methodology or
technology because of an infringement lawsuit, it could become extremely
difficult to carry out our business plans.

We depend on a small number of clients for a significant portion of our
revenues.

In 1999, we derived 51% of our revenue from our five largest clients. Our
largest client in 1999 accounted for 26% of our revenue in that year. The
volume of work performed for specific clients is likely to vary from year to
year, and a major client in one year may not use our services in another year.
The loss or reduction of our revenue due to a decline in services performed
for any large client could harm our business.

Our lack of long-term contracts with clients makes our revenues difficult to
predict.

Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. As a result, the size and number of client
engagements are difficult to predict, and vary markedly from quarter to
quarter. At the same time, our operating expenses are relatively fixed and
cannot be reduced on short notice for unanticipated shortfalls in our revenue.
This is because our most significant operating expense is employee salaries.

Moreover, our clients can generally reduce the scope of our services or
cancel our engagements without penalty and with little or no notice. If a
client postpones, modifies or cancels an engagement or chooses not to retain
us for additional phases of a project, we might not be able to redeploy our
employees quickly to other engagements.

Some of our client contracts are on a fixed-price basis. If we fail to
accurately estimate the resources required for a fixed-price project, our
profitability could be harmed.

During 1997, 1998 and 1999, we generated approximately 20%, 16% and 21%,
respectively, of our revenue on a fixed-price, fixed-delivery-schedule basis,
rather than on a time-and-materials basis. If we fail to accurately estimate
the resources required for a fixed-price project or fail to complete our
obligations on time, our revenues could be harmed and our expenses could
increase. We sometimes must revise project plans after beginning a project
because we failed to accurately estimate the resources required.

RISKS THAT RELATE TO OUR INDUSTRY

We are subject to a number of risks that are inherent in the technology
industry. We describe some of these below. If any of these risks materializes,
our business, financial condition and results of operations could be harmed,
and our stock price could fall.

Our industry is intensely competitive.

We expect competition to persist and intensify in the future. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully, our business would be
seriously harmed. Competition can make it more difficult for us to:

. attract and retain customers;

. expand our sales and marketing activities;

15
<PAGE>

. create and maintain the strategic relationships that are vital to
success in the Internet and e-business marketplace, and thus develop and
acquire knowledge of leading-edge technologies; and

. recruit and maintain the highly skilled technical staff that our
business model demands.

We compete against numerous companies that offer Internet services, software
engineering, systems integration, or management consulting, as well as the
consulting divisions of large accounting firms. Because relatively low
barriers to entry characterize the market, we expect other companies to enter
our market. Some large information technology firms have announced that they
will focus more resources on e-business opportunities.

Many of our current competitors have longer operating histories, larger
client bases, larger professional staffs, greater brand recognition and
greater financial, technical, marketing and other resources than we do. This
may place us at a disadvantage in responding to our competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. In addition, many of our competitors have
well established relationships with our current and potential clients and have
extensive knowledge of our industry. As a result, our competitors may be able
to respond more quickly to new or emerging technologies and changes in
customer requirements, and they may also be able to devote more resources to
the development, promotion and sale of their services than we can. Competitors
that offer more standardized or less customized services than we do may have a
substantial cost advantage, which could force us to lower our prices,
adversely affecting our operating margins.

Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.

Our success depends on the continued growth and acceptance of advanced
technologies.

Our future success depends heavily on the further widespread use of the
Internet as a means for commerce, and consumer and commercial acceptance of
eTV and broadband. Despite the large amount of investor and media attention
these technologies have received, they are in early stages of development and
it is difficult to predict whether or how they will continue to develop.
Development of these technologies could be hindered by a number of factors,
such as government regulation, taxation, general economic conditions and lack
of consumer acceptance. If these new technologies fail to gain widespread
acceptance or grow more slowly than expected, our business opportunities will
diminish.

RISKS THAT RELATE TO OUR STOCK

Our stock price is subject to a number of risks. We describe some of these
below. If any of these risks materializes, our stock price could fall.

Our quarterly operating results will vary, which may affect the market price
of our common stock in a manner unrelated to our long-term performance.

Our quarterly operating results have varied in the past and we expect that
they will continue to vary in the future depending on a number of factors,
many of which are outside of our control. Factors that may cause our quarterly
operating results to vary include:

. the number, size and scope of projects in which we are engaged;

. the contractual terms and degree of completion of these projects;

16
<PAGE>

. any delays incurred in connection with a project;

. our success in earning bonuses or other contingent payments;

. our employee hiring and utilization rates;

. the adequacy of provisions for losses;

. the accuracy of our estimates of resources required to complete ongoing
projects;

. customer budget cycles and spending priorities; and

. general economic conditions.

A high percentage of our operating expenses, particularly personnel and
rent, are fixed in advance of any particular quarter. As a result,
unanticipated variations in the number of our projects, in our progress on
projects or in our employee utilization rates may cause significant variations
in operating results in any particular quarter. Given the possibility of these
quarterly fluctuations, we believe that comparisons of our quarterly results
are not necessarily meaningful and that results for one quarter should not be
relied upon to predict our future performance.

Nevertheless, any quarterly shortfall in revenue or earnings from expected
levels, or other short-term failures to meet the expectations of securities
analysts or the market in general, can have an immediate and damaging effect
on the market price of our common stock.

Our common stock may experience extreme price and volume fluctuations.

The stock market, from time to time, has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet and
technology companies have been especially volatile, including fluctuations
that often are unrelated to the operating performance of the affected
companies. Broad market fluctuations of this type may adversely affect the
market price of our common stock.

The market price of our common stock has fluctuated since we became a public
company. Our stock price could continue to fluctuate significantly due to a
variety of factors, including:

. public announcements concerning us, our competitors or the technology
industry;

. fluctuations in our operating results;

. introductions of new products or services by us or our competitors;

. changes in analysts' revenue or earnings estimates; and

. announcements of technological innovations.

In the past, companies that have experienced volatility in the market price
of their stock have been the target of securities class action litigation. If
we were sued in a securities class action, we could incur substantial costs
and suffer from a diversion of our management's attention and resources.

ITEM 2. PROPERTIES

Our executive offices and primary facility are located in Austin, Texas, in
a leased facility of approximately 47,400 square feet in two adjacent
buildings. This lease expires on December 31, 2003 with respect to both
premises and is renewable at the option of the Company for an additional five-
year term. The Austin facility is located in the high tech center of Austin
near other leading technology firms, and includes sophisticated laboratory,
network and server facilities to support our operations and project work on a
variety of computing platforms.

17
<PAGE>

We have approximately 4,500 square feet of office space in San Francisco,
California located in the heart of the financial district. PSW has
approximately 6,700 square feet of additional office space in Bellevue,
Washington, strategically located near Microsoft. This facility primarily
provides office and laboratory space for the Company's Windows NT porting
center, and also supports sales. We also have approximately 5,300 square feet
of office space in Framingham, Massachusetts. In addition, we have offices
located in Chicago, New York City, Atlanta, Los Angeles and Dallas.

Our employees are also located at client sites throughout the United States,
including Raleigh, Costa Mesa, and Stamford. Additional office expansion is
anticipated in 2000. We believe that our existing facilities are adequate to
meet our current needs and that suitable additional or alternative space will
be available in the future on commercially reasonable terms, if and as needed.

ITEM 3. LEGAL PROCEEDINGS

We are involved from time to time in routine legal proceedings incidental to
the conduct of our business. We are not currently a party to any material
legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of our security holders, through the
solicitation of proxies or otherwise.

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<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has traded on the Nasdaq National Market under the symbol
"PSWT" since its initial public offering on June 5, 1997. Prior to the initial
public offering, there had been no public market for the common stock. The
following table sets forth the quarterly high and low sale prices for our
common stock as reported by the Nasdaq National Market for the two most recent
fiscal years:

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Fourth quarter of 1999...................................... $25.25 $4.50
Third quarter of 1999....................................... $ 6.50 $3.56
Second quarter of 1999...................................... $ 4.25 $2.63
First quarter of 1999....................................... $ 4.75 $2.50
Fourth quarter of 1998...................................... $ 4.50 $1.88
Third quarter of 1998....................................... $ 7.38 $1.94
Second quarter of 1998...................................... $ 9.63 $5.50
First quarter of 1998....................................... $15.50 $6.00
</TABLE>

As of February 29, 2000, there were 9,785,163 shares of our Common Stock
outstanding held by 58 stockholders of record. We paid a cash dividend to our
stockholders of record immediately prior to the completion of the initial
public offering in an amount estimated to approximate the 1997 income tax that
such stockholders are required to pay on the 1997 taxable income allocated to
them as a result of our prior S Corporation status. We currently intend to
retain any earnings for the operations and expansion of our business and do
not anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our Board of Directors and will
depend upon our earnings, financial condition, cash requirements, future
prospects, contractual restrictions and other factors deemed relevant by the
Board of Directors.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

We commenced operations as a corporation effective October 1, 1996. Prior to
that date, we conducted our business and operations as the software division
of Pencom Systems Incorporated. The selected financial data presented below
have been derived from our audited financial statements and those of our
predecessor and include the portion of a software contract that had previously
been allocated to Pencom. The statements of operations data for the years
ended December 31, 1997, 1998 and 1999 and the balance sheet data as of
December 31, 1998 and 1999 are derived from our financial statements that
appear herein. The statements of operations data for the years ended December
31, 1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and
1997 are derived from our audited financial statements that do not appear
herein. The information presented below does not necessarily reflect what our
financial condition and results of operations would have been had we operated
as a separate, stand-alone company for the periods presented prior to October
1, 1996, nor is it necessarily indicative of future results. The following
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements
and notes thereto appearing elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
In thousands, except per share data
STATEMENTS OF OPERATIONS DATA:
Revenue............................. $21,147 $31,274 $44,118 $39,101 $45,823
Operating expenses:
Technical staff................... 11,193 16,444 22,479 23,440 25,377
Selling and administrative staff.. 3,755 5,622 8,405 10,121 9,034
Other expenses.................... 3,976 5,684 7,979 8,933 9,504
Special compensation expense...... -- 2,193 268 75 16
------- ------- ------- ------- -------
Total operating expenses........ 18,924 29,943 39,131 42,569 43,931
------- ------- ------- ------- -------
Income (loss) from operations....... 2,223 1,331 4,987 (3,468) 1,892
Interest income (expense), net...... (84) (170) 431 946 1,018
------- ------- ------- ------- -------
Income (loss) before provision
(benefit) for income taxes......... 2,139 1,161 5,418 (2,522) 2,910
------- ------- ------- ------- -------
Provision (benefit) for income
taxes:
Nonrecurring charge for
termination of Subchapter S
election......................... -- -- 1,200 -- --
C corporation taxes................. -- -- 1,000 (1,060) 1,130
------- ------- ------- ------- -------
Net income (loss)................... $ 2,139 $ 1,161 $ 3,218 $(1,462) $ 1,780
======= ======= ======= ======= =======
Diluted earnings (loss) per share... $ (0.16) $ 0.17
======= =======
Unaudited pro forma information:
Historical income before provision
for income taxes................... $ 2,139 $ 1,161 $ 5,418
Pro forma provision for income
taxes............................ 813 441 1,900
------- ------- -------
Pro forma net income................ $ 1,326 $ 720 $ 3,518
======= ======= =======
Pro forma diluted earnings per
share............................ $ 0.20 $ 0.11 $ 0.41
======= ======= =======
Shares used in diluted earnings
(loss) per share calculation....... 6,635 6,689 8,517 9,113 10,501
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA:
Working capital..................... $ 2,756 $ 1,648 $28,074 $27,379 $29,260
Total assets........................ 4,982 11,943 35,420 33,351 37,816
Total stockholders' equity.......... 3,684 3,444 31,859 31,068 33,422
</TABLE>

20
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussion and analysis below contains 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 risks and
uncertainties, such as statements for the plans, objectives, expectations and
intentions of PSW. Such forward looking statements are generally accompanied
by words such as "plan," "estimate," "expect," "believe," "could," "would,"
"anticipate," "may," or other words that convey uncertainty of future events
or outcomes. These forward-looking statements and other statements made
elsewhere in this report are made in reliance on the Private Securities
Litigation Reform Act of 1995. The section below entitled "Certain Factors
That May Affect Future Results, Financial Condition and Market Price of
Securities" sets forth certain factors that could cause actual future results
of the Company to differ materially from these statements.

OVERVIEW

In late 1998, we hired our current chief executive officer and began
building our current management team. In 1999, this team redefined our focus
from providing primarily software development services to providing primarily
e-business solutions. We also began to develop alliance relationships with
leading providers of e-business technologies. We believe this allows us to
leverage our strengths and experience, in addition to expertise developed
providing services to our alliance partners, to offer our clients high value
strategic e-business solutions. We have restructured our line operations
geographically into three areas: East, Central and West. We intend to broaden
our management team in 2000 to further drive our service offerings
aggressively throughout the United States. Each area is supported by our
national eStrategy, eSolutions, ePerformance and eTV and Broadband practices
to ensure that our service offerings incorporate the newest technologies and
to facilitate knowledge capture and transfer throughout the company. See
"Business" for a more comprehensive discussion.

Given our shift in strategy, our results of operations prior to 1999 do not
necessarily reflect our current business. The shift resulted in an improvement
in our average hourly bill rate from the fourth quarter of 1998 to the fourth
quarter of 1999. As we focus on strategic engagements, our technical staff
should be able to command higher billing rates than they could have when
providing software development services. However, our utilization rates
trended lower in 1999 from historical levels primarily because of the higher
technical staff hours devoted to training and to selling e-business solutions.
In the future, the shorter time frames of these engagements mean that our
technical staff may spend more time focusing on marketing and training
activities between projects. Nonetheless, overall revenue per billable
headcount improved from the fourth quarter of 1998 to the fourth quarter of
1999. Although the net effect for us in 1999 was positive, we cannot be sure
that this will continue in future periods.

We are changing our name to Concero and launching a national branding
campaign. We have engaged a national branding agency and a public relations
firm to assist with the launch of our branding campaign and other on-going
awareness activities. We believe that our name change and related advertising
and promotional activities will enable us to communicate our capabilities as
an e-business solutions provider to prospective clients and employees.
Moreover, we intend to pursue acquisitions that provide access to
complementary skills or provide additional talented professionals, allow us to
expand our geographic presence or increase our client base.

REVENUE

We derive our revenues from fees for services that are generated on an
engagement-by-engagement basis. In 1999, we derived approximately 79% of
revenues from time and materials contracts. We recognize revenues

21
<PAGE>

generated under time and materials contracts as the services are provided. For
fixed price contracts, which accounted for the balance of our 1999 revenues,
we recognize revenues using the percentage-of-completion method. Using this
method, we recognize revenue proportionate to the percentage of units of labor
incurred to the date of measurement relative to the estimated total units of
labor for completion. Revenues exclude expenses reimbursed by clients.
Software licensing fees do not constitute a material portion of our revenue
base.

Our largest client, IBM, accounted for 35% and 26% of revenue in 1998 and
1999, respectively. Our work for IBM decreased to 20% of revenue in the fourth
quarter of 1999 and is expected to decline further in 2000. The IBM revenue is
with three different IBM organizations, IBM, Tivoli and Lotus.

EXPENSES

Our technical staff expenses consist of the cost of salaries, payroll taxes,
health insurance and workers' compensation for technical staff personnel
assigned to client engagements and unassigned technical staff personnel, and
fees paid to any subcontractors for work performed in connection with a client
engagement. We expect that our technical staff expenses will increase over
time due to increased hiring, inflation and wage increases resulting from the
highly competitive labor market.

Selling and administrative staff expenses consist of the cost of salaries,
payroll taxes, health insurance and workers' compensation for selling,
marketing and administrative personnel, and all commissions and bonuses
whether paid to technical or administrative staff. We expect selling and
administrative staff expenses to increase in absolute dollars as our business
increases to support the growth in our revenues and technical staff.

Other expenses consist of all non-staff related costs, such as occupancy
costs, travel, business insurance, business development, recruiting, training
and depreciation. We expect other expenses to increase in absolute dollars as
we increase our recruiting efforts, open new offices, continue branding
initiatives, and incur additional costs related to the growth of our business.

RESULTS OF OPERATIONS

The following table sets forth the percentage of revenue of certain items
included in our statements of income for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue...................................................... 100% 100% 100%
Operating expenses:
Technical staff............................................. 51 60 55
Selling and administrative staff............................ 19 26 20
Other expenses.............................................. 18 23 21
Special compensation expense................................ 1 -- --
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Total operating expenses................................... 89 109 96
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Income (loss) from operations................................ 11 (9) 4
Interest income (expense), net............................... 1 2 2
Provision (benefit) for income taxes......................... 4 (3) 2
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Net income (loss)............................................ 8% (4)% 4%
<CAPTION>
==== ==== ====
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Revenue. Our revenue was $45.8 million in 1999, up 17% from 1998 revenue of
$39.1 million, principally due to the improvement in our average hourly bill
rate. This improvement in our average hourly bill rate resulted

22
<PAGE>

from our shift from performing primarily software development support services
to developing strategic e-business and eTV solutions. This was partially
offset by a decrease in our average technical personnel utilization rate.

IBM, including its wholly owned subsidiaries, Tivoli and Lotus, accounted
for 26% and 35% of revenue in 1999 and 1998, respectively. No other customer
accounted for more than 10% of revenue in 1999 or 1998.

Technical Staff. Technical staff expenses were $25.4 million in 1999, an
increase of 8% over 1998 technical staff expenses of $23.4 million. Technical
staff expenses decreased to 55% of revenue in 1999 from 60% in 1998 primarily
as a result of higher revenues offset slightly by an increase in average
salaries.

Selling and Administrative Staff. Selling and administrative staff expenses
were $9.0 million in 1999, a decrease of 11% from $10.1 million in 1998. The
decrease in selling and administrative staff expenses was primarily due to
higher efficiency as a result of the restructuring that aligned sales and
marketing with service delivery. This resulted in a decreased headcount
assigned to sales and proposal development. Selling and administrative staff
expenses decreased to 20% of revenue in 1999 from 26% of revenue in 1998. The
decrease in selling and administrative staff expenses as a percentage of
revenue is due primarily to the increase in revenues and the increased
efficiencies described above.

Other Expenses. Other expenses were $9.5 million in 1999, an increase of 6%
over other expenses of $8.9 million in 1998. The increase is principally due
to facility additions, and higher recruiting, training, legal and travel
costs. Other expenses were 21% of revenue in 1999 compared to 23% in 1998.

Income (Loss) from Operations. We recorded income from operations of $1.9
million in 1999, up from a loss of $3.5 million from operations in 1998.

Income Taxes. The provision for income taxes of $1,130,000 attributable to
December 31, 1999 is computed using an effective tax rate of 39%, which
differs from the federal statutory rate of 34% as a result of state taxes. The
tax benefit for income taxes of $1,060,000 attributable to December 31, 1998
is computed using an effective tax rate of 42% which differs from the federal
statutory rate of 34% as a result of state taxes and tax-exempt income. The
1998 net operating loss was carried back to 1997 and was fully utilized.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenue. Revenue was $39.1 million in 1998, down 11% from 1997 revenue of
$44.1 million, principally due to the decrease in services we performed for
IBM and a decrease in technology user revenue during 1998.

IBM, including its wholly owned subsidiaries, accounted for 35% and 39% of
revenue in 1998 and 1997, respectively. No other customer accounted for more
than 10% of revenue in 1998 or 1997.

Technical Staff. Technical staff expenses were $23.4 million in 1998, an
increase of 4% over 1997 technical staff expenses of $22.5 million. The
increase in technical staff expenses was primarily due to our overestimating
the number of personnel required for client engagements.

Selling and Administrative Staff. Selling and administrative staff expenses
were $10.1 million in 1998, an increase of 20% from $8.4 million in 1997. The
increase in selling and administrative staff expenses was primarily due to an
increase in the number of sales and marketing personnel in 1998.

Other Expenses. Other expenses were $8.9 million in 1998, an increase of 12%
over other expenses of $8.0 million in 1997. The increase is principally due
to facility additions, travel and bad debt expenses and severance costs.

Income (Loss) from Operations. We recorded a loss from operations of $3.5
million in 1998, down from $5.0 million of income from operations in 1997.

23
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Our operating activities provided cash of $1.7 million and $3.1 million in
1999 and 1997, respectively. Our operating activities used cash of $1.7
million in 1998. Total repayments of borrowings were $5.1 million in 1997. We
purchased approximately $2.1 million, $1.8 million and $2.6 million of
computer and office equipment in 1999, 1998 and 1997, respectively. At
December 31, 1999, we had cash and cash equivalents and short-term investments
totaling $20.3 million.

At December 31, 1999, we did not have any material commitments for capital
expenditures. We have budgeted approximately $4 million for capital
expenditures for fiscal 2000. Our capital expenditures normally consist
primarily of purchases of laptop computers, computer servers and furniture,
the amount of which fluctuates based on the number of additional employees we
hire and the number of new offices that we open in any period.

The number of days of revenue in our accounts receivable balance fluctuated
from 65 days to 84 days during 1999 and was 84 days at December 31, 1999. We
may experience longer collection periods if the work we perform for smaller
companies increases as a percentage of our total services.

We anticipate that our existing cash and cash equivalents balances, proceeds
from this offering and potential cash flows from operations will be adequate
to fund our working capital and capital expenditure requirements for at least
the next 12 months. However, changes may occur that could consume available
capital resources before such time. Our capital requirements depend on
numerous factors, including potential acquisitions, the timing of the receipt
of accounts receivable, employee growth and the percentage of projects
performed at our facilities.

We currently do not maintain any committed credit facilities. We cannot
assure you that commercial credit, if necessary, will be available to us on
favorable terms, or at all.

YEAR 2000 COMPLIANCE

Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately distinguish pre-2000 from post-2000 dates
due to the two-digit date fields used by many systems. Most indications to
date, however, are that computer systems are functioning normally and the
compliance and remediation work accomplished leading up to 2000 was effective
to prevent any problems. Computer experts have warned that there may still be
residual consequences of the change in dates. Any of these residual
difficulties could result in a decrease in sales of our services, an increase
in allocation of resources to address Year 2000 problems of our customers
without additional revenue commensurate with such dedication of resources, or
an increase in litigation costs relating to losses suffered by our customers
due to Year 2000 problems. We have experienced no significant Year 2000
problems or incurred any material costs related to Year 2000 issues.
Furthermore, we do not expect any material expenditures related to residual
Year 2000 difficulties and thus have no contingency plan to address any Year
2000 problems.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We do not use derivative financial instruments in its non-trading investment
portfolio. We place our investments in instruments that meet high credit
quality standards, as specified by the our investment policy.

We are exposed to cash flow and fair value risk from changes in interest
rates, which may affect our financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, we
manage exposures through ongoing evaluation of our investment portfolio. We do
not use financial instruments for trading or other speculative purposes.

24
<PAGE>

The table below provides information about our non-trading investment
portfolio. For investment securities, the table presents principal cash flows
and related weighted average fixed interest rates by expected maturity dates.

<TABLE>
<CAPTION>
INVESTMENTS
MATURING WEIGHTED FAIR VALUE
BEFORE AVERAGE AT
DECEMBER 31, INTEREST DECEMBER 31,
AT DECEMBER 31, 1999 2000 RATE 1999
- -------------------- ------------- ---------- -------------
(IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C>
Money market funds............... $ 2,292 5.58% $ 2,292
Corporate issues................. 15,857 5.89% 15,857
------------- ---------- -------------
$ 18,149 5.85% $ 18,149
============= ========== =============
<CAPTION>
INVESTMENTS WEIGHTED FAIR VALUE
MATURING AVERAGE AT
DURING INTEREST DECEMBER 31,
AT DECEMBER 31, 1998 1999 RATE 1998
- -------------------- ------------- ---------- -------------
(IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C>
Money market funds............... $ 1,571 4.70% $ 1,571
Government issues................ 2,723 4.79% 2,710
Corporate issues................. 13,411 5.42% 13,234
Commercial paper................. 1,635 5.14% 1,621
------------- ---------- -------------
$ 19,340 5.25% $ 19,136
============= ========== =============
</TABLE>

25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PSW TECHNOLOGIES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
Report of Independent Auditors........................................... F-2

Balance Sheets as of December 31, 1998 and 1999.......................... F-3

Statements of Operations for the years ended December 31, 1997, 1998 and
1999.................................................................... F-4

Statements of Stockholders' Equity for the years ended December 31, 1997,
1998 and 1999........................................................... F-5

Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999.................................................................... F-6

Notes to Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Stockholders and Board of Directors
of PSW Technologies, Inc.

We have audited the accompanying balance sheets of PSW Technologies, Inc. as
of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PSW Technologies, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Austin, Texas
January 14, 2000

F-2
<PAGE>

PSW TECHNOLOGIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
------- -------
(IN THOUSANDS,
EXCEPT SHARE
AND PER SHARE
DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 1,167 $ 2,108
Short-term investments................................ 19,136 18,149
Accounts receivable, net of allowance for doubtful
accounts of $260 and $380 in 1998 and 1999,
respectively......................................... 6,171 10,840
Unbilled revenue under customer contracts............. 1,070 1,150
Income tax receivable................................. 896 --
Net current deferred income taxes..................... 334 447
Prepaid expenses and other current assets............. 572 445
------- -------
Total current assets................................ 29,346 33,139
Property and equipment, net............................. 4,005 4,677
------- -------
Total assets............................................ $33,351 $37,816
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables........................................ $ 460 $ 925
Accrued expenses and other current liabilities........ 1,507 2,954
------- -------
Total current liabilities........................... 1,967 3,879
Net deferred income taxes............................... 316 515
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
shares authorized and none issued and outstanding...... -- --
Common stock, par value $.01 per share, 34,000,000
shares authorized, 9,293,866 and 9,666,535 shares is-
sued and outstanding at December 31, 1998 and 1999, re-
spectively............................................. 93 97
Additional paid-in capital.............................. 29,995 30,491
Deferred compensation................................... (44) --
Accumulated other comprehensive income.................. (69) (39)
Retained earnings....................................... 1,093 2,873
------- -------
Total stockholders' equity.......................... 31,068 33,422
------- -------
Total liabilities and stockholders' equity.............. $33,351 $37,816
======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE>

PSW TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue....................................... $44,118 $39,101 $45,823
Operating expenses:
Technical staff............................. 22,479 23,440 25,377
Selling and administrative staff............ 8,405 10,121 9,034
Other expenses.............................. 7,979 8,933 9,504
Special compensation expense................ 268 75 16
------- ------- -------
Total operating expenses...................... 39,131 42,569 43,931
------- ------- -------
Income (loss) from operations................. 4,987 (3,468) 1,892
Interest income (expense), net................ 431 946 1,018
------- ------- -------
Income (loss) before provision (benefit) for
income taxes................................. 5,418 (2,522) 2,910
------- ------- -------
Provision (benefit) for income taxes:
Nonrecurring charge for termination of
Subchapter S election...................... 1,200 -- --
C Corporation............................... 1,000 (1,060) 1,130
------- ------- -------
Total provision (benefit) for income taxes.... 2,200 (1,060) 1,130
------- ------- -------
Net income (loss)............................. $ 3,218 $(1,462) $ 1,780
======= ======= =======
Basic earnings (loss) per share............... $ (0.16) $ 0.19
<CAPTION>
======= =======
<S> <C> <C> <C> <C> <C>
Diluted earnings (loss) per share............. $ (0.16) $ 0.17
<CAPTION>
======= =======
<S> <C> <C> <C> <C> <C>
Unaudited pro forma information:
Historical income before provision for
income taxes............................... $ 5,418
Pro forma provision for income taxes........ 1,900
<CAPTION>
=======
<S> <C> <C> <C> <C> <C>
Pro forma net income........................ $ 3,518
<CAPTION>
=======
<S> <C> <C> <C> <C> <C>
Pro forma basic earnings per share.......... $ 0.48
<CAPTION>
=======
<S> <C> <C> <C> <C> <C>
Pro forma diluted earnings per share........ $ 0.41
<CAPTION>
=======
<S> <C> <C> <C> <C> <C>
Shares used in basic earnings (loss) per
share calculation.......................... 7,384 9,113 9,452
======= ======= =======
Shares used in diluted earnings (loss) per
share calculation.......................... 8,517 9,113 10,501
======= ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE>

PSW TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
OTHER
COMMON STOCK COMPRE- TOTAL
$0.01 PAR VALUE ADDITIONAL HENSIVE STOCK-
----------------- PAID-IN DEFERRED RETAINED INCOME HOLDERS'
SHARES AMOUNTS CAPITAL COMPENSATION EARNINGS (LOSS) EQUITY
--------- ------- ---------- ------------ -------- ------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 5,538,463 $ 55 $ 4,187 $(641) $ (157) $-- $ 3,444
Issuance of common
stock, net of issuance
costs of $3,816....... 3,285,500 33 25,698 -- -- -- 25,731
Employee stock purchase
plan issuance of
stock................. 53,732 1 410 -- -- -- 411
Exercise of stock
options............... 83,240 1 31 -- -- -- 32
Reclassification upon
termination of S
Corporation status.... -- -- (894) -- 894 -- --
Tax benefit related to
stock option
exercises............. -- -- 182 -- -- -- 182
Forfeiture of stock
options............... -- -- (130) 130 -- -- --
Dividend............... -- -- -- -- (1,400) -- (1,400)
Amortization of
deferred
compensation.......... -- -- -- 268 -- -- 268
Comprehensive Income:..
Net income............. -- -- -- -- 3,218 -- 3,218
Net unrealized loss on
investments........... -- -- -- -- -- (27) (27)
<CAPTION>
--------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income... -- -- -- -- -- -- 3,191
<CAPTION>
--------- ------- ---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 8,960,935 90 29,484 (243) 2,555 (27) 31,859
Employee stock purchase
plan issuance of
stock................. 93,747 2 417 -- -- -- 419
Exercise of stock
options and warrants.. 239,184 1 63 -- -- -- 64
Tax benefit related to
stock option
exercises............. -- -- 155 -- -- -- 155
Forfeiture of stock
options............... -- -- (124) 124 -- -- --
Amortization of
deferred
compensation.......... -- -- -- 75 -- -- 75
Comprehensive income:..
Net loss............... -- -- -- -- (1,462) -- (1,462)
Net unrealized loss on
investments........... -- -- -- -- -- (42) (42)
<CAPTION>
--------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income... -- -- -- -- -- -- (1,504)
<CAPTION>
--------- ------- ---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1998................... 9,293,866 93 29,995 (44) 1,093 (69) 31,068
Employee stock purchase
plan issuance of
stock................. 70,045 1 180 -- -- -- 181
Exercise of stock
options and warrants.. 302,624 3 153 -- -- -- 156
Tax benefit related to
stock option
exercises............. -- -- 191 -- -- -- 191
Forfeiture of stock
options............... -- -- (28) 28 -- -- --
Amortization of
deferred
compensation.......... -- -- -- 16 -- -- 16
Comprehensive income:..
Net income............. -- -- -- -- 1,780 -- 1,780
Net unrealized gain on
investments........... -- -- -- -- -- 30 30
<CAPTION>
--------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income... -- -- -- -- -- -- 1,810
<CAPTION>
--------- ------- ---------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1999................... 9,666,535 $ 97 $30,491 $ -- $2,873 $(39) $33,422
<CAPTION>
========= ======= ========== ============ ======== ======= ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

PSW TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................. $ 3,218 $(1,462) $ 1,780
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Special compensation............................ 268 75 16
Depreciation and amortization................... 825 1,100 1,363
Bad debt expense, net of recoveries............. 45 249 48
Changes in operating assets and liabilities:
Accounts receivable............................. (1,367) 1,009 (4,717)
Due from related party.......................... (258) -- --
Unbilled revenue under customer contracts....... (174) (652) (80)
Prepaid expenses and other current assets....... (157) (135) 127
Trade payables.................................. (420) (24) 465
Accrued expenses and other current liabilities.. 492 (615) 1,463
Income taxes.................................... 629 (1,206) 1,269
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities....................................... 3,101 (1,661) 1,734
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Purchase of short-term investments, net........... (22,497) -- --
Proceeds from sale of short-term investments,
net.............................................. -- 3,292 1,017
Acquisition of property and equipment............. (2,646) (1,782) (2,147)
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
Net cash provided by (used in) investing
activities....................................... (25,143) 1,510 (1,130)
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from (repayments on) line of credit,
net.............................................. (5,125) -- --
Proceeds from issuance of common stock, net of is-
suance costs..................................... 26,220 483 337
Dividend paid to S corporation stockholders....... (1,400) -- --
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
Net cash provided by financing activities......... 19,695 483 337
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
Net increase (decrease) in cash................... (2,347) 332 941
Cash, beginning of year........................... 3,182 835 1,167
<CAPTION>
-------- ------- -------
<S> <C> <C> <C>
Cash, end of year................................. $ 835 $ 1,167 $ 2,108
<CAPTION>
======== ======= =======
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid..................................... $ 137 $ 20 $ 10
Income taxes paid................................. $ 1,571 $ 148 $ 637
Income taxes recovered............................ $ -- $ -- $ 776
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Unrealized gain (loss) on investments............. $ (27) $ (42) $ 30
Reduction of income taxes payable associated with
the exercise of stock options.................... $ 182 $ 155 $ 191
Write-off of fully depreciated property and equip-
ment............................................. $ -- $ -- $ 112
</TABLE>

See accompanying notes.

F-6
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

We are an e-business services firm that offers strategic consulting skills
with deep technology and integration expertise. This combination enables us to
utilize existing and new technologies to provide reliable, flexible and
scalable e- business solutions. Our alliances with leading Internet and
interactive television technology providers allow us to gain a thorough
understanding of their products and perspective on other products as well as
next-generation technologies. Using our technology insight and skills, we
assist our clients to define, design, develop and deploy e-business solutions
that enhance their competitive positions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

Revenue from time and materials contracts is recognized during the period
for which the services are provided.

Revenue from fixed price contracts is recognized using the percentage-of-
completion method, measured by the percentage of units of labor incurred to
the date of measurement relative to the estimated total units of labor at
completion. The cumulative impact of revisions in estimates of the percentage
to complete is reflected in the period in which the revisions are made.
Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which such
losses are determined. Revenue earned in excess of billings is classified as
unbilled revenue under customer contracts. Billings in excess of earned
revenue are classified as deferred revenue. Revenue excludes reimbursable
expenses.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions, including estimates to complete contracts, that
affect the reported amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.

COSTS AND EXPENSES

Technical staff expense consists of the cost of (i) salaries, payroll taxes,
health insurance and workers' compensation for technical staff personnel
assigned to client projects, (ii) unassigned technical staff personnel and
(iii) fees paid to subcontractors for work performed in connection with client
projects.

Selling and administrative staff expense consists of (i) the cost of
salaries, payroll taxes, health insurance and workers' compensation for
selling and administrative personnel and (ii) all commissions and bonuses.

Other expenses consist of all non-staff related costs, such as occupancy
costs, travel, business insurance, business development, recruiting, training
and depreciation.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash balances, short-term investments
and trade accounts receivable. The Company invests its excess cash in highly
liquid investments (short-term bank deposits) and places its investments in
high quality securities with financial institutions of high credit standing.
The Company does not require collateral from its customers. The Company
maintains allowances for potential credit losses and such losses were not
material for any of the periods presented. The Company's customers are
headquartered primarily in North America.

F-7
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE

The Company has capitalized certain internal costs related to the
implementation of computer software obtained for internal use in compliance
with the Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" issued by the Accounting
Standards Executive Committee of the American Institute of Public Accountants.
Internal-use software is capitalized at cost and amortized, when ready for its
intended use, over the estimated useful life, generally three years.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization are computed based on the cost of the related
assets, using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Leasehold improvements are
amortized over the term of the related lease or estimated life of the
leasehold improvements, whichever is shorter.

ADVERTISING EXPENSE

The Company expenses advertising costs when incurred. Total advertising
expense amounted to approximately $175,000, $50,000 and $45,000 in 1997, 1998
and 1999, respectively.

STOCK-BASED COMPENSATION

FASB Statement No. 123, or SFAS No. 123, Accounting for Stock-Based
Compensation, prescribes accounting and reporting standards for all stock-
based compensation plans, including employee stock options. As allowed by SFAS
No. 123, the Company has elected to continue to account for its employee
stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, or APB No. 25, Accounting for Stock Issued to Employees.

INCOME TAXES

Upon formation, in August 1996, the Company elected to be treated as a
Subchapter S corporation, under the Internal Revenue Code of 1986 as amended,
whereby federal income taxes are the responsibility of the individual
stockholders. Accordingly, the Company did not provide for federal income
taxes. With the closing of the Company's initial public offering in 1997, the
Company's Subchapter S status was terminated and the Company became subject to
federal corporate income taxes.

In accordance with Statement of Financial Accounting Standards No. 109, or
SFAS No. 109, Accounting for Income Taxes, deferred income taxes were provided
for all temporary differences existing at the date of the Company's
termination of its Subchapter S status. This statement prescribes the use of
the liability method whereby deferred tax asset and liability account balances
are determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.

F-8
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):

<TABLE>
<CAPTION>
1997(A) 1998 1999
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $3,518 $(1,462) $ 1,780
<CAPTION>
======= ======= =======
<S> <C> <C> <C>
Denominator:
Shares used in basic earnings (loss) per share
calculation.................................... 7,384 9,113 9,452
Effect of dilutive securities:
Employee stock options........................ 627 -- 634
Warrants...................................... 506 -- 415
<CAPTION>
------- ------- -------
<S> <C> <C> <C>
Shares used in diluted earnings (loss) per share
calculation.................................... 8,517 9,113 10,501
<CAPTION>
======= ======= =======
<S> <C> <C> <C>
Basic earnings (loss) per share................... $ 0.48 $ (0.16) $ 0.19
<CAPTION>
======= ======= =======
<S> <C> <C> <C>
Diluted earnings (loss) per share................. $ 0.41 $ (0.16) $ 0.17
<CAPTION>
======= ======= =======
</TABLE>
- --------
(a) Net income and earnings per share amounts are presented on a pro forma
basis as if the Company had been subject to federal and state income
taxes.

Options to purchase 1.74 million shares of Common Stock at an average
exercise price of $2.73 per share and warrants to purchase 505,654 shares of
Common Stock at an exercise price of $0.04 per share were outstanding at
December 31, 1998, but were not included in the computation of diluted net
loss per share as its effect would be anti-dilutive.

PRO FORMA EARNINGS PER SHARE

The unaudited pro forma adjustment on the statement of operations for the
year ended December 31, 1997 reflects an adjustment to record a provision for
income taxes as if the Company had not been an S corporation.

SEGMENT INFORMATION

The Company identifies its operating segments based on geographical location
supported by national practices. In accordance with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", the Company has
aggregated its operating segments for reporting purposes as it operates in a
single business segment providing eBusiness professional services.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, which is
effective for fiscal years beginning after June 15, 2000. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133
will be effective for the Company's financial statements for the year ending
December 31, 2001. Management believes that this statement will not have a
material impact on the Company's financial position or results of operations.

In March 1999, the FASB issued an exposure draft entitled "Accounting for
Certain Transactions involving Stock Compensation," which is a proposed
interpretation of APB Opinion No. 25. However, the exposure draft

F-9
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

has not been finalized. Once finalized and issued, the current accounting
practices for transactions involving stock compensation may need to change and
such changes could affect the Company's future operating results.

RECLASSIFICATIONS

Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1998 1999
--------- ---------
<S> <C> <C>
Furniture and fixtures.................................. $ 1,243 $ 1,322
Computer equipment...................................... 3,440 4,078
Computer software....................................... 860 1,725
Leasehold improvements.................................. 460 632
<CAPTION>
--------- ---------
<S> <C> <C>
6,003 7,757
Less accumulated depreciation and amortization.......... 1,998 3,080
<CAPTION>
--------- ---------
<S> <C> <C>
$ 4,005 $ 4,677
<CAPTION>
========= =========
</TABLE>

4. SHORT-TERM INVESTMENTS

The Company determines the appropriate classification of investments at the
time of purchase and re-evaluates such designation at each balance sheet date.
The short-term investments have been classified as available-for-sale and are
carried at fair value (quoted market prices), with unrealized holding gains
and losses reported as a separate component of stockholders' equity. The cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, interest income, realized gains and
losses and declines in value judged to be other than temporary are included in
net interest and other income.

Information related to the Company's short-term investments at December 31,
1998 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Money market funds................... $ 1,571 $-- $-- $ 1,571
Government issues.................... 2,714 -- 4 2,710
Corporate issues..................... 13,294 4 64 13,234
Commercial paper..................... 1,626 -- 5 1,621
<CAPTION>
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
$19,205 $ 4 $ 73 $19,136
<CAPTION>
========= ========== ========== =======
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Money market funds................... $ 2,292 $-- $-- $ 2,292
Corporate issues..................... 15,896 3 42 15,857
<CAPTION>
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
$18,188 $ 3 $ 42 $18,149
<CAPTION>
========= ========== ========== =======
</TABLE>

F-10
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Gross gains and gross losses on the sale of investments were not significant
in 1998 and 1999. Short-term investments are generally comprised of variable
rate securities that provide for optional or early redemption within twelve
months and the contractual maturities are generally greater than twelve
months. As of December 31, 1999, the Company's debt securities all have
contractual maturities of less than one year.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in
thousands):

<TABLE>
<CAPTION>
AS OF
DECEMBER
31,
---------
1998 1999
---- ----
<S> <C> <C>
Prepaid expenses.................................................. $328 $354
Travel and payroll advances....................................... 3 49
Other current assets.............................................. 241 42
<CAPTION>
---- ----
<S> <C> <C>
$572 $445
<CAPTION>
==== ====
</TABLE>

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in
thousands):

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Accrued vacation.............................................. $ 320 $ 370
Accrued bonuses............................................... 141 837
Payroll and other taxes payable............................... 124 201
Other accrued expenses and current liabilities................ 922 1,546
<CAPTION>
------ ------
<S> <C> <C>
$1,507 $2,954
<CAPTION>
====== ======
</TABLE>

7. SIGNIFICANT CUSTOMERS

One customer and two of its wholly-owned subsidiaries accounted for
approximately 39%, 35% and 26% of total revenue for the years ended December
31, 1997, 1998 and 1999, respectively. This customer accounted for
approximately 9% of accounts receivable at December 31, 1999. No other
customer accounted for more than 10% of revenue in 1997, 1998 or 1999.

8. STOCKHOLDERS' EQUITY AND EMPLOYEE BENEFIT PLANS

On February 3, 1997, the Company's Board of Directors approved (a) an 8-for-
13 reverse stock split, which was effected on April 2, 1997, (b) an increase
in the Company's authorized common stock from 11,250,000 to 34,000,000 shares
and (c) an authorization of 1,000,000 shares of preferred stock of $.01 par
value. All common and preferred stock information has been adjusted to reflect
the stock split as if such split had taken place at the beginning of the
periods presented.

In June 1997, the Company completed an initial public offering of 2,850,000
shares of its authorized but unissued Common Stock at a price to the public of
$9.00 per share. In connection with the initial public offering, the Company
granted the underwriters of the offering an option to purchase up to 427,500
shares of Common Stock to cover over-allotments. On July 2, 1997, the
underwriters exercised their option, purchasing 427,500

F-11
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

shares of the Company's Common Stock. These transactions resulted in total net
proceeds from the initial public offering of $25.7 million (after deducting
offering expenses and the underwriters discount of approximately $3.8
million). The proceeds of the offering were used to repay indebtedness, to pay
certain corporate income tax obligations of the Company and to pay dividends
to existing stockholders of the Company in amounts estimated to approximate
certain of their 1997 income tax obligations, and for working capital and
other general corporate purposes.

As discussed in Note 11, the Company's S corporation status was terminated
immediately upon completion of its initial public offering. Additionally, the
Company was required to change its method of tax accounting from the cash to
accrual method. During 1997, the Company declared and paid a dividend of $1.4
million to the stockholders of the Company prior to the termination of the S
corporation status to pay the income taxes for the 1997 taxable earnings of
the Company allocated to them. The dividend payment was an estimate based upon
numerous assumptions, including taxable income attributable to the conversion
from the cash to the accrual method of accounting upon the termination of the
Company's S corporation status.

In September 1998, the Company's Board of Directors authorized the repricing
of options to purchase 737,495 shares of Common Stock effective as of the
close of business on September 29, 1998 to the then fair market value of $1.94
per share. Under the terms of the repricing, the repriced options shall become
exercisable in four successive equal annual installments from the September
29, 1998 grant date. The repriced options have a maximum term of ten years
measured from this date of grant. The Chief Executive Officer did not
participate in the repricing.

At December 31, 1999, the Company has reserved 333,271 shares of Common
Stock for issuance in connection with warrants outstanding and 2,947,000
shares of Common Stock for issuance under the Company's stock purchase and
stock option plans.

STOCK OPTION PLAN

Effective October 1, 1996, the Company's Board of Directors and stockholders
approved and adopted the PSW Technologies, Inc. 1996 Stock Option/ Stock
Issuance Plan (the "1996 Plan"). The aggregate number of shares issuable under
the 1996 Plan has been increased to 3,215,000 shares of the Company's common
stock for issuance to employees, directors and consultants of the Company.
Incentive stock options as defined in Section 422A of the Internal Revenue
Code of 1986 and nonqualified stock options may be issued under the 1996 Plan.
The exercise price for incentive stock options may not be less than fair
market value on the date of grant, or such greater amount necessary to qualify
as an incentive stock option. The options outstanding under the 1996 Plan
generally vest in four equal annual installments commencing on the first
anniversary of the grant and expire 10 years after the date of grant. Certain
of these options are subject to acceleration clauses.

Pursuant to the organization of the Company and the contribution of net
assets of the Software Division, the Company granted replacement options for
shares of its common stock under the 1996 Plan to its employees who
participated in the Pencom Option Plan and the Pencom Option Plan was
terminated. The replacement options were granted for the same number of shares
and at the same exercise price as those options granted to the employees under
the Pencom Option Plan. The grant date determining vesting was the original
grant date under the Pencom Option Plan. Under APB No. 25, the difference
between the estimated fair market value of the Company's common stock and the
options' exercise prices on the date of issuance was determined to be
approximately $2,179,000. This charge is being amortized for financial
reporting purposes over the vesting period of the options and the amount
recognized as expense during the years ended December 31, 1997, 1998 and 1999
amounting to approximately $268,000, $75,000 and $16,000, respectively, is
included in special compensation expense. A deferred tax benefit is recorded
for the amortized compensation expense.

F-12
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes stock option activity under the 1996 Plan:

<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES
---------------------------------------------------------
$0.04-$2.65 $2.75-$9.00 $10.25-$20.00 TOTAL
------------------ ------------------- ------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE AVERAGE
OF EXERCISE NUMBER OF EXERCISE OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- --------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 506,572 $0.43 717,757 $6.16 175,801 $12.35 1,400,130 $4.86
Granted during the year
(a).................... 780,745 1.96 983,082 4.77 12,800 11.15 1,776,627 3.59
Exercised during the
year................... (229,452) 0.11 (7,732) 4.98 -- -- (237,184) 0.27
Cancelled during the
year (a)............... (72,896) 1.50 (963,760) 6.40 (163,665) 12.31 (1,200,321) 6.90
-------- ----- --------- ----- -------- ------ ---------- -----
Balance at December 31,
1998................... 984,969 1.63 729,347 3.98 24,936 11.76 1,739,252 2.73
Granted during the
year................... 71,603 2.63 1,173,662 3.83 220,500 14.06 1,465,765 5.32
Exercised during the
year................... (120,560) 0.86 (9,666) 4.79 -- -- (130,226) 1.15
Cancelled during the
year................... (365,838) 1.96 (164,722) 3.98 -- -- (530,560) 2.59
Balance at December 31,
1999................... 570,174 $1.71 1,728,621 $3.88 245,436 $13.88 2,544,231 $4.34
======== ===== ========= ===== ======== ====== ========== =====
Exercisable at December
31, 1997............... 380,883 $0.20 130,693 $4.19 4,723 $13.08 516,299 $1.33
======== ===== ========= ===== ======== ====== ========== =====
Exercisable at December
31, 1998............... 203,536 $0.46 149,093 $4.55 17,994 $11.75 370,623 $2.65
======== ===== ========= ===== ======== ====== ========== =====
Exercisable at December
31, 1999............... 258,421 $1.43 337,293 $4.06 19,036 $11.87 614,750 $3.20
======== ===== ========= ===== ======== ====== ========== =====
Weighted average fair
value of options
granted during 1999.... $2.63 $3.83 $14.06 $5.32
===== ===== ====== =====
Weighted average remain-
ing contractual life in
years, at December 31,
1999................... 7.89 8.83 9.78 8.71
===== ===== ====== =====
</TABLE>
- --------
(a) Amount includes 737,495 shares pertaining to options repriced in September
1998.

WARRANTS

In connection with the spin-off of the Company from Pencom in October 1996,
the Company issued 5,538,463 shares of common stock and warrants to purchase
an aggregate of 507,669 shares of common stock at an exercise price of $0.04
per share. As of December 31, 1999, there were 333,271 warrants outstanding.
The warrants may be exercised in whole or in part, at any time prior to
October 1, 2006. In exchange for the shares and warrants issued, PSW received
an assignment of a 26.67% interest in the proceeds to be received from the
accounts receivable as of September 30, 1996 and substantially all the other
assets and liabilities.

EMPLOYEE STOCK PURCHASE PLAN

On February 3, 1997, the Board of Directors adopted the Company's Employee
Stock Purchase Plan (the "Purchase Plan") that allows eligible employees to
purchase shares of Common Stock, at semi-annual intervals,

F-13
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

through periodic payroll deductions under the Purchase Plan. A reserve of
400,000 shares of common stock has been established for this purpose. The
stockholders of the Company approved the Purchase Plan on March 17, 1997.

The Purchase Plan incorporates a series of successive offering periods, each
generally with a duration of six months. The initial purchase period began on
the date of the initial public offering and ended on October 31, 1997.
Thereafter, purchase periods begin on the first business day in November and
May of each year and end on the last business day of April and October,
respectively. Shares of Common Stock are purchased for each participant at the
end of each purchase period. The Company sold 53,732, 93,747 and 70,045 shares
of Common Stock to employees through the Purchase Plan in 1997, 1998 and 1999,
respectively.

Payroll deductions may not exceed 15% of base salary for each purchase
period and each employee's purchases are limited to 500 shares per purchase
period. The purchase price per share is eighty-five percent of the lower of
(a) the fair market value of the Common Stock on the start date of the
purchase period or (b) the fair market value at the end of the semi-annual
purchase period. The Purchase Plan will terminate on the last business day of
April, 2007.

EMPLOYEE RETIREMENT PLAN

The Company maintains a defined contribution plan (the "Plan") pursuant to
Section 401(k) of the Internal Revenue Code for employees who are at least 21
years of age. Eligible employees can elect to reduce their current
compensation up to the statutory prescribed limit and have the amount of such
reduction contributed to the Plan. The Plan also allows for the Company to
make contributions on behalf of eligible employees. The Company contributed
approximately $132,000 and $180,000 to the Plan in 1998 and 1999,
respectively. No contributions were made to the Plan in 1997 by PSW.

PRO FORMA INFORMATION

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for option grants under the 1996 Plan and purchases of Common Stock
under the Purchase Plan using the fair value method of that Statement. The
fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
1997 1998 1999
OPTION OPTION OPTION
ASSUMPTION GRANTS GRANTS GRANTS
---------- ------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... 6.34% 6.00% 6.00%
Dividend yield.................................. 0% 0% 0%
Volatility factor of the market price of the
Company's common stock......................... 0.521 0.771 1.14
Average life.................................... 6 years 6 years 6 years
</TABLE>

For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
------- -------- -------
<S> <C> <C> <C>
Pro forma stock-based compensation expense....... $ 1,074 $ 2,175 $ 2,986
Pro forma net income (loss)...................... $ 2,693 $ (4,697) $ (41)
Pro forma basic earnings (loss) per share........ $ 0.36 $ (0.52) $ 0
Pro forma diluted earnings (loss) per share...... $ 0.32 $ (0.52) $ 0
</TABLE>

F-14
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

9. RELATED PARTY TRANSACTIONS

The Company utilizes non-exclusive recruiting services provided by Pencom.
Two of Pencom's majority shareholders and its chief financial officer are
members of the Board of the Company (one of whom is the chairman of the
Board). Management believes that the terms and fees paid in connection with
such recruiting services are comparable to agreements maintained by the
Company with other unrelated recruiting firms and will continue to use these
recruiting services on a non-exclusive basis pursuant to an agreement entered
into with Pencom. In addition, certain expenses were allocated by Pencom to
the Company in 1997. Management believes that the allocations were reasonable.
Services provided and rental expenses allocated to PSW were as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Services performed by related party:
Recruiting services.............................. $ 60 $ -- $ 53
Contracted technical services.................... 9 62
Legal and accounting............................. 28 -- --
Allocated expenses:
Rent............................................. 37 -- --
<CAPTION>
-------- -------- -------
<S> <C> <C> <C>
Total related party expenses................... $ 134 $ 62 $ 53
<CAPTION>
======== ======== =======
</TABLE>

10. COMMITMENTS

The Company leases its office space through noncancellable operating lease
arrangements, which contain escalating lease payments. Future minimum rental
commitments are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 (AMOUNTS IN THOUSANDS):
------------------------------------------------
<S> <C>
2000................................................................... $2,207
2001................................................................... 2,043
2002................................................................... 1,937
2003................................................................... 1,877
2004................................................................... 387
Thereafter............................................................. 26
<CAPTION>
------
<S> <C>
Total................................................................ $8,477
<CAPTION>
======
</TABLE>

Minimum future rentals receivable under the noncancelable operating
subleases at December 31, 1999 amounted to $850,000.

The premises previously occupied by the Company in Texas were leased by
Pencom. In connection with the office relocation in January 1997, the Company
transferred leasehold improvements with a net book value of approximately
$69,000 to Pencom. Pencom has subleased these premises. However, the Company
entered into an agreement with Pencom to guarantee Pencom's sublease income.
Future minimum sub-lease rental income that the Company has guaranteed is
$285,000 for the year ended 2000 as the lease ends in September 2000.

Rent expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $1,258,000, $1,566,000 and $1,673,000, respectively.

F-15
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES

From commencement through June 5, 1997, the Company had elected to be
treated as an S Corporation under Subchapter S of the Internal Revenue Code of
1986, as amended. As such, federal income taxes attributable to income through
June 5, 1997, were the responsibility of the individual stockholders.

As a result of the initial public offering in June of 1997, the Company's
Subchapter S status was terminated for federal and state tax purposes and the
Company recorded a deferred tax charge against income of approximately
$1,200,000 for the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities existing at that date.
Additionally, the Company was required to change its method of accounting from
the cash basis to the accrual basis for income tax reporting purposes.

The Company's stockholders were obligated to pay the 1997 income taxes re-
lated to the period up to the completion of the offering. The Company declared
and paid a dividend of $1,400,000 to its stockholders of record immediately
prior to the completion of the public offering for the amount estimated to ap-
proximate the 1997 income taxes payable by the stockholders.

The pro forma disclosures on the statements of operations reflect
adjustments to record provisions for income taxes as if the Company had not
been an S Corporation.

Significant components of the provision (benefit) for income taxes are as
follows:

<TABLE>
<CAPTION>
1998 1999
------- ------
<S> <C> <C>
Current:
Federal.................................................... $ (505) $ 959
State...................................................... (44) 85
<CAPTION>
------- ------
<S> <C> <C>
Total current.............................................. (549) 1,044
Deferred:
Federal.................................................... (470) 79
State...................................................... (41) 7
<CAPTION>
------- ------
<S> <C> <C>
Total deferred........................................... (511) 86
<CAPTION>
------- ------
<S> <C> <C>
$(1,060) $1,130
<CAPTION>
======= ======
</TABLE>

The Company's effective tax rate from continuing operations differs from the
U.S. statutory income tax rate as set forth below:

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
1997 1997 1998 1999
--------- ---------- ----- ----
<S> <C> <C> <C> <C>
U.S. statutory income tax rate...... 34.0% 34.0% (34.0)% 34.0%
State taxes, net of federal income
tax benefit........................ 4.0% 3.8% (3.4)% 3.1%
Permanent differences............... (3.0)% (0.7)% (4.8)% 1.4%
Nonrecurring charge due to
Subchapter S termination........... -- 22.1% -- --
S Corporation income not subject to
tax................................ -- (20.7)% -- --
Other............................... -- 2.1% 0.2% 0.3%
<CAPTION>
--------- ---------- ----- ----
<S> <C> <C> <C> <C>
Effective tax rate.................. 35.0% 40.6% (42.0)% 38.8%
<CAPTION>
========= ========== ===== ====
</TABLE>

F-16
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES--(CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes as of December 31 are as follows:

<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Allowances and reserves......................................... $122 $146
Accrued expenses................................................ 278 274
Stock option compensation expense............................... 286 176
Deferred revenue................................................ -- 46
<CAPTION>
---- ----
<S> <C> <C>
Total deferred tax assets....................................... 686 642
Deferred tax liabilities:
Fixed assets.................................................... (263) (239)
Prepaid expenses and other...................................... (405) (471)
<CAPTION>
---- ----
<S> <C> <C>
Total deferred tax liabilities.................................. (668) (710)
<CAPTION>
---- ----
<S> <C> <C>
Net deferred tax assets (liabilities)........................... $ 18 $(68)
<CAPTION>
==== ====
</TABLE>

The exercise of certain stock options which have been granted under the
Company's stock option plan give rise to compensation which is includable in
the taxable income of the applicable option holder and deductible by the
Company for federal and state income tax purposes. Any realized tax benefit
arising from exercised options in excess of the benefit previously recorded,
as discussed in Notes 8 and 12, is credited to additional paid-in capital.

12. COMPREHENSIVE INCOME

As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.

The components of comprehensive income for the years ended 1997, 1998 and
1999 are as follows:

<TABLE>
<CAPTION>
1997(A) 1998 1999
------- ------- ------
<S> <C> <C> <C>
Net income (loss)................................ $3,518 $(1,462) $1,780
Unrealized gain (loss) on short-term invest-
ments........................................... (41) (74) 52
Income tax (expense) benefit related to items of
other comprehensive income...................... 14 32 (22)
Comprehensive income (loss)...................... $3,491 $(1,504) $1,810
</TABLE>
- --------
(a) Net income and comprehensive income amounts are presented on a pro forma
basis as if the Company had been subject to federal and state income
taxes.

The components of accumulated other comprehensive income at December 31,
1998 and 1999 are as follows:

<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Unrealized loss on short-term investments....................... $(69) $(39)
<CAPTION>
==== ====
</TABLE>

F-17
<PAGE>

PSW TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

13. QUARTERLY INFORMATION (UNAUDITED)

Summarized quarterly financial information for 1997, 1998 and 1999 is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1997
Total revenues................. $10,307 $10,702 $11,258 $11,851
Operating income............... 1,057 1,177 1,417 1,336
Pro forma net income........... 600 721 1,111 1,086
Pro forma diluted earnings per
share......................... $ 0.09 $ 0.10 $ 0.11 $ 0.11
Shares used in diluted earnings
per share calculation......... 6,740 7,290 9,973 10,063
1998
Total revenues................. $ 9,758 $ 9,867 $ 9,255 $10,221
Operating loss................. (564) (433) (2,415) (56)
Net income (loss).............. (212) (210) (1,130) 90
Diluted earnings (loss) per
share......................... $ (0.02) $ (0.02) $ (0.12) $ 0.01
Shares used in diluted earnings
(loss) per share calculation.. 8,990 9,057 9,146 10,053
1999
Total revenues................. $10,394 $11,006 $11,632 $12,791
Operating income............... 2 227 575 1,088
Net income..................... 152 284 514 830
Diluted earnings per share..... $ 0.01 $ 0.03 $ 0.05 $ 0.08
Shares used in diluted earnings
per share calculation......... 10,230 10,202 10,549 11,022
</TABLE>

14. SUBSEQUENT EVENTS (UNAUDITED)

On February 22, 2000, the Board of Directors adopted and approved the 2000
Non-Officer Stock Option/Stock Issuance Plan and reserved 250,000 shares of
common stock for issuance thereunder.

In March 2000, the Company's Board of Directors authorized management to
file a registration statement on form S-3 with the Securities and Exchange
Commission to permit the Company to sell shares of its common stock to the
public.

F-18
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Certain information required by Part III is omitted from this Form 10-K
because the Company will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end
of the fiscal year covered by this Form 10-K, and certain information to be
included therein is incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated by reference to the
Proxy Statement under the headings "Proposal 1--Election of Directors," and
"Executive Compensation--Executive Officers" and "Compliance with Section
16(a) of the Exchange Act of 1934".

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation".

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Principal Stockholders".

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Proxy Statement under the heading "Executive Compensation--Certain
Transactions with Management".

II-1
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

1. FINANCIAL STATEMENTS:

The financial statements listed in Item 8: Financial Statements and
Supplementary Data, above are filed as part of this Annual Report on Form 10-
K.

2. FINANCIAL STATEMENT SCHEDULES:

Schedule II--Valuation and Qualifying Accounts

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

PSW TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
RESERVES AND ALLOWANCES DEDUCTED BEGINNING OF CHARGED TO END OF
FROM ASSET ACCOUNTS PERIOD OPERATIONS DEDUCTIONS(1) PERIOD
- -------------------------------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful ac-
counts....................... $120,000 $ 56,000 $ 11,000 $165,000
Year ended December 31, 1998
Allowance for doubtful ac-
counts....................... $165,000 $249,000 $154,000 $260,000
Year ended December 31, 1999
Allowance for doubtful ac-
counts....................... $260,000 $ 48,000 $(72,000) $380,000
</TABLE>
- --------
(1) Doubtful accounts written off, net of recoveries

Schedules not listed above are omitted because they are not applicable or
the required information is shown in the financial statements or notes
thereto.

3. EXHIBITS:

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1** Amended and Restated Certificate of Incorporation of the Registrant.
3.2** Amended and Restated Bylaws of the Registrant.
4.1** Specimen Common Stock Certificate.
4.2** See Exhibits 3.1 and 3.2 for provisions of the Certificate of
Incorporation and Bylaws of the Registrant defining rights of holders
of Common Stock of the Registrant.
10.1** Bridgepoint Lease Agreement dated October 31, 1996 between the
Registrant and Investors Life Insurance Company of North America.
10.2 Amendment to Bridgepoint Lease Agreement dated September 30, 1997.
10.3** Agreement of Lease dated May 13, 1996 between Newport L.G.-I, Inc. and
Pencom Systems Incorporated.
10.4** Service Agreement No. 200.504 dated November 26, 1990 between the
Registrant and International Business Machines Corporation, as amended
to date.
10.5** Stockholders Agreement dated October 1, 1996 between the Registrant and
certain stockholders of the Registrant.
10.6** Registration Rights Agreement dated October 1, 1996 between the
Registrant and certain stockholders and warrantholders of the
Registrant.
10.7** 1996 Stock Option/Stock Issuance Plan.
10.8** Employee Stock Purchase Plan.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.9** Profit Sharing Plan.
10.10 Amendment No. 1 to Profit Sharing Plan.
10.11** Stock Purchase Agreement dated as of January 1, 1997 between Michael
J. Maples and the Registrant.
10.12** Stock Subscription dated October 1, 1996 between Pencom Systems
Incorporated and the Registrant.
10.13** Asset Contribution Agreement dated October 1, 1996 between Pencom
Systems Incorporated and the Registrant.
10.14** Assignment and Assumption Agreement dated October 1, 1996 between the
Registrant and Pencom Systems Incorporated.
10.15** Warrant dated October 1, 1996 issued by the Registrant to Pencom
Systems Incorporated.
10.16** Warrant dated October 1, 1996 issued by the Registrant to Stephen
Markman.
10.17** Warrant dated October 1, 1996 issued by the Registrant to Thomas
Pallister.
10.18** Warrant dated October 1, 1996 issued by the Registrant to Joy
Venegas.
10.19(2) Employment Agreement dated August 28, 1998 between the Registrant and
Timothy D. Webb.
10.20(3) Employment Agreement dated January 18, 1999 between the Registrant
and Pedro A. Fernandez.
10.21(3) Employment Agreement dated January 25, 1999 between the Registrant
and John M. Velasquez.
10.22 Office lease agreement (Bellevue, Washington) dated April 23, 1999
between the Registrant and G W Investments.
10.23 Office lease agreement (Framingham, Massachusetts) dated January 31,
2000 between the Registrant and BCIA New England Holdings LLC.
10.24 2000 Non-Officer Stock Option/Stock Issuance Plan.
10.25 Form of Indemnity Agreement between PSW Technologies, Inc. and each
of its directors and executive officers.
23.1 Consent of Independent Auditors, Ernst & Young LLP.
27.1 Financial Data Schedule
</TABLE>
- --------
** Incorporated herein by reference to the Company's Registration Statement on
Form S-1 (File No. 333-21565).
(1) Incorporated herein by reference to the exhibits to the Company's Report
on Form 10-Q for the three-month period ended June 30, 1998.
(2) Incorporated herein by reference to the exhibits to the Company's Report
on Form 10-Q for the three-month period ended September 30, 1998.
(3) Incorporated herein by reference to the exhibits to the Company's Report
on Form 10-K for the year ended December 31, 1999.

Reports on Form 8-K:

During the quarter ended December 31, 1999, no current reports on Form 8-K
were filed.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.

PSW Technologies, Inc.

/s/ Timothy D. Webb
March 14, 2000 By: _________________________________
TIMOTHY D. WEBB,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND DIRECTOR (PRINCIPAL
EXECUTIVE OFFICER)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Keith D. Thatcher Chief Financial Officer March 14, 2000
By: __________________________________ (Principal Financial
KEITH D. THATCHER Officer)

/s/ Kasaundra L. Smith Controller March 14, 2000
By: __________________________________ (Principal Accounting
KASAUNDRA L. SMITH Officer)

/s/ Wade E. Saadi Chairman of the Board of March 14, 2000
By: __________________________________ Directors
WADE E. SAADI

/s/ Edward C. Ateyeh, Jr. Director March 14, 2000
By: __________________________________
EDWARD C. ATEYEH, JR.

/s/ Dr. W. Frank King Director March 14, 2000
By: __________________________________
DR. W. FRANK KING

/s/ Thomas A. Herring Director March 14, 2000
By: __________________________________
THOMAS A. HERRING

/s/ Kevin B. Kurtzman Director March 14, 2000
By: __________________________________
KEVIN B. KURTZMAN

/s/ Michael J. Maples Director March 14, 2000
By: __________________________________
MICHAEL J. MAPLES
</TABLE>

II-4

<PAGE>

EXHIBIT 10.2

AMENDMENT TO
BRIDGEPOINT LEASE AGREEMENT

This AMENDMENT TO BRIDGEPOINT LEASE AGREEMENT (this "Amendment") is
entered into as of September 30, 1997, by and between INVESTORS LIFE INSURANCE
COMPANY OF NORTH AMERICA, a Washington corporation ("Landlord"), and PSW
TECHNOLOGIES, INC., a Delaware corporation ("Tenant").

R E C I T A L S:

A. Landlord and Tenant executed that certain Bridgepoint Lease Agreement
("Lease") dated October 31, 1996, covering the Three Bridgepoint Premises (same
being approximately 36,319 rentable square feet in Three Bridgepoint) and the
One Bridgepoint Premises (same being approximately 10,000 rentable square feet
in One Bridgepoint). Capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings given to them in the Lease, unless
amended herein.

B. National Instruments Corporation ("National Instruments") currently
occupies Suites 100, 130, 170, 180, 350, 420 and 450 of One Bridgepoint. Suites
100, 130, 170 and 180 contain approximately 11,072 rentable square feet and
constitute the One Bridgepoint Premises. The floor plan of the One Bridgepoint
Premises (Suites 100, 130, 170 and 180) is attached hereto as Exhibit "B-1"
------------
and made a part hereof for all purposes, and is hereby substituted as
Exhibit "B-1" to the Lease. Suites 350, 420 and 450 contain approximately
- ------------
16,279 rentable square feet and constitute the National Instruments Refusal
Space. The floor plans of the National Instruments Refusal Space (Suites 350,
420 and 450) are attached hereto as Exhibit "B-2" and made a part hereof for all
------------
purposes, and are hereby added as Exhibit "B-2" to the Lease.
------------

C. National Instruments was originally scheduled to vacate Suites 100,
130, 170 and 180 in One Bridgepoint (same being the One Bridgepoint Premises) no
later than February 28, 1998, as set forth in the Second Amendment to Lease
Agreement dated October 1, 1996, between Landlord and National Instruments.
However, National Instruments has advised Landlord that it is willing to vacate
Suites 100, 130, 170 and 180 by December 31, 1997, and further, that it will
vacate Suites 350, 420 and 450 (the "National Instruments Refusal Space") by
May 31, 1998. Landlord and National Instruments have executed a Third Amendment
to the National Instruments Lease confirming these vacation dates.

D. Tenant has a right of first refusal as set forth in Section 2.05 and
Exhibit "G" of the Lease, including a right of first refusal to lease the
- ----------
National Instruments Refusal Space. Subject to Landlord and National Instruments
executing an amendment to the National Instruments Lease confirming vacation of
the National Instruments Refusal Space by May 31, 1998, Tenant desires to
exercise its right of first refusal to lease the National Instruments Refusal
Space.

<PAGE>

E. Landlord acknowledges that the Lease Guaranty executed by Pencom
Systems, Inc. as required by Section 15.26 of the Lease has terminated in
accordance with Section 20 of the Lease Guaranty, and that same is null, void
and of no further force and effect, and has been returned by Landlord to Pencom
Systems, Inc.

F. Landlord and Tenant desire to modify and amend the Lease in order to,
among other things, (i) acknowledge Tenant's exercise of the right of first
refusal as set forth herein, (ii) correct the description and rentable square
feet contained in the One Bridgepoint Premises, (iii) correct the description
and rentable square feet contained in the National Instruments Refusal Space,
(iv) amend the Schedule for the approval of the One Bridgepoint Drawings and One
Bridgepoint Premises set forth the Schedule for approval of the drawings and
construction contract for the National Instruments Refusal Space, (v) set
forth the Commencement Date for the National Instruments Refusal Space, and
(v) adopt the other amendments as set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the above recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant agree as follows:

1. The foregoing Recitals are incorporated into this Amendment for all
purposes.

2. Landlord and Tenant acknowledge and agree that the One Bridgepoint
Premises as originally defined in the Lease, consisted of Suites 100, 130, 170
and 180 in One Bridgepoint as described in Exhibit "B-1" attached hereto,
-------------
and that the National Instruments Refusal Space as originally defined in the
Lease, consisted of Suites 350, 420 and 450 as described in Exhibit "B-2"
-------------
attached hereto. The rentable square footage of the One Bridgepoint Premises and
the National Instruments Refusal Space shall be measured in accordance with the
most recent BOMA Standard Method of Floor Measurement (the "BOMA Standard"),
which will be confirmed by architect's verification. In the event the
measurement of the One Bridgepoint Premises or the National Instruments Refusal
Space results in a change in the rentable area of the Premises, all appropriate
terms herein shall be adjusted accordingly.

3. It is contemplated that National Instruments will vacate the One
Bridgepoint Premises on or about December 31, 1997, and the National Instruments
Refusal Space on or about May 31, 1998. Upon the execution of an amendment to
National Instruments Lease confirming such vacation dates, Landlord will advise
Tenant of such amendment. Landlord will use all reasonable efforts to require
National Instruments to vacate the One Bridgepoint Premises and the National
Instruments Refusal Space on such dates, but Landlord shall have no liability or
obligation to Tenant if National Instruments does not timely vacate either the
One Bridgepoint Premises or the National Instruments Refusal Space.

4. Landlord and Tenant acknowledge and agree that Tenant has exercised its
right of first refusal to lease the National Instruments Refusal Space, subject
only to Landlord and Tenant

<PAGE>

executing the amendment to the National Instruments Lease confirming that
National Instruments will vacate the National Instruments Refusal Space by May
31, 1998.

5. The Schedule related to the commencement of construction of the One
Bridgepoint Premises as set forth in Section B6 of Exhibit "D" is hereby amended
-----------
to read as follows:

November 15, 1997 - One Bridgepoint Drawings, including mechanical,
electrical and plumbing plans and specifications, all
in a form and content suitable for construction
bidding, must be completed and delivered to Contractor
for bidding. The One Bridgepoint Drawings should
include approximately ten optional items, one or more
of which could be deleted if the One Bridgepoint
Construction Cost bid exceeds an amount acceptable to
Tenant.

December 2, 1997 - Contractor will provide the One Bridgepoint
Construction Cost bid to Tenant based on the One
Bridgepoint Drawings.

December 10, 1997 - Tenant must approve a final One Bridgepoint
Construction Cost, based on the One Bridgepoint
Construction Cost bid submitted by Contractor, as
adjusted, negotiated and finally approved, based on
the One Bridgepoint Drawings, less any optional items
deleted in order to obtain an acceptable One
Bridgepoint Construction Cost.

December 11, 1997 - Landlord and Contractor execute the One Bridgepoint
Construction Contract which contains the final
approved One Bridgepoint Construction Cost which has
been approved by Tenant. Construction will commence
within three (3) business days after National
Instruments vacates the One Bridgepoint Premises.

6 The Schedule related to the commencement of construction of the Tenant
Improvements for the National Instruments Refusal Space shall be as follows:

April 15, 1998 - National Instruments Refusal Space Drawings, including
mechanical, electrical and plumbing plans and
specifications, all in a form and content suitable for
construction bidding, must be completed and delivered to
Contractor for bidding. The National Instruments Refusal
Space Drawings should include approximately ten optional
items, one or more of which could be deleted if the
National Instruments Refusal Space Construction Cost bid
exceeds an amount acceptable to Tenant.

<PAGE>

May 2, 1998 - Contractor will provide the National Instruments Refusal
Space Construction Cost bid to Tenant based on the
National Instruments Refusal Space Drawings.

May 10, 1998 - Tenant must approve a final National Instruments Refusal
Space Construction Cost, based on the National Instruments
Refusal Space Construction Cost bid submitted by
Contractor, as adjusted, negotiated and finally approved,
based on the National Instruments Refusal Space Drawings,
less any optional items deleted in order to obtain an
acceptable National Instruments Refusal Space Construction
Cost.

May 11, 1998 - Landlord and Contractor execute the National Instruments
Refusal Space Construction Contract which contains the
final approved National Instruments Refusal Space
Construction Cost which has been approved by Tenant.
Construction will commence within three (3) business days
after National Instruments vacates the National
Instruments Refusal Space.

Notwithstanding the foregoing, if National Instruments vacates the National
Instruments Refusal Space prior to May 31, 1998, the dates set forth in this
Section 6 of this Amendment shall be accelerated by the same number of days
between May 31, 1998 and the date National Instruments actually vacates the
National Instruments Refusal Space.

7. Section 1(e) of Exhibit "G" of the Lease shall be amended to read as
-----------
follows:

(e) In the event Tenant exercises the right of first refusal
pursuant to the terms hereof, Landlord shall do the work
necessary to furnish and install within the National
Instruments Refusal Space, in accordance with drawings to be
prepared by Tenant and approved in writing by Landlord, the
Building Standard tenant improvements and other additional
tenant improvements provided for in the drawings. The cost
of the work shall be advanced by Landlord for the benefit of
Tenant, to be repaid by Tenant in the form of Base Rent, but
only to the extent that the aggregate cost of furnishing the
Building Standard improvements and such additional
improvements provided for in the drawings does not exceed an
amount per rentable square foot leased, rounded up or down
to the nearest cent, equal to (X) $7.50 per square foot
leased, times (Y) the number of months remaining in the Term
(excluding all renewals), divided by seventy-one (71).

8. Section 2(e) of Exhibit "G" shall be amended to read as
----------
follows:

(e) In the event Tenant exercises the right of first refusal
pursuant to the terms hereof, Landlord shall do the work
necessary to furnish and install within

<PAGE>

the One Bridgepoint Refusal Space, in accordance with
drawings to be prepared by Tenant and approved in writing by
Landlord, the Building Standard tenant improvements and
other additional tenant improvements provided for in the
drawings. The cost of the work shall be advanced by Landlord
for the benefit of Tenant, to be repaid by Tenant in the
form of Base Rent, but only to the extent that the aggregate
cost of furnishing the Building Standard improvements and
such additional improvements provided for in the drawings
does not exceed an amount per rentable square foot leased,
rounded up or down to the nearest cent, equal to (X) $7.50
per square foot leased, times (Y) the number of months
remaining in the Term (excluding all renewals), divided by
seventy-one (71).

9. Landlord and Tenant acknowledge and agree that the Term for the
National Instruments Refusal Space shall be for a term of approximately sixty-
six (66) months. The Commencement Date for the National Instruments Refusal
Space shall be a date which is earlier of (a) the date when the Tenant
Improvements for the National Instruments Refusal Space are substantially
completed, which the parties anticipate will be approximately forty-five (45)
days after National Instruments vacates the National Instruments Refusal Space,
(b) the date Tenant occupies all or any part of National Instruments Refusal
Space, or (c) the date the Tenant Improvements for the National Instruments
Refusal Space would have been substantially completed but for the failure of
Tenant to comply with the schedule described in Section 5 above, change orders
requested by Tenant to the Tenant Improvements for the National Instruments
Refusal Space, or any other act of the Tenant causing delay in completion of the
Tenant Improvements for the National Instruments Refusal Space (the "Tenant
Delay"). Within five (5) days after the Commencement Date for the National
Instruments Refusal Space and at any time thereafter upon the request of
Landlord, Tenant shall execute and deliver to Landlord a declaration in the form
of Exhibit "E-3" attached hereto and made a part hereof for all purposes,
------------
specifying, among other things, the date upon which the same occurred.
Exhibit "E-3" shall become Exhibit "E-3" to the Lease.
- ------------ ------------

10. The Base Rent for the National Instruments Refusal Space shall
commence on the National Instruments Refusal Space Commencement Date. In the
event the National Instruments Refusal Space Commencement Date occurs other
than on the first day of the month, the rent for the applicable first month
shall be prorated from such applicable Commencement Date until the end of such
month.

11. Landlord and Tenant acknowledge and agree that the Base Rent for the
One Bridgepoint Premises and the National Instruments Refusal Space shall be the
amounts set forth in Section 3.01 of the Lease.

12. Landlord and Tenant acknowledge and agree that the correct amount of
rentable square feet contained in One Bridgepoint 83,604, instead of 84,723 as
originally set forth in the Lease, and the Lease is hereby amended accordingly.
Landlord and Tenant acknowledge and agree that Tenant's Pro Rata Share of
Operating Expenses for One Bridgepoint Premises as set forth in

<PAGE>

Section 3.02 of the Lease shall be amended to be thirteen and 24/100ths percent
(13.24%), and Tenant's Pro Rata Share of Operating Expenses for the National
Instruments Refusal Space shall be nineteen and 60/100ths percent (19.60%) for
One Bridgepoint.

13. Landlord acknowledges and agrees that the Lease Guaranty executed by
Pencom Systems, Inc. as required by Section 15.26 of the Lease has terminated in
accordance with Section 20 of the Lease Guaranty, and that same is null, void
and of no further force and effect, and has been returned by Landlord to Pencom
Systems, Inc.

14. The Lease, as amended by this Amendment, is hereby ratified and
confirmed in all respects.

15. This Amendment may be executed in multiple counterparts which, when
combined together, shall constitute an original of this Amendment. In addition,
facsimile signatures of the parties shall be effective on all counterparts of
this Amendment.

16. This Amendment, together with the Lease, embodies the entire agreement
of the parties hereto, and incorporates all previous correspondence or
communications, whether oral or written. The Lease, as amended by this
Amendment, can only be further modified or varied by written instrument
subscribed to by all the parties hereto.

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

LANDLORD:

INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA, a Washington corporation

By: /s/ Roy Mitte
------------------------------------
Roy F. Mitte
President

TENANT:

PSW TECHNOLOGIES, INC.

BY: /s/ Pat Motola
------------------------------------
Name: PAT MOTOLA
----------------------------------
Title: CFO, SR. VP
---------------------------------

<PAGE>

EXHIBIT 10.10

FIRST AMENDMENT TO THE
PSW PROFIT SHARING PLAN

WHEREAS, PSW Technologies, Inc. (hereinafter, the "Employer") adopted a
restatement of the PSW Profit Sharing Plan (hereinafter, the "Plan") effective
as of February 1, 1998;

WHEREAS, the Employer has the ability to amend the Plan pursuant to Section 11.2
thereof; and

WHEREAS, the Employer now desires to amend the Plan to change the Employer
Matching Contribution;

NOW, THEREFORE, the Employer hereby amends the Plan in the following respects,
effective as of January 1, 2000;

1. Section D(2)(I) of the Adoption Agreement is hereby amended to read as
follows:

D(2) EMPLOYER'S MATCHING CONTRIBUTIONS (Plan Sections 1.64, 3.8)

I. Based On 401(k) Elective Deferrals
(complete items a., b., c., or d., AND e., f., and g.)

a. [_] N/A. The Employer shall not match 401(k) elective
deferrals (or the Plan does not provide for elective
deferrals).
b. [_] The Employer shall make Matching Contributions equal to
___% (e.g. 50%) of the Participant's 401(k) elective
deferrals; however, only a Participant's 401(k)
elective deferrals up to ___% of Compensation will be
matched.
c. [_] The Employer may make Matching Contributions equal to a
discretionary percentage or amount, to be determined
annually by the Employer, of the Participant's 401(k)
elective deferrals.
d. [X] Other: The Employer shall make Matching Contributions
----------------------------------------------
equal to 100% of the Participant's 401(k) elective
--------------------------------------------------
deferrals up to $1,000 of Compensation, and equal to
----------------------------------------------------
25% of the Participant's 401(k) elective deferrals in
-----------------------------------------------------
excess of $1,000 but not exceeding $7,000 of
--------------------------------------------
Compensation.
-------------

e. The Matching Contribution made on behalf of a Participant
for any Plan Year shall not exceed;

1. [X] $2,500
-----
2. [_] N/A. No dollar limit shall apply.

f. Matching Contributions shall be made on behalf of

1. [X] All Eligible Participants.
2. [_] Only Non-Highly Compensated Eligible Participants.

<PAGE>

3. [_] All Eligible Participants except for
Employees classified as follows (e.g.,
Employees of a division or department of
the Employer):

______________________________________
______________________________________

4. [_] A multi-tiered matching contribution
arrangement for the following categories
of Eligible Participants:

______________________________________
______________________________________

5. [_] N/A

g. If, during the Plan Year, a Participant's 401(k)
deferral rate changes to an amount above or below
any threshold at which such contributions are
matched (select one):

1. [_] Employer Matching Contributions will
change prospectively with the change in
a Participant's 401(k) elective deferral
percentage.
2. [X] Employer Matching Contributions will be
adjusted at the end of each Plan Year to
match the annualized 401(k) elective
deferral percentage and/or annualized
compensation, as applicable.

2. In all respects, the terms of this Plan are hereby ratified and confirmed.

IN WITNESS WHEREOF, the Employer has caused this First Amendment to be executed
in duplicate counterparts, each of which shall be considered as an original,
this 28th, day of December 1999.

PSW TECHNOLOGIES, INC.

/s/ Jan Soderman By: /s/ Nancy A. Richardson
- ------------------- -------------------------
Witness Employer

<PAGE>

EXHIBIT 10.22

OFFICE LEASE

by and between

G & W INVESTMENTS,
a nini Kumiai formed under the laws of Japan,

as Landlord,

and

PSW TECHNOLOGIES, INC.,
----------------------
a Delaware corporation

as Tenant
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Section Page
<S> <C>
SECTION I. TERMS AND DEFINITIONS........................................ 1
SECTION II. PROPERTY LEASED.............................................. 2
A. Premises............................................................ 2
--------
B. Common Areas........................................................ 2
------------
C. Variations In Area.................................................. 2
------------------
D. Substitution of Space............................................... 2
---------------------
SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES.............. 3
A. Lease Commencement Date............................................. 3
-----------------------
B. Completion of Tenant Improvements and Possession of Premises........ 3
------------------------------------------------------------
C. Extension of Lease Commencement Date................................ 3
------------------------------------
D. Acceptance and Suitability.......................................... 4
--------------------------
SECTION IV. RENT......................................................... 4
A. Monthly Rental...................................................... 4
--------------
B. Consumer Price Index Increases...................................... 5
------------------------------
C. Additional Rent..................................................... 5
---------------
SECTION V. REIMBURSEMENT OF COMMON EXPENSES............................. 6
A. Definitions......................................................... 6
-----------
B. Reimbursement....................................................... 7
-------------
C. Rebate of Excess Charges or Payment of Additional Charges........... 7
---------------------------------------------------------
D. Right to Audit...................................................... 8
--------------
E. Control of Common Areas............................................. 8
-----------------------
SECTION VI. SECURITY DEPOSIT............................................. 9
SECTION VII. TENANT'S TAXES............................................... 9
SECTION VIII. USE OF PREMISES.............................................. 10
A. Permitted Uses...................................................... 10
--------------
B. Compliance with Laws................................................ 10
--------------------
C. Hazardous Materials................................................. 10
-------------------
D. Landlord's Rules and Regulations.................................... 13
--------------------------------
SECTION IX. SERVICE AND UTILITIES........................................ 13
A. Standard Building Services and Reimbursement by Tenant.............. 13
------------------------------------------------------
B. Limitation on Landlord's Obligations................................ 14
------------------------------------
C. Excess Service...................................................... 14
--------------
D. Security Services................................................... 14
-----------------
SECTION X. MAINTENANCE AND REPAIRS...................................... 15
A. Landlord's Obligations.............................................. 15
----------------------
B. Tenant's Obligations................................................ 15
--------------------
C. Landlord's Right to Make Repairs.................................... 15
--------------------------------
D. Condition of Premises Upon Surrender................................ 16
------------------------------------
SECTION XI. ENTRY BY LANDLORD............................................ 16
SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES.................... 16
SECTION XIII. MECHANIC'S LIENS............................................. 17
SECTION XIV. INSURANCE.................................................... 18
A. Tenant.............................................................. 18
------
B. Landlord............................................................ 19
--------
SECTION XV. INDEMNITY; WAIVER OF SUBROGATION............................. 19
A. Tenant Indemnity.................................................... 19
----------------
B. Landlord Indemnity.................................................. 20
------------------
C. Waiver of Subrogation............................................... 20
---------------------
D. Limitation on Landlord's Liability; Release of Trustees, Officers
-----------------------------------------------------------------
and Partners of Landlord................................................. 20
------------------------
SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT.......................... 21
SECTION XVII. TRANSFER OF LANDLORD'S INTEREST.............................. 24
SECTION XVIII. DAMAGE AND DESTRUCTION....................................... 25
A. Minor Insured Damage................................................ 25
--------------------
B. Major or Uninsured Damage........................................... 25
-------------------------
C. Abatement of Rent................................................... 26
-----------------
D. Waiver.............................................................. 26
------
</TABLE>

Page i
<PAGE>

<TABLE>
<S> <C>
SECTION XIX. CONDEMNATION............................................... 26
A. Total or Partial Taking............................................. 26
-----------------------
B. Award............................................................... 27
-----
C. Abatement in Rent................................................... 27
-----------------
D. Temporary Taking.................................................... 27
----------------
E. Transfer of Landlord's Interest to Condemnor........................ 27
--------------------------------------------
SECTION XX. DEFAULT.................................................... 28
A. Tenant's Default.................................................... 28
----------------
B. Remedies............................................................ 29
--------
SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES.................... 31
A. Interest............................................................ 31
--------
B. Late Charges........................................................ 31
------------
C. Consecutive Late Payment of Rent.................................... 31
--------------------------------
D. No Waiver........................................................... 31
---------
SECTION XXII. LIEN FOR RENT.............................................. 32
SECTION XXIII. HOLDING OVER............................................... 32
SECTION XXIV. ATTORNEYS' FEES............................................ 33
SECTION XXV. MORTGAGEE PROTECTION....................................... 33
A. Subordination; Nondisturbance....................................... 33
-----------------------------
B. Attornment.......................................................... 33
----------
C. Amendment........................................................... 34
---------
SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS.................. 34
A. Estoppel Certificate................................................ 34
--------------------
B. Furnishing of Financial Statements.................................. 34
----------------------------------
SECTION XXVII. PARKING.................................................... 35
SECTION XXVIII. SIGNS; NAME OF BUILDING.................................... 36
SECTION XXIX. QUIET ENJOYMENT............................................ 36
SECTION XXX. BROKERS AND AGENTS......................................... 36
SECTION XXXI. NOTICES.................................................... 37
SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE.................. 37
SECTION XXXIII. GENERAL.................................................... 37
A. Paragraph Headings.................................................. 37
------------------
B. Incorporation of Prior Agreements; Amendments....................... 37
---------------------------------------------
C. Waiver.............................................................. 38
------
D. Short Form or Memorandum of Lease................................... 38
---------------------------------
E. Time of Essence..................................................... 38
---------------
F. Examination of Lease................................................ 38
--------------------
G. Severability........................................................ 38
------------
H. Surrender of Lease Not Merger....................................... 38
-----------------------------
I. Corporate Authority................................................. 38
-------------------
J. Governing Law....................................................... 39
-------------
K. Force Majeure....................................................... 39
-------------
L. Use of Language..................................................... 39
---------------
M. Successors.......................................................... 39
----------
N. No Reduction of Rental.............................................. 39
----------------------
O. No Partnership...................................................... 39
--------------
P. Exhibits............................................................ 40
--------
Q. Survival of Indemnities............................................. 40
-----------------------
R. Nondisclosure of Lease Terms........................................ 40
----------------------------
S. Waiver of Jury Trial................................................ 40
--------------------
SECTION XXXIV. EXECUTION.................................................. 41
EXHIBIT "A" Site Plan for the Project...................................... 43
EXHIBIT "B" Floor Plan of the Premises..................................... 44
EXHIBIT "C" Construction Work Letter....................................... 45
EXHIBIT "D" Rent Schedule.................................................. 46
EXHIBIT "E" Rules and Regulations.......................................... 47
EXHIBIT "F" Amendment of Lease Commencement Date Form...................... 51
</TABLE>

Page ii
<PAGE>

OFFICE LEASE

THIS LEASE is entered into by and between Landlord and Tenant effective as of
this 23/rd/ day of April 1999 ("Effective Date").

SECTION I. TERMS AND DEFINITIONS

The following terms as used herein shall have the meanings as set forth below:

A. "Landlord" means G & W Investments, a nini Kumiai formed under the laws of
Japan, and its successors and assigns.

B. "Tenant" means PSW Technologies, Inc., a Delaware corporation.
----------------------- --------------------

C. "Building" means the building in which the Premises are located which has
approximately 41,941 net rentable square feet and is located at 3055
------
112/th/ Ave. NE, in the City of Bellevue, Washington.

D. "Project" means the Corporate Campus East (Buildings A, B, & C) located in
the City Bellevue, Washington, in which Project the Building is located as
shown on the site plan attached hereto as Exhibit A.
---------

E. "Premises" means suite(s) 202 located on the Second floor of the Building
consisting of approximately Six Thousand Six Hundred Ninety Eight (6,698)
net rentable square feet, as more particularly shown on Exhibit B attached
---------
hereto and incorporated herein by this reference.

F. "Term" means the Thirty-Six (36) month period commencing on the Lease
Commencement Date and expiring on the Expiration Date.

G. "Lease Commencement Date" means May 1, 1999; provided, however, that if the
Lease Commencement Date stated in this subsection is amended pursuant to
Section III. C. below, Landlord and Tenant shall execute and attach hereto
as a new Exhibit F, an Amendment of Lease Commencement Date, in form of
---------
that attached hereto as Exhibit F, which shall specify such amended Lease
---------
Commencement Date and, if applicable, an amended Expiration Date.

H. "Expiration Date" means April 30, 2002 unless amended in an Amendment of
Lease Commencement Date executed as provided above.

I. "Monthly Rental" means the amounts specified in the Rent Schedule attached
hereto as Exhibit D and incorporated herein, payable as set forth in
---------
Section IV. B. below.

J. "Base Operating Expense" means the amount of Common Operating Costs (as
defined in Section V. below) actually incurred for the period from January
1, 1999 to December 31, 1999, which amount shall be paid by Landlord each
year during the Term and not Tenant.

K. "Security Deposit" means Fourteen Thousand Ninety Four no/100 Dollars
($14,094.00).

L. "Permitted Use" means General office use.

M. "Broker" means None.

N. "Landlord's Address for Notice" means G & W Investments, c/o SUHRCO
Management Inc., 10655 NE 4/th/, Ste. 710, Bellevue, WA 98004; with a copy
to: The Mutual Life Insurance Company of New York, 7600 East

Page 1
<PAGE>

Eastman Avenue, Suite 300, Denver, Colorado 80231, Attention: Legal
Department.

O. "Tenant's Address for Notice" means PSW Technologies Inc., Building Three
Suite 200, 6300 Bridgepoint Parkway, Austin, TX 78730, Attn: General
Counsel.

P. "Tenant's Proportionate Share" for Tenant's reimbursement of Common
Operating Costs and other expenses to be pro-rated hereunder means 15.97%
-----
which is the quotient obtained by dividing the total number of square feet
of net rentable floor area in the Building into the total number of square
feet of net rentable floor area within the Premises.

Q. "Tenant's Parking Spaces" means Fifteen (15) total parking spaces located
in such areas of the Project as Landlord determines and divided as follows:
Five (5) covered, reserved, the cost for which is covered in Subsection R.
below, and Ten (10) non-covered or surface, all of which non-covered shall
be non-exclusive, unassigned and free for the term hereof.

R. "Monthly Parking Rent" means Twenty-five dollars ($25.00) per month payable
by Tenant for the reserved portion of Tenant's Parking Spaces. Such
Monthly Parking Rent is subject to change as Landlord adjusts the parking
rate for the Building and shall be considered Additional Rent and shall be
due and payable without notice or demand, on or before the first day of
each calendar month.

SECTION II. PROPERTY LEASED

A. Premises
--------

Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises; reserving to Landlord, however, (a) the use of the
exterior walls, roof, return air plenum and the area under the Premises
floor and (b) the rights to make structural (building) modifications and
the right to install, maintain, use, repair and replace pipes, ducts,
conduits, and wires to serve or serving other tenant premises in the
Building through the Premises in locations which will not materially
interfere with Tenant's use thereof.

B. Common Areas
------------

Subject to the terms, covenants and conditions of this Lease, Tenant shall
have the right, for the benefit of Tenant and its employees, suppliers,
shippers, customers and invitees, to the non-exclusive use of all of the
Common Areas as hereinafter defined.

C. Variations In Area
------------------

The net rentable square feet of the Premises and Building as set forth in
Section I. above are agreed to be the actual net rentable square footages
of each to be used for all purposes under this Lease regardless of
variations later determined to exist.

Intentionally deleted
---------------------

Page 2
<PAGE>

SECTION III. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES

A. Lease Commencement Date
-----------------------

The Term of the Lease shall commence on the Lease Commencement Date (as
extended only pursuant to Section III. C. below, if applicable), and shall
continue, subject to earlier termination as provided herein, until the
Expiration Date (as extended only pursuant to subsection C. below).

B. Completion of Tenant Improvements and Possession of Premises
------------------------------------------------------------

Upon execution of this Lease by the parties, Landlord shall proceed to
complete the tenant improvements in the Premises described as "Landlord's
Work" in the "Construction Work Letter" attached hereto and incorporated
herein as Exhibit C. At the time such work has been substantially completed
in accordance with the Construction Work Letter, except for minor
decorative or other "punch list" items as contemplated in subsection D.
below, and the Premises has been approved for occupancy under the
applicable building code (which together shall constitute "Substantial
Completion" hereunder), Landlord shall notify Tenant thereof and Tenant
shall take possession of the Premises on the Lease Commencement Date. In
the event permission is given to Tenant to enter or occupy all or a portion
of the Premises prior to the Lease Commencement Date, such occupancy shall
be subject to all of the terms and conditions of this Lease. If applicable,
Tenant shall complete all tenant improvements described as "Tenant's Work"
in Exhibit C hereto, and shall open the Premises for business, on or before
---------
the Lease Commencement Date. Any professional fees or costs and expenses
incurred by Landlord in reviewing plans and specifications for Tenant's
Work shall be paid to Landlord by Tenant upon demand as additional rent.
All tenant improvements constructed in the Premises, whether by Landlord or
by (or on behalf of) Tenant and whether at Landlord's or Tenant's expense,
shall become part of the Premises and shall be and remain the property of
Landlord unless Landlord specifically agrees otherwise in writing.

C. Extension of Lease Commencement Date
------------------------------------

If the Premises are not Substantially Completed on the original Lease
Commencement Date specified in Section I. due to one or more delays caused
by Landlord or caused by matters beyond the control of Landlord, this Lease
and the obligations of Landlord and Tenant hereunder shall nevertheless
continue in full force and effect. However, in such event

Page 3

<PAGE>

Landlord and Tenant shall agree on an amendment of the original Lease
Commencement Date to reflect such delay or delays and shall, in each
instance, execute and attach hereto an amendment in the form of that
attached as Exhibit F hereto stating such amended Lease Commencement Date
---------
and, if applicable, an amended Expiration Date and no rental shall be
payable by Tenant hereunder until the amended Lease Commencement Date. The
delay in commencement of the Term and in Tenant's obligation to pay rent
described in the foregoing sentence shall constitute full settlement of all
claims that Tenant might otherwise have by reason of the Premises not being
Substantially Completed on the original Lease Commencement Date specified
in Section I. above.

If the Premises are not Substantially Completed on the Lease Commencement
Date due to one or more delays caused by Tenant, or anyone acting under or
for Tenant, Landlord shall have no liability for such delay and the Lease
Commencement Date shall nevertheless begin as of the Lease Commencement
Date stated in Section I. (as extended only because of Landlord's delay
pursuant to this subsection C., if applicable).

D. Acceptance and Suitability
--------------------------

Within fifteen (15) days following the date Tenant takes possession of the
Premises, Tenant may provide Landlord with a "punch list" which sets forth
an itemization of any reasonable corrective work to be performed by
Landlord with respect to the Landlord's Work as set forth in the
Construction Work Letter; provided, however, that Tenant's obligation to
pay Monthly Rental as provided below shall not be affected thereby. If
Tenant fails to submit such "punch list" to Landlord within such fifteen
(15) day period, Tenant agrees that by taking possession of the Premises it
will conclusively be deemed to have inspected the Premises and found the
Premises in satisfactory condition. Tenant acknowledges that neither
Landlord, nor any agent, employee or servant of Landlord, has made any
representation with respect to the Premises or the Project, or with respect
to the suitability of them to the conduct of Tenant's business, nor has
Landlord agreed to undertake any modifications, alterations, or
improvements of the Premises or Project, except as specifically provided in
this Lease.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD HEREBY
DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR
SUITABILITY FOR PURPOSE, OR THAT THE PROJECT (OTHER THAN THE IMPROVEMENTS
CONSTRUCTED BY LANDLORD IN THE PREMISES) HAVE BEEN CONSTRUCTED IN A GOOD
AND WORKMANLIKE MANNER. TENANT EXPRESSLY ACKNOWLEDGES THAT LANDLORD DID
NOT CONSTRUCT OR APPROVE THE QUALITY OF CONSTRUCTION OF THE PROJECT.

SECTION IV. RENT

A. Monthly Rental
--------------

Commencing on the Lease Commencement Date (subject, however, to any
modifications or adjustments specified hereinbelow and/or in the "Rent
Schedule" attached hereto as Exhibit D, Tenant shall pay to Landlord during
---------
the Term, rental for the entire Term in the total amount as set forth in
Exhibit D payable in monthly installments (the "Monthly Rental") in the
---------
amount(s) set forth in Exhibit D, which sum shall be payable by Tenant on
---------
or before the first day of each month, in advance, without further notice,
at the address specified for Landlord in Section I., or

Page 4
<PAGE>

such other place as Landlord shall designate, without any prior demand
therefor and without any abatement, deduction or setoff whatsoever, except
as otherwise expressly provided herein. Notwithstanding the foregoing,
Monthly Rental for the first full month of the Term shall be paid upon the
Commencement Date. If the Lease Commencement Date should occur on a day
other than the first day of a calendar month, or the Expiration Date should
occur on a day other than the last day of a calendar month, then the rental
for such fractional month shall be prorated on a daily basis upon a thirty
(30) day calendar month.

intentionally deleted
---------------------

C. Additional Rent
---------------

As used in this Lease, the term "rent" shall mean the Monthly Rental plus
all "additional rent", which shall mean all other amounts payable by Tenant
to Landlord pursuant to this Lease other than Monthly Rental, including
without limitation, Tenant's Proportionate Share of Common Operating Costs
and Monthly Parking Rent. All Monthly Rental and additional rent shall be
paid in lawful money of the United States which shall be legal tender at
the time of payment. Where no other time is stated herein for payment,
payment of any amount payable from Tenant to Landlord hereunder shall be
due, and made, within ten (10) days after Tenant's receipt of Landlord's
invoice or statement therefor.

Page 5
<PAGE>

SECTION V. REIMBURSEMENT OF COMMON EXPENSES

A. Definitions
-----------

(1) "Common Areas" means all areas, space, equipment and special services
provided by Landlord for the common or joint use and benefit of the
tenants, their employees, agents, servants, suppliers, customers and
other invitees, including, by way of illustration, but not limitation,
retaining walls, fences, landscaped areas, parks, curbs, sidewalks,
private roads, restrooms, stairways, elevators, lobbies, hallways,
patios, service quarters, parking areas, all common areas and other
areas within the exterior of the Building and in the Project or as
shown on the site plan attached to this Lease as Exhibit A.
---------

(2) "Taxes" shall mean all real property taxes, personal property
taxes, improvement bonds, and other charges and assessments which are
levied or assessed upon or with respect to the Building and Project
and the land on which the Building and Project are located and any
improvements, fixtures and equipment and all other property of
Landlord, real or personal, located in the Building and Project and
used in connection with the operation of the Building and Project and
the land on which the Building and Project are located, including any
increase in such taxes, whether resulting from a reassessment of the
value of the land, the Building or the Project, personal property, or
for any other reason, imposed by any governmental authority, and any
tax which shall be levied or assessed in addition to or in lieu of
such real or personal property taxes and any license fees, commercial
rental tax, or other tax upon Landlord's business of leasing the
Building and the Project, but shall not include any federal or state
income tax, or any franchise, capital stock, estate, inheritance,
succession, transfer and excess profit taxes imposed upon Landlord,
and shall also include any tax consultant fee or other costs incurred
by Landlord to review or contest any tax assessed against the
Premises, Building, or Project.

(3) "Common Operating Costs" shall mean the aggregate of all costs
and expenses payable by Landlord in connection with the operation,
maintenance and repair of the Premises, Building, Project and Common
Areas, including, but not limited to, (a) the cost of landscaping,
repaving, resurfacing, repairing, replacing, painting, lighting,
cleaning, removing trash, janitorial services, security services and
other similar items; (b) the total cost of compensation (including
employment taxes and fringe benefits) of personnel who perform or
implement the services referenced herein in connection with the
Premises, Building, Project and Common Areas; excluding executive,
proprety manager and accounting personnel; (c) all Taxes; (d) the cost
of any insurance obtained by Landlord in connection with the Building
and Project, including, but not limited to, the insurance required to
be obtained by Landlord pursuant to this Lease; (e) the cost of
operating, repairing and maintaining the mechanical, electrical,
plumbing, life safety, and access systems; (f) the cost of monitoring
services, if provided by Landlord, including, without limitation, any
monitoring or control devices used by Landlord in regulating the
parking areas; (g) the cost of water, electricity, gas and any other
utilities; (h) legal, accounting and consulting fees and expenses; (i)
energy allocation, energy use surcharges, or environmental charges;
(j) expenditures made, and costs, fees, assessments and other charges
paid, by Landlord in connection with traffic or energy management
programs applicable to the Project or in connection with Landlord's

Page 6
<PAGE>

compliance with laws or other governmental requirements; (k) municipal
inspection fees or charges; (l) costs or expenses incurred by Landlord
to provide management services for the Premises, Building or Project;
but in no event will this cost include executive personnel beyond the
level of the property manager, additionally, as long as the current
management agreement is in effect, neither will the cost of persons
include that of the Property Manager or any accounting personnel; (m)
the amortized cost, including financing costs if applicable, of any
equipment, device or other capital improvement installed by Landlord
in the Premises, Building or Project for the which achieve economies
in the operation, maintenance and/or repair thereof; and (n) any other
costs or expenses incurred by Landlord under this Lease which are not
otherwise reimbursed directly by tenants; (o) the amount charged by
any management firm contracted by Landlord to provide any or all of
the foregoing services; and (p) any fees, costs, expenses or dues
payable pursuant to the terms of any covenants, conditions or
restrictions or owners' association pertaining to the Building and/or
the Project. The computation of Common Operating Costs shall be made
in accordance with generally accepted accounting principles.

(4) In the event during all or any portion of any calendar year the
Building is not at least ninety-five percent (95%) rented and
occupied, Landlord may elect to make an appropriate adjustment to the
Common Operating Costs for such year, employing sound accounting and
management principles, to determine the Common Operating Costs that
would have been paid or incurred by Landlord had the Building been
ninety-five percent (95%) rented and occupied and the amount so
determined shall be deemed to have been the Common Operating Costs for
such year.

B. Reimbursement
-------------

Within a reasonable time before the commencement of each calendar year
during the Term, Landlord shall deliver to Tenant a reasonable estimate of
the anticipated Common Operating Costs for the forthcoming calendar year.
Tenant shall pay to Landlord, as additional rent, commencing on the Lease
Commencement Date, and continuing on the first day of each calendar month
thereafter, an amount equal to one-twelfth (1/12th) of the product obtained
by multiplying (1) the remainder of the then estimated Common Operating
Costs less the Base Operating Expense paid by Landlord, times (2) Tenant's
Proportionate Share; provided, however, that such amount shall not be less
than zero dollars ($0). The estimated monthly charge for Tenant's
Proportionate Share may be adjusted periodically by Landlord during the
calendar year on the basis of Landlord's reasonably anticipated costs. Any
expenditure by Landlord (e.g. resurfacing of parking areas, painting
buildings, refurbishing landscaping or walkways and similar items) during
the year which was not included in determining the estimated Common
Operating Costs, may be billed separately to Tenant according to Tenant's
Proportionate Share.

C. Rebate of Excess Charges or Payment of Additional Charges
---------------------------------------------------------

Within a reasonable time after the end of each calendar year, Landlord
shall furnish Tenant with a statement showing the Common Operating Costs
actually paid or incurred by Landlord for such year less the Base Operating
Expense, if any, and Tenant's Proportionate Share thereof ("Tenant's Actual
Operating Cost"), which shall in no event be less than zero dollars ($0).
If the amount of Tenant's Estimated Operating Cost paid by Tenant for such
calendar year exceeds Tenant's Actual Operating Cost

Page 7
<PAGE>

for that year, Landlord shall refund such excess to Tenant within thirty
(30) days after such determination or Landlord may, at its sole option,
apply such excess to any outstanding amounts due Landlord. If Tenant's
Estimated Operating Cost actually paid by Tenant is less than Tenant's
Actual Operating Cost, Tenant shall pay such shortfall to Landlord, as
additional rent, within thirty (30) days after receipt of Landlord's
statement showing the amount due. If the Lease commences on a date other
than on the first day of a calendar year or expires or otherwise
terminates, on a date other than on the last day of a calendar year, the
foregoing payments shall be prorated accordingly.

D. Right to Audit
--------------

If Tenant wishes to dispute Landlord's determination of Common Operating
Costs or calculation of Tenant's Proportionate Share thereof payable by
Tenant, Tenant shall give Landlord written notice of such dispute within
ten (10) business days after Tenant's receipt of the statement from
Landlord referred to in subsection C. above. If Tenant does not give
Landlord such notice within such time, Tenant hereby agrees that its right
to dispute such determination or calculation is waived. Promptly after
giving of such written notice, Landlord shall meet with Tenant in an
attempt to reconcile any outstanding disputes. If such efforts do not
succeed, Landlord shall make its records relating to the matter in dispute
reasonably available for audit and copying by Tenant and its
representatives at Tenant's sole cost. If Tenant's audit reveals a greater
than ten percent (10%) variance from Landlord's calculation, then within
fifteen (15) business days after Landlord's receipt of notice thereof,
Landlord and Tenant shall mutually agree upon an accountant to conduct an
independent audit, the initial cost of which shall be borne equally by
Landlord and Tenant. If Landlord and Tenant cannot so agree, then Landlord
shall select a national accounting firm to conduct such audit. If this
independent audit reveals that the amount previously determined by Landlord
was incorrect, a correction shall be made and either Landlord shall
promptly refund any overpayment to Tenant or Tenant shall promptly pay any
underpayment to Landlord within fifteen (15) business days after receipt of
the results of the audit. If the independent audit reveals a greater than
ten percent (10%) variance from Landlord's calculation, then Landlord shall
pay the full cost of such independent audit and shall within fifteen (15)
business days after demand reimburse Tenant any portion thereof previously
paid by Tenant. If a variance of less than ten percent (10%) is revealed,
then Tenant shall pay the full cost of such independent audit and shall
within fifteen (15) business days after demand reimburse Landlord for any
portion thereof previously paid by Landlord. Notwithstanding the pendency
of any dispute hereunder, Tenant shall make payments based upon Landlord's
calculation until it has been established to be incorrect pursuant to the
foregoing procedures.

E. Control of Common Areas
-----------------------

Tenant's use of the Common Areas shall be subject to the provisions of this
Lease and Landlord's rights, hereby reserved, to (a) restrain the use of
the Common Areas by unauthorized persons, (b) utilize from time to time any
portion of the Common Areas for promotional and related matters, (c)
temporarily close any portion of the Common Areas for repairs, improvements
or alterations, (d) change the shape and size of the Common Areas or change
the location of improvements within the Common Areas, including, without
limitation, parking areas, roadways and curb cuts, and, (e) prohibit access
to or use of Common Areas that are designated for the storage of supplies
or operation of equipment necessary to operate the Project or Building. In
addition, Landlord may determine the nature, size and extent of the Common
Areas as well as make changes to the Common Areas and take such other
actions in

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<PAGE>

connection therewith from time to time which, in its opinion, are deemed
desirable.

SECTION VI. SECURITY DEPOSIT

Upon execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit defined in Section I. above, which shall be held by Landlord as security
for the performance by Tenant of all terms, covenants and conditions of this
Lease. It is expressly understood and agreed that such deposit is not an advance
rental payment or deposit or a measure of Landlord's damages in case of Tenant's
default. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent or
the obligation to repair and maintain the Premises or to perform any other term,
covenant or condition contained herein, Landlord may (but shall not be required
to), without prejudice to any other remedy provided herein or provided by law
and without notice to Tenant, use the Security Deposit, or any portion of it, to
cure the default or to compensate Landlord for all damages sustained by Landlord
resulting from Tenant's default. Tenant shall immediately on demand pay to
Landlord a sum equivalent to the portion of the Security Deposit so expended or
applied by Landlord as provided in this paragraph so as to maintain the Security
Deposit in the sum initially deposited with Landlord. Although the Security
Deposit shall be deemed the property of Landlord, if Tenant is not in default at
the expiration or termination of this Lease, Landlord shall return the Security
Deposit to Tenant. Landlord shall not be required to keep the Security Deposit
separate from its general funds and Landlord, not Tenant, shall be entitled to
all interest, if any, accruing on any such deposit. Upon any sale or transfer of
its interest in the Building, Landlord shall transfer the Security Deposit to
its successor in interest and thereupon, Landlord shall be released from any
liability or obligation with respect thereto.

SECTION VII. TENANT'S TAXES

To the extent not covered as a Common Operating Cost, Tenant shall be liable for
any tax (now or hereafter imposed by any governmental entity) applicable to or
measured by or levied on the rents or any other charges payable by Tenant under
this Lease, including (but not limited to) any gross income tax, gross receipts
tax or excise tax payable with respect to the receipt of such rent or other
charges or the possession, leasing or operation, use or occupancy of the
Premises, but not including any net income, franchise, capital stock, estate or
inheritance taxes payable by Landlord. If any such tax is required to be paid to
the governmental taxing entity directly by Landlord, then Landlord shall pay the
amount due and, upon demand, shall be fully reimbursed by Tenant for such
payment.

Tenant shall also be liable for all taxes levied against the leasehold held by
Tenant or against any personal property, leasehold improvements, additions,
alterations and fixtures placed by or for Tenant in, on or about the Premises,
Building and Project or constructed by Landlord for Tenant in the Premises,
Building or Project; and if any such taxes are levied against Landlord or
Landlord's property, or if the assessed value of such property is increased
(whether by special assessment or otherwise) by the inclusion therein of value
placed on such leasehold, personal property, leasehold improvements, additions,
alterations and fixtures, and Landlord pays any such taxes (which Landlord shall
have the right to do regardless of the validity thereof), Tenant, upon demand,
shall fully reimburse Landlord for the taxes so paid by Landlord or for the
proportion of such taxes resulting from such increase in any assessment.

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<PAGE>

SECTION VIII. USE OF PREMISES

A. Permitted Uses
--------------

Tenant shall use the Premises and Common Areas solely for the Permitted Use
specified in subsection I.L. above, and for no other use, and under the
name specified in subsection I.B. above. Tenant shall, at its own cost and
expense, obtain any and all licenses and permits necessary for any such
use. Tenant shall not do or permit anything to be done in or about the
Premises, Common Areas, Building or Project which will in any way obstruct
or interfere with the rights of other tenants or occupants of the Project
or injure or annoy them. Tenant shall not use or allow the Premises to be
used for any unlawful purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises and Common Areas or permit any
odors to emanate from the Premises and intrude upon the Common Areas or the
premises of other tenants. Tenant shall not commit or suffer to be
committed any waste in or upon the Premises, Common Areas, Building or
Project. Tenant shall not do or permit anything to be done in or about the
Premises, Common Areas, Building or Project which may render the insurance
thereon void or increase the insurance risk or cost thereon. If an increase
in any fire and extended coverage insurance premiums paid by Landlord for
the Building and Project is caused by Tenant's use and occupancy of the
Premises, then Tenant shall pay, as additional rental, the amount of such
increase to Landlord.

B. Compliance with Laws
--------------------

Tenant shall not use the Premises, Building, Project or Common Areas in any
way (or permit or suffer anything to be done in or about the same) which
will conflict with any law, statute, ordinance or governmental rule or
regulation or any covenant, condition or restriction (whether or not of
public record) affecting the Premises, Project or Building, now in force or
which may hereafter be enacted or promulgated including, but not limited
to, the provisions of any city or county zoning codes regulating the use
thereof. Tenant shall, at its sole cost and expense, promptly comply with
(a) all laws, statutes, ordinances, and governmental rules and regulations,
now in force or which may hereafter be in force, applicable to Tenant or
its use of or business or operations in the Premises, (b) all requirements,
and other covenants, conditions and restrictions, now in force or which may
hereafter be in force, which affect the Premises, and (c) all requirements,
now in force or which may hereafter be in force, of any board of fire
underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises, Building or
Project. The judgment of any court of competent jurisdiction or the
admission by Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance,
governmental rule or regulation or any requirement, covenant, condition or
restriction shall be conclusive of the fact as between Landlord and Tenant.
Notwithstanding and in addition to the provisions of Section XV below,
Tenant agrees to fully indemnify Landlord against any liability, claims or
damages arising as a result of a breach of the provisions of this
subsection by Tenant, and against all costs, expenses, fines or other
charges arising therefrom, including, without limitation, reasonable
attorneys' fees and related costs incurred by Landlord in connection
therewith, which indemnity shall survive the expiration or earlier
termination of this Lease.

C. Hazardous Materials
-------------------

Tenant covenants and agrees that it shall not cause or permit any Hazardous
Material (as defined below) to be brought upon, kept, or used

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<PAGE>

in or about the Premises, Building or Project by Tenant, its agents,
employees, contractors or invitees. The foregoing covenant shall not extend
to substances typically found or used in general office applications so
long as (i) such substances and any equipment which generates such
substances are maintained only in such quantities as are reasonably
necessary for Tenant's operations in the Premises, (ii) such substances are
used strictly in accordance with the manufacturers' instructions therefor,
(iii) such substances are not disposed of in or about the Project in a
manner which would constitute a release or discharge thereof, and (iv) all
such substances and any equipment which generates such substances are
removed from the Project by Tenant upon the expiration or earlier
termination of this Lease. Any use, storage, generation, disposal, release
or discharge by Tenant of Hazardous Materials in or about the Project as is
permitted pursuant to this subsection C. shall be carried out in compliance
with all applicable federal, state and local laws, ordinances, rules and
regulations. Moreover, no Hazardous Materials resulting from any operations
by Tenant shall be stored or maintained by Tenant in or about the Project
for more than ninety (90) days prior to removal by Tenant. Tenant shall,
annually within thirty (30) days after Tenant's receipt of Landlord's
written request therefor, provide to Landlord a written list identifying
any Hazardous Materials then maintained by Tenant in the Project, the use
of each such Hazardous Material and the approximate quantity of each such
Hazardous Material so maintained by Tenant, together with written
certification by Tenant stating, in substance, that neither Tenant nor any
person for whom Tenant is responsible has released or discharged any
Hazardous Materials in or about the Project.

In the event that Tenant proposes to conduct any use or to operate any
equipment which will or may utilize or generate a Hazardous Material other
than as specified in the first paragraph of this subsection, Tenant shall
first in writing submit such use or equipment to Landlord for approval. No
approval by Landlord shall relieve Tenant of any obligation of Tenant
pursuant to this subsection, including the removal, clean up and
indemnification obligations imposed upon Tenant by this subsection. Tenant
shall, within five (5) days after receipt thereof, furnish to Landlord
copies of all notices or other communications received by Tenant with
respect to any actual or alleged release or discharge of any Hazardous
Material in or about the Premises or the Project and shall, whether or not
Tenant receives any such notice or communication, notify Landlord in
writing of any discharge or release of Hazardous Material by Tenant or
anyone for whom Tenant is responsible in or about the Premises or the
Project. In the event that Tenant is required to maintain any Hazardous
Materials license or permit in connection with any use conducted by Tenant
or any equipment operated by Tenant in the Premises, copies of each such
license or permit, each renewal or revocation thereof and any communication
relating to suspension, renewal or revocation thereof shall be furnished to
Landlord within five (5) days after receipt thereof by Tenant. Compliance
by Tenant with the two immediately preceding sentences shall not relieve
Tenant of any other obligation of Tenant pursuant to this subsection.

Upon any violation of the foregoing covenants, Tenant shall be obligated,
at Tenant's sole cost, to clean-up and remove from the Project all
Hazardous Materials introduced into the Project by Tenant or any person or
entity for whom Tenant is responsible. Such clean-up and removal shall
include all testing and investigation required by any governmental
authorities having jurisdiction and preparation and implementation of any
remedial action plan required by any governmental authorities having
jurisdiction. All such clean-up and removal activities of Tenant shall, in
each instance, be conducted to the satisfaction of Landlord and all
governmental authorities having jurisdiction. Landlord's right of entry

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<PAGE>

pursuant to Section XI. shall include the right to enter and inspect the
Premises for violations of Tenant's covenants herein.

Notwithstanding and in addition to the provisions of Section XV below,
Tenant shall indemnify, defend and hold harmless Landlord, its partners,
and its and their successors, assigns, partners, officers, employees,
agents, lenders and attorneys from and against any and all claims,
liabilities, losses, actions, costs and expenses (including attorneys' fees
and costs of defense) incurred by such indemnified persons, or any of them,
as the result of (A) the introduction into or about the Project by Tenant
or anyone for whom Tenant is responsible of any Hazardous Materials, (B)
the usage, storage, maintenance, generation, disposition or disposal by
Tenant or anyone for whom Tenant is responsible of Hazardous Materials in
or about the Project, (C) the discharge or release in or about the Project
by Tenant or anyone for whom Tenant is responsible of any Hazardous
Materials, (D) any injury to or death of persons or damage to or
destruction of property resulting from the use, introduction, maintenance,
storage, generation, disposal, disposition, release or discharge by Tenant
or anyone for whom Tenant is responsible of Hazardous Materials in or about
the Project, and (E) any failure of Tenant or anyone for whom Tenant is
responsible to observe the foregoing covenants of this subsection.

Upon any violation of the foregoing covenants, Landlord shall be entitled
to exercise all remedies available to a landlord against a defaulting
tenant, including but not limited to those set forth in Section XX.
Without limiting the generality of the foregoing, Tenant expressly agrees
that upon any such violation Landlord may, at its option, (I) immediately
terminate this Lease or (II) continue this Lease in effect until compliance
by Tenant with its clean-up and removal covenant notwithstanding any
earlier expiration date of the term of this Lease. No action by Landlord
hereunder shall impair the obligations of Tenant pursuant to this
subsection.

As used in this subsection, "Hazardous Materials" is used in its broadest
sense and shall include any petroleum based products, pesticides, paints
and solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined
or designated as hazardous or toxic, or other similar term, by any federal,
state or local environmental statute, regulation, or ordinance affecting
the Premises, Building or Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances may
be amended from time to time, including but not limited to the statutes
listed below:

Resource Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901 et
--
seq.
----

Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. (S) 9601 et seq.
-- ----

Clean Air Act, 42 U.S.C. (S)(S) 7401-7626.

Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. (S)
1251 et seq.
-- ----

Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7
U.S.C. (S) 135 et seq.
-- ----

Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq.
-- ----

Safe Drinking Water Act, 42 U.S.C. (S) 300(f) et seq.
-- ----

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<PAGE>

National Environmental Policy Act (NEPA) 42 U.S.C. (S) 4321 et seq.
-- ----

Refuse Act of 1899, 33 U.S.C. (S) 407 et seq.
-- ----

Tenant acknowledges that incorporation of any material containing asbestos
into the Premises is absolutely prohibited. Tenant agrees, represents, and
warrants that it shall not incorporate or permit or suffer to be
incorporated, knowingly or unknowingly, any material containing asbestos
into the Premises.

D. Landlord's Rules and Regulations
--------------------------------

Tenant shall, and Tenant agrees to cause its agents, servants, employees,
invitees, and licensees to observe and comply fully and faithfully with the
rules and regulations attached hereto as Exhibit E or such reasonable rules
---------
and regulations which may hereafter be adopted by Landlord (the "Rules")
for the care, protection, cleanliness, and operation of the Premises,
Building and Project, and any reasonable modifications or additions to the
Rules adopted by Landlord, provided that, Landlord shall give written
notice thereof to Tenant and, Tenant's Permitted Use of the Project's not
unreasonably affected. Landlord shall not be responsible to Tenant for
failure of any other tenant or occupant of the Building or Project to
observe or comply with any of the Rules. To the best of its ability,
Landlord will apply the Rules equally to all tenants and will not
discriminate in the application of the Rules.

SECTION IX. SERVICE AND UTILITIES

A. Standard Building Services and Reimbursement by Tenant
------------------------------------------------------

So long as Tenant is not in default hereunder (including any default of a
type described in clauses (4) - (6) of Section XX.A. below), Landlord
agrees to make available to the Premises, during the Building's normal
business hours of 7:00 a.m. to 6:00 p.m., Monday through Friday and 9:00
a.m. to 1:00 p.m. on Saturday (holidays excepted), which hours are subject
to change from time to time as reasonably determined by Landlord, such heat
and air conditioning (hereinafter "HVAC"), water and electricity, as may be
required in Landlord's judgment for the comfortable use and occupation of
the Premises for general office purposes and at a level which is usual and
customary in similar office buildings in the area where the Project is
located, all of which shall be subject to the Rules of the Building as well
as any governmental requirements or standards relating to, among other
things, energy conservation. Tenant agrees to pay, as a Common Operating
Cost in accordance with Section V. above, Tenant's Proportionate Share of
the full cost of all utilities supplied to the Premises, together with any
taxes thereon; provided, however, if any such service or utilities are
separately metered to the Premises, Tenant shall pay the cost thereof in a
timely manner directly to the utility company providing such service.
Tenant's obligations in this Section regarding utilities include, but are
not limited to, initial connection charges, all charges for gas, water and
electricity used on the Premises, and for all electric light lamps or
tubes. If any such utility or service is not separately metered to the
Premises, Tenant shall be required to pay any increased cost, as additional
rent, of any such utility and service, including without limitation water,
electricity and HVAC, resulting from any use of the Premises at any time
other than the schedule of normal business hours for providing such
utilities and services as reasonably determined by Landlord or any unusual
or non-customary use beyond that which Landlord has agreed to make
available as described above, or resulting from special electrical, cooling
and ventilating needs created in certain areas by telephone equipment,
computers and other similar equipment or uses. If

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<PAGE>

the Building is designed for individual tenant operation of the HVAC,
Tenant agrees to pay the cost of operating the HVAC at any time other than
the schedule of hours for providing the same set forth above, which cost
may include the operation of the HVAC for space located outside the
Premises when such space is serviced concurrently with the operation of the
HVAC for the benefit of the Premises. Landlord estimates the cost of such
HVAC services to be $25.00 per hour.

B. Limitation on Landlord's Obligations
------------------------------------

Landlord shall not be in breach of its obligations under this Section
unless Landlord fails to make any repairs or perform maintenance which it
is obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord shall not be liable
for and Tenant shall not be entitled to any abatement or reduction of rent
by reason of, Landlord's failure to furnish any of the foregoing when such
failure is caused by accidents, breakage, repairs, strikes, brownouts,
blackouts, lockouts or other labor disturbances or labor disputes of any
character, or by any other cause, similar or dissimilar, beyond the
reasonable control of Landlord, nor shall such failure under such
circumstances be construed as a constructive or actual eviction of Tenant.
Landlord shall not be liable under any circumstances for loss or injury to
property or for any business interruption, however occurring, through or in
connection with or incidental to Landlord's furnishing or failure to
furnish any of said service or utilities.

C. Excess Service
--------------

Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises, including, without limitation,
electronic data processing machines, punch card machines or machines using
in excess of one hundred twenty (120) volts or which consumes more
electricity than is usually furnished or supplied for the Permitted Use of
the Premises, as reasonably determined by Landlord. Tenant shall not
consume water or electric current in excess of that usually furnished or
supplied for the Permitted Use of the Premises (as reasonably determined by
Landlord), without first procuring the written consent of Landlord, which
Landlord may refuse. The excess cost (including any penalties for excess
usage) for such water and electric current shall be established by an
estimate made by a utility company or independent engineer hired by
Landlord at Tenant's expense and Tenant shall pay such excess costs as
additional rent each month with the Monthly Rental. All costs and expenses
of modifying existing equipment, cables, lines, etc. or installing
additional equipment, cables, lines, etc. to accommodate such excess usage
or use by Tenant of such apparatus or device shall be borne by Tenant.

D. Security Services
-----------------

Certain security measures (both by electronic equipment and personnel) may
be provided by Landlord in connection with the Building and Common Areas.
However, Tenant hereby acknowledges that any such security provided is
intended to be only for the benefit of the Landlord in protecting its
property from fire, theft, vandalism and similar perils and while certain
incidental benefits may accrue to the Tenant therefrom, such security is
not for the purpose of protecting either the property of Tenant or the
safety of its officers, employees, servants or invitees. By providing such
security, Landlord assumes no obligation to Tenant and shall have no
liability arising therefrom. Landlord reserves the right to either
commence, expand, reduce or discontinue the providing of any such security
at any time without notice to Tenant. If, as a result of Tenant's
occupancy of the

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<PAGE>

Premises, Landlord in its sole discretion determines that it is necessary
to provide security or implement additional security measures or devices in
or about the Building or the Common Areas, Tenant shall be required to pay,
as additional rent, the cost or increased cost, as the case may be, of such
security.

SECTION X. MAINTENANCE AND REPAIRS

A. Landlord's Obligations
----------------------

Except for special or non-standard systems and equipment installed for
Tenant's exclusive use, Landlord shall keep in good condition and repair,
at Landlord's initial cost and expense subject to reimbursement by Tenant
of Tenant's Proportionate Share of such cost and expense, keep in good
condition and repair the heating, ventilating and air conditioning and
other mechanical systems which service the Premises as well as other
premises within the Building; the foundations, exterior walls, structural
condition of interior bearing walls, and roof of the Premises and Building;
and the parking lots, walkways, driveways, landscaping, fences, signs and
utility installations and other Common Areas of the Project. Landlord
shall not be in breach of its obligations under this Section unless
Landlord fails to make any repairs or perform maintenance which it is
obligated to perform hereunder and such failure persists for an
unreasonable time after written notice of a need for such repairs or
maintenance is given to Landlord by Tenant. Landlord shall not be required
to make any repairs that are the obligation of any tenant or occupant
within the Building or Project or repairs for damage caused by any
negligent or intentional act or omission of Tenant or any person claiming
through or under Tenant or any of Tenant's employees, suppliers, shippers,
customers or invitees, in which event Tenant shall, with the consent and
under the direction of Landlord, repair such damage at its sole cost and
expense. Tenant hereby waives and releases any right it may have to make
repairs to the Premises, Building or Project at Landlord's expense under
any law, statute, ordinance, rules and regulations now or hereafter in
effect in any jurisdiction in which the Project is located.

B. Tenant's Obligations
--------------------

Tenant shall, at its sole cost and expense, make all maintenance, repairs
and replacements in the manner and when Landlord reasonably deems necessary
to preserve in good working order and condition the following items, and
every part thereof: plumbing that is both within and servicing the
Premises; special or supplementary heating, ventilating and air
conditioning systems installed for the exclusive use of the Premises; non-
standard electrical, lighting and other utility systems, facilities and
equipment located within the Premises and; all trade fixtures, interior
walls, interior surfaces of exterior walls, ceilings, windows, doors,
cabinets, draperies, window coverings, carpeting and other floor coverings,
plate glass and skylights located within the Premises. Tenant shall not
commit or permit any waste in or about the Premises, the Building, or the
Project.

C. Landlord's Right to Make Repairs
--------------------------------

In the event that Tenant fails to maintain the Premises, Building and
Project in good and sanitary order, condition and repair as required by
this Lease, then, following written notification to Tenant (except in the
case of an emergency, in which case no prior notification shall be
required), Landlord shall have the right, but not the obligation, to enter
the Premises and to do such acts and expend such funds at the expense of
Tenant as are required to place the Premises, Building and Project in good,
safe and

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<PAGE>

sanitary order, condition and repair. Any amount so expended by Landlord
shall be paid by Tenant promptly upon demand as additional rent.

D. Condition of Premises Upon Surrender
------------------------------------

Except for reasonable wear and tear and as otherwise provided in this
Lease, Tenant shall, upon the expiration or earlier termination of the
Term, surrender the Premises to Landlord broom clean and in the same
condition as on the date Tenant took possession. All appurtenances,
fixtures, improvements, additions and other property attached to or
installed in the Premises whether by Landlord or by or on behalf of Tenant,
and whether at Landlord's expense or Tenant's expense, shall be and remain
the property of Landlord unless Landlord specifically agrees otherwise in
writing. Any furnishings and personal property of Tenant located in the
Premises, whether the property of Tenant or leased by Tenant including the
fixtures, improvements and other items agreed, in writing, by Landlord to
belong to the Tenant as provided in the preceding sentence and, unless
Landlord elects to require Tenant to leave the same in the Premises, which
Landlord shall have the right to do, all data, telephone or other cabling
or wiring installed by or on behalf of Tenant in the Premises, including in
the plenum area above the ceiling of the Premises), shall be and remain the
property of Tenant and shall be removed by Tenant at Tenant's sole cost and
expense at the expiration of the Term. Tenant shall promptly repair any
damage to the Premises or the Building resulting from such removal. Any of
Tenant's property not removed from the Premises prior to the expiration of
the Term shall, at Landlord's option, either become the property of
Landlord or may be removed by Landlord and Tenant shall pay to Landlord the
cost of such removal within ten (10) days after delivery of a bill therefor
or Landlord, at its option, may deduct such amount from the Security
Deposit.

SECTION XI. ENTRY BY LANDLORD

Landlord reserves and shall at any and all times have the right to enter the
Premises at reasonable times to inspect the same to determine whether Tenant is
complying with its obligations hereunder; to supply janitorial service and any
other service to be provided by Landlord hereunder; and upon reasonable notice
to Tenant, may exhibit the Premises to prospective purchasers, mortgagees or
prospective tenants; to post notices of nonresponsibility; and to alter, improve
or repair the Premises and any portion of the Building and Project, without
abatement of rent, and may for that purpose erect scaffolding and other
necessary structures that are reasonably required by the character of the work
to be performed by Landlord, provided that the business of Tenant shall not be
interfered with unreasonably. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults and safes, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open such doors in the event of an emergency. Any entry to the
Premises or portions thereof obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction,
actual or constructive, of Tenant from the Premises, or any portion thereof.

SECTION XII. ALTERATIONS, ADDITIONS AND TRADE FIXTURES

Tenant shall not make any alterations, additions or improvements to the
Premises, or any part thereof, whether structural or nonstructural (hereafter
"Alterations"), without Landlord's prior, final written consent. In order to
obtain Landlord's preliminary consent, which preliminary consent may be given or

Page 16
<PAGE>

denied in Landlord's sole discretion, Tenant shall submit such information as
Landlord may require, including, without limitation plans and specifications for
the Alterations. Any professional fees or other costs and expenses incurred by
Landlord in reviewing such plans and specifications shall be paid to Landlord by
Tenant as additional rent upon demand. If Landlord gives preliminary consent,
in order to obtain Landlord's final consent (which final consent may not be
unreasonably withheld after preliminary consent is given), Tenant shall then
submit (i) all necessary permits, licenses, bonds, and the construction
contract, all in conformance with the plans and specifications preliminarily
approved by Landlord; (ii) evidence of insurance coverage in such types and
amounts and from such insurers as Landlord deems satisfactory; and (iii) such
other information and documentation as Landlord deems reasonably necessary
including, but not limited to, evidence of Tenant's financial ability to pay for
the Alterations. Nothwithstanding the foregoing, Landlord will make reasonable
efforts to render its preliminary consent within five (5) working days after
receipt of request for consent from Tenant.

The construction contract for the Alterations shall, at a minimum, require the
general contractor and all subcontractors to obey the rules and regulations of
the Building and Project. All Alterations shall be done in a good workmanlike
manner by qualified and licensed contractors or mechanics, as approved by
Landlord. In no event shall any Alterations affect the structure of the
Building or its exterior appearance. All Alterations made by or for Tenant
(other than Tenant's moveable trade fixtures), shall, unless Landlord expressly
requires or agrees otherwise in writing, immediately become the property of
Landlord, without compensation to Tenant, but Landlord shall have no obligation
to repair, maintain or insure those Alterations. Carpeting, shelving and
cabinetry shall be considered improvements of the Premises and not movable trade
fixtures, regardless of how or where affixed. No Alterations shall be removed
by Tenant from the Premises either during or at the expiration or earlier
termination of the Term, and they shall be surrendered as a part of the Premises
unless Landlord has agreed or required otherwise in writing, in Landlord's
discretion, in which case the Alterations shall be removed by Tenant at Tenant's
sole cost and expense. Upon any such removal, Tenant shall repair any damage
caused to the Premises thereby, and shall return the Premises to the condition
they were in prior to installation of the Alterations so removed.

Tenant shall indemnify, defend and keep Landlord free and harmless from and
against all liability, loss, damage, cost, attorneys' fees and any other expense
incurred on account of claims by any person performing work or furnishing
materials or supplies for Tenant or any person claiming under Tenant. Landlord
may require Tenant to provide Landlord, at Tenant's sole cost and expense, a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such improvements, to insure Landlord against any liability
for mechanic's liens and to insure completion of the work. Landlord shall have
the right at all times to post on the Premises any notices permitted or required
by law, or that Landlord shall deem proper, for the protection of Landlord, the
Premises, the Building and the Project, and any other party having an interest
therein, from mechanics' and materialmen's liens. Tenant shall give to Landlord
written notice of the commencement of any construction in or on the Premises at
least thirty (30) business days prior thereto. Prior to the commencement of any
such construction, Landlord shall be furnished certificates of insurance, naming
Landlord as an additional insured, evidencing that each contractor performing
work has insurance acceptable to Landlord including but not limited to general
liability insurance of not less that $1,000,000 and worker's compensation
insurance in the statutorily required amount.

SECTION XIII. MECHANIC'S LIENS

Tenant shall keep the Premises, the Building and the Project free from any liens
arising out of any work performed, material furnished or obligation incurred by
or

Page 17
<PAGE>

for Tenant or any person or entity claiming through or under Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause such lien to be
released by such means as Landlord deems proper, including payment of the claim
giving rise to such lien. All such sums paid and all expenses incurred by
Landlord in connection therewith shall be due and payable to Landlord by Tenant
on demand.

SECTION XIV. INSURANCE

A. Tenant
------

During the Term hereof, Tenant shall keep in full force and effect the
following insurance and shall provide appropriate insurance certificates
evidencing such coverage to Landlord prior to the Lease Commencement Date
and annually thereafter before the expiration of each policy:

(1) Commercial general liability insurance for the benefit of Tenant
and Landlord as an additional insured, with a limit of not less than
One Million Dollars ($1,000,000.00) combined single limit per
occurrence, against claims for bodily injury or death liability or
tangible property damage liability and covering (i) the business(es)
operated by Tenant and by any subtenant of Tenant on the Premises,
(ii) operations of independent contractors engaged by Tenant for
services or construction on or about the Premises, and (iii)
contractual liability;

(2) All-risk property insurance, insuring the personal property,
furniture, furnishings and fixtures belonging to Tenant located on the
Premises for not less than one hundred percent (100%) of the actual
replacement value thereof;

(3) Workers' compensation in the amount required by law;

(4) Business interruption or loss of income insurance in amounts
satisfactory to Landlord, with a rental interruption rider assuring
Landlord that the rent due hereunder will be paid for a period of not
less than twelve (12) months if the Premises are destroyed or rendered
inaccessible by a risk insured against by a policy of all risk
insurance; and

(5) Such other insurance as Landlord deems reasonably necessary.

Each insurance policy obtained by Tenant pursuant to this Lease shall
contain a clause that the insurer will provide Landlord with at least
thirty (30) days prior written notice of any material change, non-renewal
or cancellation of the policy, shall be in a form satisfactory to Landlord
and shall be taken out with an insurance company authorized to do business
in the State in which the Project is located and rated not less than Best's
Financial Class X and Best's Policy Holder Rating "A". In addition, any
insurance policy obtained by Tenant shall be written as a primary policy,
and shall not be contributing with or in excess of any coverage which
Landlord may carry, and shall have loss payable clauses reasonably
satisfactory to Landlord and shall name Landlord and any secured party or
managing agent as an additional insured for commercial general liability
insurance. The liability limits of the above-described insurance policies
shall in no matter limit the liability of Tenant under the terms of Section
XV. below.

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<PAGE>

Not more frequently than every two (2) years, Landlord may, by notice to
Tenant, require an increase in the above-described limits of coverage if,
in the reasonable opinion of Landlord, the amount of liability insurance
specified in this Section XIV, is not adequate to maintain the level of
insurance protection at least equal to the protection afforded on the date
the Term commences. If Tenant fails to maintain and secure the insurance
coverage required under this Section XIV., then Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but
not the obligation, to procure and maintain such insurance, the cost of
which shall be due and payable to Landlord by Tenant within ten (10)
business days after written demand.

If, on account of the failure of Tenant to comply with the provisions of
this Section, Landlord is deemed a co-insurer by its insurance carrier,
then any loss or damage which Landlord shall sustain by reason thereof
shall be borne by Tenant and shall be paid by Tenant as additional rent
within ten (10) business days after receipt of a bill therefor and evidence
of such loss.

B. Landlord
--------

During the Term hereof, Landlord shall keep in full force and effect the
following insurance:

(1) Fire, extended coverage and vandalism and malicious mischief
insurance insuring the Building and Project of which the Premises are
a part, in an amount not less than eighty percent (80%) (or such
greater percentage as may be required by law) of the full replacement
cost thereof; and

(2) Such other insurance as Landlord deems necessary in its sole and
absolute discretion.

All insurance policies shall be issued in the names of Landlord and
Landlord's lender, and any other party reasonably designated by Landlord as
an additional insured, as their interests appear. The insurance policies
shall provide that any proceeds shall be made payable to Landlord, or to
the holders of mortgages or deeds of trust encumbering Landlord's interest
in the Premises, Building, and Project, or to any other party reasonably
designated by Landlord as an additional insured, as their interests shall
appear. All insurance premiums for Landlord's insurance shall be included
in Common Operating Costs.

SECTION XV. INDEMNITY; WAIVER OF SUBROGATION

A. Tenant Indemnity
----------------

Subject to the provisions of subparagraph C below, Tenant agrees to
indemnify, defend and hold Landlord and its officers, directors, employees,
property managers, agents and partners entirely harmless from and against
all liabilities, losses, demands, actions, expenses or claims, including
reasonable attorneys' fees and court costs, for injury to or death of any
person or for damages to any property or for violation of law to the extent
such liabilities, losses, demands, actions, expenses or claims, including
reasonable attorneys' fees and court costs are arising out of or in any
manner connected with (i) the use, occupancy or enjoyment of the Premises,
Building or Project by Tenant or Tenant's agents, employees, or contractors
(the "Tenant's Agents") or any work, activity or other things allowed or
suffered by Tenant or Tenant's Agents to be done in or about the Premises,
Building or Project; (ii) any breach or default in

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<PAGE>

the performance of any obligation of Tenant under this Lease; and (iii) any
act or failure to act, whether negligent or otherwise tortious, by Tenant
or Tenant's Agents in or about the Premises, Building or Project.
Notwithstanding the foregoing, Tenant shall be responsible for actual
damages only and shall not be responsible for consequential damages.

B. Landlord Indemnity
------------------

Subject to the provisions of subparagraph C below, Landlord agrees to
indemnify, defend and hold Tenant and its officers, directors, partners and
employees entirely harmless from and against all liabilities, losses,
demands, actions, expenses or claims, including attorneys' fees and court
costs but excluding consequential damages, for injury to or death of any
person or for damage to any property to the extent such are determined to
be caused by the negligence or willful misconduct of Landlord, its agents,
employees, or contractors in or about the Premises, Building, or Project.
None of the events or conditions set forth in this paragraph shall be
deemed a constructive or actual eviction or entitle Tenant to any abatement
or reduction of rent.

C. Waiver of Subrogation
---------------------

Notwithstanding the provisions of Subsections XV A. and B. above, Landlord
and Tenant each hereby waives any and all rights of recovery against the
other, and against any other tenant or occupant of the Project and against
the officers, employees, agents, representatives, customers and business
visitors of such other party and of each such other tenant or occupant of
the Project, for loss of or damage to such waiving party or its property or
the property of others under its control, arising from any cause insured
against under any policy of property insurance required to be carried by
such waiving party pursuant to the provisions of this Lease (or any other
policy of property insurance carried by such waiving party in lieu thereof)
at the time of such loss or damage and Landlord and Tenant further hereby
waive all rights of subrogation arising under their respective property
insurance policies. The foregoing waiver shall be effective whether or not
a waiving party actually obtains and maintains such insurance which such
waiving party is required to obtain and maintain pursuant to this Lease (or
any substitute therefor). Landlord and Tenant shall, upon obtaining the
policies of insurance, which they are required to maintain hereunder, give
notice to their respective insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease. Notwithstanding
the foregoing, however, Tenant shall be liable to Landlord for damage
caused to the Premises, Building, Project and Common Areas by Tenants
employees and contractors during Tenant's move in or move out of the
Premises or installation of tenant improvements in the Premises.

D. Limitation on Landlord's Liability; Release of Trustees, Officers and
---------------------------------------------------------------------
Partners of Landlord
--------------------

Tenant agrees that in the event Tenant shall have any claim against
Landlord under this Lease arising out of the subject matter of this Lease,
Tenant's sole recourse shall be against the Landlord's interest in the
Building, for the satisfaction of any claim, judgment or decree requiring
the payment of money by Landlord as a result of a breach hereof or
otherwise in connection with this Lease, and no other property or assets of
Landlord, its successors or assigns, shall be subject to the levy,
execution or other enforcement procedure for the satisfaction of any such
claim, judgment,

Page 20
<PAGE>

injunction or decree. Moreover, Tenant agrees that Landlord shall in no
event and under no circumstances be responsible for any consequential
damages incurred or sustained by Tenant, or its employees, agents,
contractors or invitees as a result of or in any way connected to Tenant's
occupancy of the Premises. Tenant further hereby waives any and all right
to assert any claim against or obtain any damages from, for any reason
whatsoever, the trustees, directors, officers and partners of Landlord
including all injuries, damages or losses to Tenant's property, real and
personal, whether known, unknown, foreseen, unforeseen, patent or latent,
which Tenant may have against Landlord or its directors, officers or
partners under this Lease or arising out of the subject matter of this
Lease. Tenant understands and acknowledges the significance and consequence
of such specific waiver.

Landlord shall not be liable or responsible to Tenant for any loss or
damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority, or for any damage
or inconvenience that may arise through repair or alteration of any part of
the Project, the Building or the Premises, or a failure to make any such
repairs, except as expressly provided in this Lease.

SECTION XVI. ASSIGNMENT AND SUBLETTING BY TENANT

A. Tenant shall not, directly or indirectly, voluntarily or by operation of
law, sell, assign, encumber, pledge or otherwise transfer or hypothecate
all or any part of the Premises or Tenant's leasehold estate hereunder
(collectively "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises or any portion thereof
("Sublease") without Landlord's prior written consent being had and
obtained in each instance, subject to the terms and conditions contained in
this Section.

B. If Tenant desires at any time to enter into an Assignment of this Lease or
a Sublease of the Premises or any portion thereof, Tenant shall request, in
writing, at least sixty (60) thirty (30) days prior to the effective date
of the Assignment or Sublease, Landlord's consent to the Assignment or
Sublease, and shall provide Landlord with the following information:

(1) The name of the proposed assignee, subtenant or occupant;

(2) The nature of the proposed assignee's, subtenant's or occupant's
business to be carried on in the Premises;

(3) The terms and provisions of the proposed Assignment or Sublease
and a copy of such documents; and

(4) Such financial information concerning the proposed assignee,
subtenant or occupant and other reasonable information regarding the
transaction which Landlord shall have requested following its receipt
of Tenant's request for consent.

C. At any time within thirty (30) days after Landlord's receipt of the notice
specified above, Landlord may by written notice to Tenant elect either to
(a) consent to the proposed Assignment or Sublease, (b) refuse to consent
to the proposed Assignment or Sublease, or (c) terminate this Lease in full
with respect to an Assignment or terminate in part with respect to a
Sublease and enter into a lease directly with the proposed assignee or
sublessee. Landlord and Tenant agree (by way of example and without
limitation) that Landlord shall be entitled to take into account any fact
or factor which Landlord reasonably deems relevant to such

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<PAGE>

decision, including but not necessarily limited to the following, all of
which are agreed to be reasonable factors for Landlord's consideration:

(1) The financial strength of the proposed assignee or subtenant (which
shall be at least equal to that of Tenant as of the date of execution
of this Lease), including the adequacy of its working capital to pay
all expenses anticipated in connection with any remodeling of the
Premises.

(2) The experience of the proposed assignee or subtenant with respect to
businesses of the type and size which such assignee or subtenant
proposes to conduct in the Premises.

(3) The quality and nature of the business and/or services to be conducted
in or from the Premises by the proposed assignee or subtenant and in
any other locations which it has, as reflected by, among other things,
average sales or revenue.

(4) Violation of exclusive use rights previously granted by Landlord to
other tenants of the Building or Project.

(5) The effect of the type of services and business which the proposed
assignee or subtenant proposes to conduct in the Premises upon the
tenant mix in the Building or in the portion of the Project which
contains the Premises, including duplication of services offered by
surrounding tenants and compatibility of the services and business
which such assignee or subtenant proposes to conduct in or offer from
the Premises with business and services conducted by surrounding
tenants in the Project.

(6) Diminution or potential diminution of percentage rent, if any, payable
pursuant to this Lease as the result of such Assignment or Sublease.

(7) The quality of the appearance of the Premises resulting from any
remodeling or renovation to be conducted by the proposed assignee or
subtenant, and the compatibility of such quality with that of other
premises in the Building.

(8) Whether the business in the Premises is, and whether the business to
be operated by the proposed assignee or subtenant will be, a
"destination business" (i.e., a business which draws patrons to the
Project or the Building specifically to obtain services from such
business).

(9) Whether there then exists any default by Tenant pursuant to this Lease
or any non-payment or non-performance by Tenant under this Lease
which, with the passage of time and/or the giving of notice, would
constitute a default under;

(10) Any fact or factor upon which Landlord reasonably concludes that the
business to be conducted by such assignee or subtenant will not be a
financial success in the Premises.

Moreover, Landlord shall be entitled to be reasonably satisfied that each
and every covenant, condition or obligation imposed upon Tenant by this
Lease and each and every right, remedy or benefit afforded Landlord by this
Lease is not impaired or diminished by such Assignment or Sublease. In no
event, shall there be any substantial change in the use of the Premises in
connection with any Assignment or Sublease except as expressly approved in
writing by Landlord in advance. Landlord and Tenant acknowledge that the
express standards and provisions set forth in

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<PAGE>

this Lease dealing with Assignment and Sublease, including those set forth
in subsections XVI. D., E. and G. have been freely negotiated and are
reasonable at the date hereof taking into account Tenant's proposed use of
the Premises and the nature and quality of the Building and Project. No
reasonable withholding of consent by Landlord for any reason deemed
sufficient by Landlord shall give rise to any claim by Tenant or any
proposed assignee or subtenant or entitle Tenant to terminate this Lease or
to any abatement of rent. Approval of any Assignment of Tenant's interest
shall, whether or not expressly so stated, be conditioned upon such
assignee assuming in writing all obligations of Tenant hereunder by a
written instrument satisfactory to Landlord.

D. If Landlord consents to the Sublease or Assignment within said thirty (30)
day period, Tenant may enter into such Assignment or Sublease of the
Premises or portion thereof, but only upon the terms and conditions set
forth in the notice furnished by Tenant to Landlord pursuant to subsection
B. above; provided, however, that in connection with such Assignment or
Sublease, as a condition to Landlord's consent, Tenant shall pay to
Landlord one hundred percent (100%) of the excess net of actual transaction
costs (e.g., commissions) and net of any amounts paid to Tenant by
subtenant or assignee, if any, of (i) in the case of an Assignment, the
rental and other payment obligations of the proposed assignee under the
terms of the proposed Assignment over the rental and other payment
obligations of Tenant under the terms of this Lease, or (ii) in the case of
a Sublease, the amount proposed to be paid by the sublessee over the
proportionate amount of rental and other payment obligations required to be
paid by Tenant to Landlord under the terms of this Lease as applicable to
the portion of the Premises so subleased.

E. No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The
consent by Landlord to any Assignment or Sublease shall not relieve Tenant
of the obligation to obtain Landlord's express written consent to any other
Assignment or Sublease. Any Assignment or Sublease that is not in
compliance with this Section shall be void and, at the option of Landlord,
shall constitute a material default by Tenant under this Lease. The
acceptance of rent or payment of any other monetary obligation by Landlord
from a proposed assignee or sublessee shall not constitute the consent by
Landlord to such Assignment or Sublease. Tenant shall promptly provide to
Landlord a copy of the fully executed Sublease or Assignment.

F. Any single transaction of a sale or other transfer, including transfer by
consolidation, merger or reorganization, of twenty-five percent (25%) or
more of the voting stock or membership interests of Tenant, if Tenant is a
corporation or limited liability company or, or any sale or other transfer
of twenty-five percent (25%) or more of the partnership interest in Tenant,
if Tenant is a partnership, shall be an Assignment for purposes of this
Section. As used in this subsection, the term "Tenant" shall also mean any
entity that has guaranteed Tenant's obligation under this Lease, and the
prohibition hereof shall be applicable to any sales or transfers of stock
or partnership interests of said guarantor.

G. Each assignee, sublessee or other transferee, other than Landlord, shall
assume, as provided in this subsection, all obligations of Tenant under
this Lease and shall be and remain liable jointly and severally with Tenant
for the payment of Monthly Rental and all other monetary obligations
hereunder, and for the performance of all the terms, covenants, conditions
and agreements herein contained on Tenant's part to be performed for the
Term; provided, however, that the assignee, sublessee, or other transferee
shall be liable to Landlord for rent only in the amount set forth in

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<PAGE>

the Assignment or Sublease. No Assignment shall be binding on Landlord
unless the assignee or Tenant shall deliver to Landlord a counterpart of
the Assignment and an instrument in recordable form that contains a
covenant of assumption by the assignee satisfactory in substance and form
to Landlord, consistent with the requirements of this subsection but the
failure or refusal of the assignee to execute such instrument of assumption
shall not release or discharge the assignee from its liability as set forth
above. In connection with a Sublease, Tenant or the sublessee shall deliver
to Landlord an instrument (acceptable in form and substance to Landlord and
in recordable form) agreeing that sublessee shall be bound by all of the
terms and conditions of the Lease, other than those pertaining to rent,
applicable to the subleased space and that sublessee shall, at Landlord's
sole option, attorn to Landlord as lessor under the Sublease if this Lease
is terminated for any reason and Landlord chooses to keep the Sublease in
effect.

H. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the
"Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any and all monies or
other considerations constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and be promptly paid or delivered to Landlord.

I. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or
deed, to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.

J. Tenant shall pay Landlord's expenses and attorneys' fees incurred in
processing an Assignment or Sublease, but in no event less than Five
Hundred Dollars ($500.00) for each such proposed transfer to cover the
legal review and processing expenses of Landlord, whether or not Landlord
shall grant its consent to such proposed transfers.

K. All options to extend, renew, or expand, rights of first refusal and
agreements regarding signage on the Building, if any, contained in this
Lease are personal to Tenant. Consent by Landlord to any assignment or
subletting shall not include consent to the assignment or transfer of any
such rights with respect to the Premises or any special privileges or extra
services granted to Tenant by this Lease, or any addendum or amendment
hereto or letter of agreement. All such options, rights, privileges and
extra services shall terminate upon such assignment or subletting unless
Landlord specifically grants in writing such options, rights, privileges
and extra services to such assignee or subtenant.

SECTION XVII. TRANSFER OF LANDLORD'S INTEREST

In the event Landlord shall sell or otherwise convey its title to the Building,
then, after the effective date of such sale or conveyance Landlord shall have no
further liability under this Lease to Tenant except as to matters of liability
which have accrued and are unsatisfied as of the date of sale or conveyance, and
Tenant shall seek performance solely from Landlord's purchaser or successor in
title. In connection with such sale or transfer, Landlord may assign its
interest under this Lease without notice to or consent by Tenant. In such
event, Tenant agrees to be bound to any successor Landlord.

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<PAGE>

SECTION XVIII. DAMAGE AND DESTRUCTION

A. Minor Insured Damage
--------------------

In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty that is covered by the insurance
maintained by Landlord pursuant to Section XIV. above, then Landlord shall
rebuild, repair and restore the damaged portion thereof, provided that (1)
the amount of insurance proceeds available to Landlord equals or exceeds
the cost of such rebuilding, restoration and repair, (2) such rebuilding,
restoration and repair can be completed within one hundred eighty (180)
days after the work commences in the opinion of a registered architect or
engineer appointed by Landlord, (3) the damage or destruction has occurred
more than twelve (12) months before the expiration of the Term and (4) such
rebuilding, restoration, or repair is then permitted, under applicable
governmental laws, rules and regulations, to be done in such a manner as to
return the damaged portion thereof to substantially its condition
immediately prior to the damage or destruction, including, without
limitation, the same net rentable floor area. To the extent that insurance
proceeds must be paid to a mortgagee or beneficiary under, or must be
applied to reduce any indebtedness secured by, a mortgage or deed of trust
encumbering the Premises, Building or Project, such proceeds, for the
purposes of this subsection, shall be deemed not available to Landlord
unless such mortgagee or beneficiary permits Landlord to use such proceeds
for the rebuilding, restoration, and repair of the damaged portion thereof.
Notwithstanding the foregoing, Landlord shall have no obligation to repair
any damage to, or to replace any of, Tenant's personal property,
furnishings, trade fixtures, equipment or other such property or effects of
Tenant.

B. Major or Uninsured Damage
-------------------------

In the event the Premises or the Building, or any portion thereof, is
damaged or destroyed by any casualty to the extent that Landlord is not
obligated, under subsection A. above, to rebuild, repair or restore the
damaged portion thereof, then Landlord shall within sixty (60) days after
such damage or destruction, notify Tenant of its election, at its option,
to either (1) rebuild, restore and repair the damaged portions thereof, in
which case Landlord's notice shall specify the time period within which
Landlord estimates such repairs or restoration can be completed; or (2)
terminate this Lease effective as of the date the damage or destruction
occurred. If Landlord does not give Tenant written notice within sixty
(60) days after the damage or destruction occurs of its election to rebuild
or restore and repair the damaged portions thereof, Landlord shall be
deemed to have elected to terminate this Lease. Notwithstanding the
foregoing, if Landlord does not elect to terminate this Lease, Tenant may
terminate this Lease if either (i) Landlord notifies Tenant that such
repair or restoration cannot be completed within three hundred and sixty-
five (365) days after the work is commenced or (ii) the damage or
destruction occurs within the last twelve (12) months of the Term, unless
Tenant's actions or omissions are the cause of the damage. If Tenant has
the right to terminate the Lease in accordance with the above provisions,
Tenant may so elect by written notice to Landlord which must be given
within fifteen (15) days after Tenant's receipt of Landlord's notice of its
election to rebuild. Upon Landlord's receipt of such notice, the
termination shall be effective as of the date the destruction occurred.

Page 25
<PAGE>

C. Abatement of Rent
-----------------

There shall be an abatement of rent by reason of damage to or destruction
of the Premises or the Building, or any portion thereof, to the extent that
(i) Landlord receives insurance proceeds for loss of rental income
attributable to the Premises and (ii) the floor area of the Premises cannot
be reasonably used by Tenant for conduct of its business, in which event
the Monthly Rental shall abate proportionately according to (i) or (ii)
above, as appropriate, commencing on the date that the damage to or
destruction of the Premises or Building has occurred, and except that, if
Landlord or Tenant elects to terminate this Lease as provided in Subsection
B. above, no obligation shall accrue under this Lease after such
termination. Notwithstanding the provisions of this Section, if any such
damage is due to the fault or neglect of Tenant, any person claiming
through or under Tenant, or any of their employees, suppliers, shippers,
servants, customers or invitees, then there shall be no abatement of rent
by reason of such damage, unless and until Landlord is reimbursed for such
abatement pursuant to any rental insurance policy that Landlord may, in its
sole discretion, elect to carry. Tenant's right to terminate this Lease in
the event of any damage or destruction to the Premises or Building, is
governed by the terms of this Section and therefore Tenant hereby expressly
waives the provisions of any and all laws, whether now or hereafter in
force, and whether created by ordinance, statute, judicial decision,
administrative rules or regulations, or otherwise, that would cause this
Lease to be terminated, or give Tenant a right to terminate this Lease,
upon any damage to or destruction of the Premises or Building that occurs.

D. Waiver
------

Tenant waives the provisions of and any present or future laws or case
decisions regarding damage, destruction, repair, or restoration of the
Premises, Building and/or Project and agrees that the provisions of this
Section XVIII shall control to the same effect. Upon completion of such
repair or restoration, Tenant shall promptly refixture the Premises
substantially to the condition they were in prior to the casualty and shall
reopen for business if closed by the casualty.

SECTION XIX. CONDEMNATION

A. Total or Partial Taking
-----------------------

If all or substantially all of the Premises is permanently condemned or
taken in any manner for public or quasi-public use, including but not
limited to, a conveyance or assignment in lieu of the condemnation or
taking, this Lease shall automatically terminate as of the earlier of the
date on which actual physical possession is taken by the condemnor or the
date of dispossession of Tenant as a result of such condemnation or other
taking. If less than all or substantially all of the Premises is so
condemned or taken, this Lease shall automatically terminate only as to the
portion of the Premises so taken as of the earlier of the date on which
actual physical possession is taken by the condemnor or the date of
dispossession of Tenant as a result of such condemnation or taking. If
such portion of the Building is condemned or otherwise taken so as to
require, in the opinion of Landlord, a substantial alteration or
reconstruction of the remaining portions thereof, this Lease may be
terminated by Landlord, as of the date on which actual physical possession
is taken by the condemnor or dispossession of Tenant as a result of such
condemnation or taking, by written notice to Tenant within sixty (60) days
following notice to Landlord of the date on which such physical possession
is taken or dispossession will occur.

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<PAGE>

B. Award
-----

Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding for taking the Premises, Building or Project
for public or quasi-public use, including, without limitation, any award
made for the value of the leasehold estate created by this Lease. No award
for any partial or total taking shall be apportioned, and Tenant hereby
assigns to Landlord any award that may be made in such condemnation or
other taking, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof. Although all damages in the
event of any condemnation are to belong to Landlord whether such damages
are awarded as compensation for diminution in value of the leasehold or to
the fee of the Premises, Tenant shall have the right to claim and recover
from the condemnor, but not from Landlord, such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on
account of the interruption of or damage to Tenant's business by reason of
the condemnation and for or on account of any cost or loss to which Tenant
might incur in removing Tenant's merchandise, furniture and other personal
property, fixtures, and equipment from the Premises.

C. Abatement in Rent
-----------------

In the event of a partial condemnation or other taking that does not result
in a termination of this Lease as to the entire Premises pursuant to this
Section, the rent and all other charges under this Lease shall abate in
proportion to the portion of the Premises taken by such condemnation or
other taking. If this Lease is terminated, in whole or in part, pursuant
to any of the provisions of this Section, all rentals and other charges
payable by Tenant to Landlord hereunder and attributable to the Premises
taken shall be paid up to the date upon which actual physical possession
shall be taken by the condemnor. Landlord shall be entitled to retain all
of the Security Deposit until such time as this Lease is terminated as to
all of the Premises.

D. Temporary Taking
----------------

If all or any portion of the Premises is temporarily condemned or otherwise
taken for public or quasi-public use for a limited period of time, this
Lease shall remain in full force and effect and Tenant shall continue to
perform all terms, conditions and covenants of this Lease; provided,
however, the rent and all other charges payable by Tenant to Landlord
hereunder shall abate during such limited period in proportion to the
portion of the Premises that is rendered untenantable and unusable as a
result of such condemnation or other taking. Landlord shall be entitled to
receive the entire award made in connection with any such temporary
condemnation or other taking. Tenant shall have the right to claim and
recover from the condemnor, but not from Landlord, such compensation as may
be separately awarded or recoverable by Tenant in Tenant's own right on
account of damages to Tenant's business by reason of the condemnation and
for or on account of any cost or loss to which Tenant might be put in
removing Tenant's merchandise, furniture and other personal property,
fixtures and equipment or for the interruption of or damage to Tenant's
business.

E. Transfer of Landlord's Interest to Condemnor
--------------------------------------------

Landlord may, without any obligation or liability to Tenant, agree to sell
and/or convey to the condemnor the Premises, the Building, the Project or
any portion thereof, sought by the condemnor, free from this Lease and the
rights of Tenant hereunder, without first requiring that any action or
proceeding be instituted or, if instituted, pursued to a judgment. In such

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event, this Lease shall be deemed terminated effective on the date of such
transfer.

SECTION XX. DEFAULT

A. Tenant's Default
----------------

The occurrence of any of the following events shall constitute a default
hereunder by Tenant:

(2) If Tenant fails to pay any rent or other charges required to be
paid by Tenant under this Lease and such failure continues for five
(5) days after such payment is due and payable; provided, however,
that the obligation of Tenant to pay a late charge or interest
pursuant to this Lease shall commence as of the due date of the rent
or such other monetary obligation and not on the expiration of such
five (5) day grace period;

(3) If Tenant involuntarily transfers Tenant's interest in this Lease
or voluntarily attempts to or actually transfers its interest in this
Lease, without Landlord's prior written consent;

(4) If Tenant files a voluntary petition for relief, or if an involuntary
petition against Tenant, is filed in a proceeding under the United
States Bankruptcy Code or other federal or state insolvency laws and
is not withdrawn or dismissed within forty-five (45) days thereafter;
or if under the provisions of any law providing for reorganization or
winding up of corporations, any court of competent jurisdiction
assumes jurisdiction, custody or control of Tenant or any substantial
part of the Premises or any of Tenant's personal property located at
the Premises and such jurisdiction, custody or control remains in
force unrelinquished, unstayed or unterminated for a period of forty-
five (45) days;

(5) If in any proceeding or action in which Tenant is a party, a
trustee, a receiver, agent or custodian is appointed to take charge of
the Premises or any of Tenant's personal property located at the
Premises (or has the authority to do so) for the purpose of enforcing
a lien against the Premises or Tenant's personal property;

(6) If Tenant shall make any general assignment for the benefit of
creditors or convene a meeting of its creditors or any class thereof
for the purpose of effecting a moratorium upon or composition of its
debts, or any class thereof;

(7) If Tenant fails to discharge any lien placed as a result of
Tenant's action or inaction upon the Premises, the Building, or the
Project within thirty (30) days after the imposition of such lien;

(8) If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease (other than as provided
in subparagraphs (1) through (7) above) and such failure continues for
days thirty (30) after written notice thereof from Landlord to Tenant,
or if such failure cannot be completely cured within such thirty (30)
day period, then if Tenant fails to commence such cure within such
thirty (30)

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<PAGE>

day period and thereafter proceed to completely cure such failure
within thirty (30) days after such written notice; or

(9) If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs (1)
through (8) above.

B. Remedies
--------

Upon the occurrence of a default by Tenant that is not cured by Tenant
within any applicable grace period specified above, Landlord shall have the
following rights and remedies in addition to all other rights and remedies
available to Landlord at law or in equity, which shall be cumulative and
non-exclusive:

(1) The right to declare this Lease and the term of this Lease
terminated; to re-enter the Premises and the improvements located
thereon, with or without process of law; to eject all parties in
possession thereof therefrom; to repossess and enjoy the Premises
together with all said improvements; and to recover from Tenant all of
the following:

(a) The worth at the time of award of the unpaid rent which
had been earned at the time of termination;

(b) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; or

(c) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term after the time of
award exceeds the amount of rental loss that Tenant proves could
be reasonably avoided; and

(d) Any other amount necessary to compensate Landlord for
all the actual (not consequential) detriment proximately caused
by Tenant's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, any attorneys'
fees, broker's commissions or finder's fees (not only in
connection with the reletting of the Premises, but also that
portion of any leasing commission paid by Landlord in connection
with this Lease which is applicable to that portion of the Term
which is unexpired as of the date on which this Lease is
terminated); the then unamortized cost of any tenant improvements
constructed for or on behalf of Tenant by or at the expense of
Landlord or of any moving allowance or other concession made
available to Tenant and/or paid by Landlord pursuant to this
Lease; any costs for repairs, clean-up, refurbishing, removal
(including the repair of any damage caused by such removal) and
storage (or disposal) of Tenant's personal property, equipment,
fixtures, and anything else that Tenant is required (under this
Lease) to remove but does not remove; any costs for alterations,
additions and renovations; and any other costs and expenses,
including reasonable attorneys' fees and costs incurred by
Landlord in regaining possession of and reletting (or attempting
to relet) the Premises.

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<PAGE>

(2) The right to continue this Lease in effect and to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover rent and any other additional monetary charges as they
become due, for as long as Landlord does not terminate Tenant's right
to possession. Acts of maintenance or preservation, efforts to relet
the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession.

(3) The right to re-enter the Premises; to eject therefrom all parties
in possession thereof, and, without terminating this Lease, at any
time and from time to time, but without obligation to do so, to relet
the Premises and the improvements located therein or any part or parts
thereof for the account of Tenant, or otherwise, on such conditions as
Landlord in its discretion may deem proper, with the right to make
alterations and repairs to the Premises in connection therewith, and
to receive and collect the rents therefor and apply the same (i) first
to the payment of the following costs and expenses as Landlord may
have paid, assumed or incurred: (a) in recovering possession of the
Premises and said improvements, including attorneys' fees, and costs;
(b) expenses for placing the Premises and said improvements in good
order and condition, for decorating and preparing the Premises for
reletting; (c) for making any alterations, repairs, changes or
additions to the Premises that may be necessary or convenient; and (d)
all other costs and expenses, including leasing and subleasing
commissions, and charges paid, assumed or incurred by Landlord in or
upon reletting the Premises and said improvements, or in fulfillment
of the covenants of Tenant under this Lease; and (ii) then to the
payment of Monthly Rental, Tenant's Proportionate Share of Common
Operating Costs, and other monetary obligations due and unpaid
hereunder; and (iii) any balance shall be held by Landlord and applied
in payment of future amounts as the same may become due and payable
hereunder. Any such reletting may be for the remainder of the term of
this Lease or for a longer or shorter period in Landlord's sole and
absolute discretion. Landlord may execute any lease or sublease made
pursuant to the terms of this subparagraph either in its own name or
in the name of Tenant as its agent, as Landlord may see fit. The
tenant(s) or subtenant(s) thereunder shall be under no obligation
whatsoever with regard to the application by Landlord of any rent
collected by Landlord from such tenant or subtenant to any and all
sums due and owing or which may become due and owing under the
provisions of this Lease, nor shall Tenant have any right or authority
whatever to collect any rent whatever from such tenant(s) or
subtenant(s). If Tenant has been credited with any rent received by
such reletting and such rent shall not be promptly paid to Landlord by
the tenant(s) or subtenant(s), or if such rentals received from
reletting during any month are less than those to be paid during that
month by Tenant hereunder, Tenant shall pay any such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord as soon as ascertained, any costs
and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such
reletting. For all purposes set forth in this subsection, Landlord is
hereby irrevocably appointed as agent for Tenant. No taking
possession of the Premises by Landlord shall be construed as
Landlord's acceptance of a surrender of the Premises by Tenant or an
election of Landlord's part to terminate this Lease unless written
notice of such intention is given to Tenant. Notwithstanding any such
leasing or subletting without termination

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<PAGE>

of this Lease, Landlord may at any time thereafter elect to terminate
this Lease for such previous breach.

(4) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to
apply any rental collected from the Premises and to exercise all other
rights and remedies granted to Landlord pursuant to this subsection.

SECTION XXI. LATE PAYMENTS/INTEREST AND LATE CHARGES

A. Interest
--------

Any amount due from Tenant to Landlord which is not paid when due shall
bear interest at the maximum rate permitted by law from the date such
payment is due until paid, except that amounts spent by Landlord on behalf
of Tenant as provided in this Lease shall bear interest at such rate from
the date of disbursement by Landlord which Tenant agrees is to compensate
Landlord for Tenant's use of Landlord's money after it is due. Payment of
such interest shall not excuse or cure any default by Tenant pursuant to
this Lease. Such rate shall remain in effect after the occurrence of any
breach or default hereunder by Tenant to and until payment of the entire
amount due.

B. Late Charges
------------

Tenant hereby acknowledges that in addition to lost interest, the late
payment by Tenant to Landlord of rent or any other sums due hereunder will
cause Landlord to incur other costs not contemplated in this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Such other costs include, but are not limited to processing,
administrative and accounting costs. Accordingly, if any installment of
rent or any additional rent or other sum due from Tenant shall not be
received by Landlord when such amount shall be due (without regard to any
grace period prior to default granted in this Lease), Tenant shall pay to
Landlord as additional rent hereunder a late charge equal to ten percent
(10%) of such overdue amount. The parties hereby agree that (i) such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur in processing such past-due payment by Tenant, (ii) such late charge
shall be paid to Landlord as liquidated damages for each delinquent
payment, and (iii) the payment of the late charge is to compensate Landlord
for the additional administrative expense incurred by Landlord in handling
and processing delinquent payments.

C. Consecutive Late Payment of Rent
--------------------------------

Following each second consecutive late payment of rent, Landlord shall have
the option (i) to require that beginning with the first payment of rent
next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that
the Tenant increase the amount, if any, of the Security Deposit by one
hundred percent (100%), which additional Security Deposit shall be retained
by Landlord, and may be applied by Landlord, in the manner provided for
Security Deposits in this Lease.

D. No Waiver
---------

Neither assessment nor acceptance of partial payments, interest or late
charges by Landlord shall constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
its other rights and remedies under this Lease. Nothing contained

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<PAGE>

in this Section shall be deemed to condone, authorize, sanction or grant to
Tenant an option for the late payment of rent, additional rent or other
sums due hereunder, and Tenant shall be deemed in default with regard to
any such payments should the same not be made by the date on which they are
due.

SECTION XXII. LIEN FOR RENT

IN CONSIDERATION OF THE MUTUAL BENEFITS ARISING UNDER THIS LEASE, TENANT HEREBY
GRANTS TO LANDLORD A LIEN AND SECURITY INTEREST IN ALL PROPERTY OF TENANT
(INCLUDING, BUT NOT LIMITED TO, ALL FIXTURES, MACHINERY, EQUIPMENT, FURNISHINGS,
AND OTHER ARTICLES OF PERSONAL PROPERTY NOW OR HEREAFTER PLACED IN OR ON THE
PREMISES BY TENANT, TOGETHER WITH THE PROCEEDS FROM THE DISPOSITION OF THOSE
ITEMS) [THE "COLLATERAL"], NOW OR HEREAFTER PLACED IN OR ON THE PREMISES, AS
SECURITY FOR PAYMENT OF ALL RENT AND OTHER SUMS AGREED TO BE PAID BY TENANT
HEREIN. THE PROVISIONS OF THIS SECTION CONSTITUTE A SECURITY AGREEMENT UNDER THE
UNIFORM COMMERCIAL CODE OF THE STATE IN WHICH THE BUILDING IS LOCATED, AND
LANDLORD HAS AND MAY ENFORCE A SECURITY INTEREST IN THE COLLATERAL. THE
COLLATERAL SHALL NOT BE REMOVED WITHOUT THE CONSENT OF LANDLORD UNTIL ALL
ARREARAGES IN RENT AND OTHER SUMS OF MONEY THEN DUE TO LANDLORD HEREUNDER HAVE
BEEN PAID AND DISCHARGED. CONCURRENTLY WITH THE EXECUTION AND DELIVERY HEREOF,
TENANT SHALL EXECUTE, AS DEBTOR, TWO OR MORE FINANCING STATEMENTS IN THE FORM
PROVIDED BY LANDLORD, TO PERFECT THIS SECURITY INTEREST PURSUANT TO THE UNIFORM
COMMERCIAL CODE OF THE STATE IN WHICH THE BUILDING IS LOCATED. THE PROVISIONS OF
THIS SECTION CONSTITUTE A SECURITY AGREEMENT UNDER THE UNIFORM COMMERCIAL CODE
OF THE STATE IN WHICH THE BUILDING IS LOCATED, AND LANDLORD HAS AND MAY ENFORCE
A SECURITY INTEREST IN THE COLLATERAL. LANDLORD MAY AT ITS ELECTION AT ANY TIME
FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT. LANDLORD, AS SECURED PARTY,
HAS ALL THE RIGHTS AND REMEDIES AFFORDED A SECURED PARTY UNDER THE UNIFORM
COMMERCIAL CODE OF THE STATE IN WHICH THE BUILDING IS LOCATED IN ADDITION TO AND
CUMULATIVE OF THE LANDLORD'S LIENS AND RIGHTS PROVIDED BY LAW OR BY THE OTHER
TERMS AND PROVISIONS OF THIS LEASE.

SECTION XXIII. HOLDING OVER

Any holding over by Tenant in the possession of the Premises, or any portion
thereof, after the expiration or earlier termination of the Term, with or
without the consent of Landlord, shall require Tenant to pay two hundred percent
(200%) of the Monthly Rental herein specified for the last month in the Term
(prorated on a monthly basis), unless Landlord shall specify a lesser amount for
rent in its sole discretion, together with an amount estimated by Landlord for
the monthly Common Operating Costs payable under this Lease. If Tenant holds
over with Landlord's consent, such occupancy shall be deemed a month to month
tenancy and such tenancy shall otherwise be on the terms and conditions herein
specified in this Lease as far as applicable. Notwithstanding the foregoing
provisions or the acceptance by Landlord of any payment by Tenant, any holding
over without Landlord's consent shall constitute a default by Tenant and shall
entitle Landlord to pursue all remedies provided in this Lease and Tenant shall
be liable for any and all direct or consequential damages or losses of Landlord
resulting from Tenant's holding over without Landlord's consent.

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<PAGE>

SECTION XXIV. ATTORNEYS' FEES

The losing party shall pay to the prevailing party Landlord all costs and
expenses, including, but not limited to, reasonable attorneys' fees and amounts
paid to any collection agency, incurred by the prevailing party Landlord in
connection with any breach or default by the losing party Tenant under this
Lease or incurred in order to enforce or interpret the terms or provisions of
this Lease. Tenant shall also pay to Landlord all such amounts, including
attorneys' fees, incurred by Landlord in responding to any request by Tenant (a)
to amend or modify this Lease or (b) to prepare any statement or document in
connection with this Lease, including without limitation estoppel certificates
or subordination agreements or the like. Such amounts shall be payable
immediately upon demand. In addition, if any action shall be instituted by
either Landlord or Tenant for the enforcement or interpretation of any of its
rights or remedies in or under this Lease, the prevailing party shall be
entitled to recover from the losing party all costs incurred by the prevailing
party in said action and any appeal therefrom, including reasonable attorneys'
fees and court costs to be fixed by the court therein. In the event Landlord is
made a party to any litigation between Tenant and any third party, then Tenant
shall pay all costs and attorneys' fees incurred by or imposed upon Landlord in
connection with such litigation; provided, however, if Landlord is ultimately
held to be liable, then Landlord shall reimburse Tenant for the cost of any
attorneys' fees paid by Tenant on behalf of Landlord.

SECTION XXV. MORTGAGEE PROTECTION

A. Subordination; Nondisturbance
-----------------------------

The rights of Tenant under this Lease are and shall be, at the option of
Landlord or the mortgagee, beneficiary or master or ground lessor under the
following instruments, either subordinate or superior to any mortgage or
deed of trust (including a consolidated mortgage or deed of trust)
constituting a lien on the Premises, Building or Project, or Landlord's
interest therein or any part thereof, whether such mortgage or deed of
trust has heretofore been, or may hereafter be, placed upon the Premises by
Landlord, and to any ground or master lease if Landlord's title to the
Premises or any part thereof is or shall become a leasehold interest. To
further assure the foregoing subordination or superiority, Tenant shall,
upon Landlord's request, together with the request of any mortgagee under a
mortgage or beneficiary under a deed of trust or ground or master lessor,
execute any instrument (including without limitation an amendment to this
Lease that does not materially and adversely affect Tenant's rights or
duties under this Lease), or instruments intended to subordinate this Lease
(subject to Tenant's non-disturbance rights), or at the option of Landlord,
to make it superior to any mortgage, deed of trust, or ground or master
lease. Notwithstanding any such subordination, Tenant's right to occupy the
Premises pursuant to this Lease shall remain in effect for the full Term as
long as Tenant is not in default hereunder.

B. Attornment
----------

Notwithstanding and in addition to the provisions of subsection A. above,
Tenant agrees (1) to attorn to any mortgagee of a mortgage or beneficiary
of a deed of trust encumbering the Premises and to any party acquiring
title to the Premises by judicial foreclosure, trustee's sale, or deed in
lieu of foreclosure, and to any ground or master lessor, as the successor
to Landlord hereunder and (2) to execute any attornment agreement
evidencing such attornment requested by a mortgagee, beneficiary, ground or
master lessor, or party so acquiring title to the Premises, and (3) that
this Lease, subject to the rights under any outstanding non-disturbance
agreement, at the option of such mortgagee, beneficiary, or ground or
master lessor, or other party, shall remain in force

Page 33
<PAGE>

notwithstanding any such judicial foreclosure, trustee's sale, deed in lieu
of foreclosure, or merger of titles. Notwithstanding the foregoing, neither
a mortgagee of a mortgage or beneficiary of a deed of trust encumbering the
Premises, any party acquiring title to the Premises by judicial
foreclosure, trustee sale, or deed in lieu of foreclosure, or any ground
lessor or master lessor, as the successor to Landlord hereunder, shall be
liable or responsible for any breach of a covenant contained in this Lease
that occurred before such party acquired its interest in the Premises or
for any continuing breach thereof until after the successor Landlord has
received the notice and right to cure as provided herein, and no such party
shall be liable or responsible for any security deposits held by Landlord
hereunder which have not been transferred or actually received by such
party, and such party shall not be bound by any payment of rent or
additional rent for more than two (2) months in advance.

C. Amendment
---------

If any lending institution with which Landlord has negotiated or may
negotiate for financing for the Building or Project requires any changes to
this Lease, Tenant shall promptly execute and deliver an amendment to this
Lease prepared by Landlord and embodying such changes, so long as such
changes do not materially increase Tenant's obligations hereunder. In the
event that Tenant shall fail to execute and deliver such amendment within
twenty (20) days after receipt thereof by Tenant, such failure shall
constitute a default hereunder by Tenant and shall entitle Landlord to all
remedies available to a landlord against a defaulting tenant pursuant to a
written lease, including but not limited to those remedies set forth in
Section XX.

SECTION XXVI. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS
A. Estoppel Certificate
--------------------

Tenant, at any time and from time to time upon not less than ten (10) days
prior written notice from Landlord, agrees to execute and deliver to
Landlord a statement in the form provided by Landlord (a) certifying that
this Lease is unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that this Lease, as
so modified, is in full force and effect and the date to which the rent and
other charges are paid in advance, if any; (b) acknowledging that there are
not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if they are claimed evidencing the
status of this Lease; (c) acknowledging the amount of the Security Deposit
held by Landlord; and (d) containing such other information regarding this
Lease or Tenant as Landlord reasonably requests. Tenant's failure to
deliver an estoppel certificate within such time shall be conclusive upon
Tenant that (i) this Lease is in full force and effect without modification
except as may be represented by Landlord, (ii) to Tenant's knowledge there
are no uncured defaults in Landlord's performance, (iii) no rent has been
paid in advance except as set forth in this Lease, and (iv) such other
information regarding this Lease and Tenant set forth therein by Landlord
is true and complete.

B. Furnishing of Financial Statements
----------------------------------

Landlord has reviewed the financial statements, if any, requested and
received from the Tenant and has relied upon the truth and accuracy thereof
with Tenant's knowledge and representations of the truth and accuracy of
such statements and that said statements accurately and fairly depict the
financial condition of Tenant. Said financial statements are an inducing
factor and consideration for the entering into of this Lease by Landlord
with this particular Tenant. Tenant shall, at any time and from

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<PAGE>

time to time upon not less than ten (10) days prior written notice from
Landlord, furnish Landlord with (a) Tenant's most recent audited financial
statements, including a balance sheet and income statement, or a document
in which Tenant states that its books are not independently audited, and
(b) unaudited financial statements, including a balance sheet and income
statement, dated within ninety (90) days of the request from Landlord.

SECTION XXVII. PARKING

Landlord agrees to maintain or cause to be maintained an automobile parking area
and to maintain and operate, or cause to be maintained and operated, said
automobile parking area during the Term of this Lease for the benefit and use of
the customers, service suppliers, other invitees and employees of Tenant.
Whenever the words "automobile parking area" or "parking area" are used in this
Lease, it is intended that the same shall include, whether in a surface parking
area or a parking structure, the automobile parking stalls, driveways, loading
docks, truck areas, service drives, entrances and exits and sidewalks,
landscaped areas, pedestrian passageways in conjunction therewith and other
areas designed for parking. Landlord shall keep said automobile parking area in
a reasonably neat, clean and orderly condition, lighted and landscaped, and
shall repair any damage to the facilities thereof, the cost of which shall be
included in Common Operating Costs as defined above. Landlord shall also have
the right to establish such reasonable rules and regulations as may be deemed
desirable, at Landlord's sole discretion, for the proper and efficient operation
and maintenance of said automobile parking area. Such rules and regulations may
include, without limitation, (i) restrictions in the hours during which the
automobile parking area shall be open for use, (ii) the establishment of charges
for parking therein (on either a reserved or unreserved basis, at Landlord's
sole discretion) by tenants of the Building and Project as well as by their
employees, customers and service suppliers, and (iii) the use of parking gates,
cards, permits and other control devices to regulate the use of the parking
areas.

The rights of Tenant and its employees, customers, service suppliers and
invitees referred to in this Section, shall at all times be subject to (a)
Landlord's right to establish rules and regulations applicable to such use and
to exclude any person therefrom who is not authorized to use same or who
violates such rules and regulations; (b) the rights of Landlord and other
tenants in the Building and Project to use the same in common with Tenant and
its employees, customers, service suppliers and invitees, (c) the availability
of parking spaces in said automobile parking area, and (d) Landlord's right to
change the location and configuration of the parking areas and any assigned
reserved parking spaces as shall be determined at Landlord's sole discretion.
Tenant agrees to limit its use of the Automobile Parking Area to the number and
type of parking spaces specified in the subsection entitled "Tenant Parking
Spaces" in Section I. Landlord shall at all times during the Term hereof have
the sole and exclusive control of the automobile parking area, and may at any
time during the Term hereof exclude and restrain any person from use or
occupancy thereof; excepting, however, Tenant and employees, customers, service
suppliers and other invitees of Tenant and of other tenants in the Building and
Project who make use of said area in accordance with any rules and regulations
established by Landlord from time to time with respect thereto.

Notwithstanding the foregoing, nothing contained herein shall be deemed to
impose liability upon Landlord for personal injury or theft, for damage to any
motor vehicle, or for loss of property from within any motor vehicle, which is
suffered by Tenant or any of its employees, customers, service suppliers or
other invitees in connection with their use of said automobile parking area.

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<PAGE>

SECTION XXVIII. SIGNS; NAME OF BUILDING

Tenant shall not have the right to place, construct, or maintain on or about the
Premises, Building or Project, or in any interior portions of the Premises or
Building that may be visible from the exterior of the Building or Common Areas,
any signs, names, insignia, trademark, advertising placard, descriptive material
or any other similar item ("Sign") without Landlord's prior written consent,
which consent may be withheld in Landlord's sole discretion; provided, however,
any Signs are further subject to approval of any applicable governmental
authority and/or compliance with applicable governmental requirements. In the
event Landlord consents to Tenant placing a Sign on or about the Premises,
Building or Project, any such Sign shall be subject to Landlord's approval of
the color, size, style and location of such Sign, and shall conform to any
current or future Sign criteria established by Landlord for the Building or
Project. If Landlord enacts a Sign criteria or revises an existing Sign
criteria, after Tenant has erected a Sign to which Landlord has granted its
consent, if Landlord so elects, Tenant agrees, at Landlord's expense, subject to
Landlord's prior approval of the cost thereof, to make the necessary changes to
its Sign in order to conform the Sign to Landlord's current Sign criteria, as
enacted or revised, provided that such changes shall be limited to the color,
size, style and location of Tenant's Sign and that Tenant shall not be required
to change the content of its Sign. In the event Landlord consents to Tenant's
placement of a Sign on the Building, Tenant shall, at its sole cost, (i)
maintain such sign in first class condition during the Term and (ii) and remove
such Sign from the Building at the end of the Term and restore the Building to
the same condition as before the installation of the Sign, ordinary wear and
tear excepted, including removing any discoloration of the Building caused by
the presence of such sign.

Landlord reserves the right at any time it deems necessary or appropriate to (a)
place Signs at any location on the Building and Project as it deems necessary
and (b) change the name, address or designation of the Building and Project.

SECTION XXIX. QUIET ENJOYMENT

Upon payment by Tenant of the rents herein provided, and upon the observance and
performance of all the covenants, terms and conditions on Tenant's part to be
observed and performed, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term without hindrance or interruption by Landlord or any other
person or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless, to the terms and conditions of this Lease, and any
mortgage and/or deed of trust to which this Lease is subordinate.

SECTION XXX. BROKERS AND AGENTS

Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except the Broker
identified in Section I. Tenant shall indemnify and hold Landlord harmless from
any cost, expense or liability (including costs of suit and reasonable
attorneys' fees) for any compensation, commission or fees claimed by any other
real estate broker or agent in connection with this Lease or its negotiation by
reason of any act of Tenant. Further, Tenant agrees that Landlord shall not be
responsible for, and Tenant shall indemnify and hold Landlord harmless from and
such liability for compensation, commission or fees claimed by any real estate
broker or agent representing Tenant in connection with any renewal, extension
modification or other matter relating to this Lease.

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<PAGE>

SECTION XXXI. NOTICES

Any notice, demand, approval, consent, bill, statement or other communication
("Notice") required or desired to be given under this Lease shall be in writing,
shall be directed to Tenant at Tenant's Address for Notice or to Landlord at
Landlord's Address for Notice, above and shall be personally served or given by
pre-paid Certified U.S. Mail, return receipt requested, or "overnight" delivery
service with written receipt. In the case of personal delivery, any Notice
shall be deemed to have been given when delivered; in the case of service by
certified mail, any Notice shall be deemed delivered on the date of receipt or
refusal or non-delivery indicated on the return receipt; and in the case of
overnight delivery service, any Notice shall be deemed given when delivered as
evidenced by a receipt. If more than one Tenant is named under this Lease,
service of any Notice upon any one of said Tenants shall be deemed as service
upon all of such Tenants. The parties hereto and their respective heirs,
successors, legal representatives, and assigns may from time to time change
their respective addresses for Notice by giving at least fifteen (15) days'
written notice to the other party, delivered in compliance with this Section.

SECTION XXXII. NOTICE AND CURE TO LANDLORD AND MORTGAGEE

Upon the occurrence of any act or omission by Landlord which provides, or may
provide, Tenant the right to recover damages from Landlord or the right to
terminate this Lease by reason of a constructive or actual eviction from all or
part of the Premises, or otherwise, Tenant shall not sue for damages or attempt
to terminate this Lease until it has given written notice of the act or omission
to Landlord and to the holder(s) of the indebtedness or other obligations
secured by any mortgage or deed of trust affecting the Premises as identified by
Landlord, and a reasonable period of time for remedying the act or omission has
elapsed following the giving of the notice, during which time Landlord and the
lienholder(s), or either of them, their agents or employees, may enter upon the
Premises and do therein whatever is necessary to remedy the act or omission.
During the period after the giving of notice and during the remedying of the act
or omission, the Monthly Rental payable by Tenant shall not be abated and
apportioned except to the extent that the Premises are untenantable as a direct
result of Landlord's breach of its obligations hereunder.

SECTION XXXIII. GENERAL

A. Paragraph Headings
------------------

The paragraph headings used in this Lease are for the purposes of
convenience only. They shall not be construed to limit or to extend the
meaning of any part of this Lease.

B. Incorporation of Prior Agreements; Amendments
---------------------------------------------

This Lease contains all agreements of Landlord and Tenant with respect to
any matter mentioned, or dealt with, herein. No prior agreement or
understanding pertaining to any such matter shall be binding upon Landlord.
Any amendments to or modifications of this Lease shall be in writing,
signed by the parties hereto, and neither Landlord nor Tenant shall be
liable for any oral or implied agreements.

LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR
WARRANTIES, EXPRESSED OR IMPLIED, WITH REGARD TO THE PROJECT, THE BUILDING,
THE PREMISES OR OTHERWISE OR THE SUITABILITY THEREOF FOR TENANT'S BUSINESS,
EXCEPT AS EXPRESSLY STATED IN THIS LEASE. IN PARTICULAR, LANDLORD HAS NOT
AUTHORIZED ANY AGENT OR

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<PAGE>

BROKER TO MAKE A REPRESENTATION OR WARRANTY INCONSISTENT WITH THE TERMS OF
THIS LEASE AND TENANT MAY NOT RELY ON ANY SUCH INCONSISTENT REPRESENTATION
OR WARRANTY.

C. Waiver
------

Any waiver by Landlord of any breach of any term, covenant, or condition
contained in this Lease shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or of any
other term, covenant, or condition contained in this Lease. Landlord's
consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Landlord's consent to, or approval of, any
subsequent act by Tenant. The acceptance of rent or other sums payable
hereunder by Landlord shall not be a waiver of any preceding breach by
Tenant of any provision hereof, other than failure of Tenant to pay the
particular rent or other sum so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such rent,
or sum equivalent to rent.

D. Short Form or Memorandum of Lease
---------------------------------

Tenant agrees, at the request of Landlord, to execute, deliver, and
acknowledge a short form or memorandum of this Lease satisfactory to
counsel for Landlord, and Landlord may, in its sole discretion, record such
short form or memorandum in the county where the Premises are located.
Tenant shall not record this Lease, or a short form or memorandum of this
Lease, without Landlord's prior written consent.

E. Time of Essence
---------------

Time is of the essence in the performance of each provision of this Lease.

F. Examination of Lease
--------------------

Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution by and delivery to both
Landlord and Tenant.

G. Severability
------------

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

H. Surrender of Lease Not Merger
-----------------------------

Neither the voluntary or other surrender of the Lease by Tenant nor the
mutual cancellation thereof shall cause a merger of the titles of Landlord
and Tenant, but such surrender or cancellation shall, at the option of
Landlord, either terminate all or any existing subleases or operate as an
assignment to Landlord of any such subleases.

I. Corporate Authority
-------------------

If Tenant is a corporation, each individual executing this Lease on behalf
of Tenant represents and warrants (1) that he is duly authorized to

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<PAGE>

execute and deliver this Lease on behalf of Tenant in accordance with a
duly adopted resolution of the Board of Directors of Tenant in accordance
with the By-laws of Tenant and (2) that this Lease is binding upon and
enforceable by Landlord against Tenant in accordance with its terms. If
Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of a
resolution of its Board of Directors authorizing or ratifying the execution
of this Lease.

J. Governing Law
-------------

This Lease and the rights and obligations of the parties hereto shall be
interpreted, construed and enforced in accordance with the local laws of
the State in which the Project is located.

K. Force Majeure
-------------

If the performance by Landlord of any provision of this Lease is delayed or
prevented by any act of God, strike, lockout, shortage of material or
labor, restriction by any governmental authority, civil riot, flood, and
any other cause not within the control of Landlord, then the period for
Landlord's performance of the provision shall be automatically extended for
the same time the Landlord is so delayed or hindered.

L. Use of Language
---------------

Words of gender used in this Lease include any other gender, and words in
the singular include the plural, unless the context otherwise requires.

M. Successors
----------

The terms, conditions, and covenants contained in the Lease inure to the
benefit of and are binding on, the parties hereto and their respective
successors in interest, assigns and legal representatives, except as
otherwise herein expressly provided. All rights, privileges, immunities
and duties of Landlord under this Lease, including without limitation,
notices required or permitted to be delivered by Landlord to Tenant
hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.

N. No Reduction of Rental
----------------------

Except as otherwise expressly and unequivocally provided in this Lease,
Tenant shall not for any reason withhold or reduce the amounts payable by
Tenant under this Lease, it being understood that the obligations of
Landlord hereunder are independent of Tenant's obligations. If Landlord is
required by governmental authority to reduce energy consumption or impose a
parking or similar charge with respect to the Premises, Building or
Project, to restrict the hours of operation of, limit access to, or reduce
parking spaces available at the Building, or take other limiting actions,
then Tenant is not entitled to abatement or reduction of rent or to
terminate this Lease.

O. No Partnership
--------------

Notwithstanding any provision of this Lease or otherwise, Landlord is not,
and under no circumstances shall it be considered to be, a partner of
Tenant, or engaged in a joint venture with Tenant.

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<PAGE>

P. Exhibits
--------

All exhibits attached hereto are made a part hereof and are incorporated
herein by a reference. A complete list of said exhibits is set forth in
the Table of Contents.

Q. Survival of Indemnities
-----------------------

The obligations of the indemnifying party under each and every
indemnification and hold harmless provision contained in this Lease shall
survive the expiration or earlier termination of this Lease to and until
the last to occur of (a) the last date permitted by law for the bringing of
any claim or action with respect to which indemnification may be claimed by
the indemnified party against the indemnifying party under such provision
or (b) the date on which any claim or action for which indemnification may
be claimed under such provision is fully and finally resolved and, if
applicable, any compromise thereof or judgment or award thereon is paid in
full by the indemnifying party and the indemnified party is reimbursed by
the indemnifying party for any amounts paid by the indemnified party in
compromise thereof or upon a judgment or award thereon and in defense of
such action or claim, including reasonable attorneys' fees incurred.
Payment shall not be a condition precedent to recovery upon any
indemnification provision contained herein.

R. Nondisclosure of Lease Terms
----------------------------

Landlord and Tenant agree that the terms of this Lease are confidential and
constitute proprietary information of the parties hereto. Disclosure of
the terms hereof could adversely affect the ability of Landlord to
negotiate with other tenants of the Project. Each of the parties hereto
agrees that such party, and its respective partners, officers, directors,
employees, agents and attorneys, shall not disclose the terms and
conditions of this Lease to any other person without the prior written
consent of the other party hereto except pursuant to an order of a court of
competent jurisdiction. Provided, however, that Landlord may disclose the
terms hereof to any lender now or hereafter having a lien on Landlord's
interest in the Project, or any portion thereof, and either party may
disclose the terms hereof to its respective independent accountants who
review its respective financial statements or prepare its respective tax
returns, to any prospective transferee of all or any portions of their
respective interests hereunder (including a prospective sublessee or
assignee of Tenant), to any lender or prospective lender to such party, to
any governmental entity, agency or person to whom disclosure is required by
applicable law, regulation or duty of diligent inquiry and in connection
with any action brought to enforce the terms of this Lease, on account of
the breach or alleged breach hereof or to seek a judicial determination of
the rights and obligations of the parties hereunder.

S. Waiver of Jury Trial
--------------------

TO THE EXTENT PERMITTED BY LAW, LANDLORD AND TENANT AGREE EACH SHALL, AND
DO HEREBY, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BETWEEN THE PARTIES HERETO OR THEIR SUCCESSORS OR ASSIGNS ON ANY
MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, AND/OR TENANT'S USE OR OCCUPANCY OF
THE PREMISES. THIS WAIVER IS MADE FREELY AND VOLUNTARILY, WITHOUT DURESS
AND ONLY AFTER EACH OF THE PARTIES HERETO HAS HAD THE BENEFIT OF ADVICE
FROM LEGAL COUNSEL ON THIS SUBJECT.

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<PAGE>

T. References to Default: All references to default or Default herein shall be
----------------------
interpreted to mean that all applicable notice or grace periods have expired.

SECTION XXXIV. EXECUTION
This Lease may be executed in several duplicate counterparts, each of which
shall be deemed an original of this Lease for all purposes.

IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the
foregoing provisions, any typed addenda appended hereto and all Exhibits
appended hereto, on the dates indicated below, the later of which shall be
deemed the date of execution of this Lease.

"TENANT" "LANDLORD"

PSW Technologies, Inc., a Delaware G & W Investments, a nini kumiai formed
corporation under the laws of Japan

By: /s/ Timothy D. Webb By: MONY Realty Partners, Inc., a
---------------------------- Delaware corporation as its
agent

Its: President & CEO By: /s/ Mark E. Novack
------------------------------
Mark E. Novack
Vice President

Page 41
<PAGE>

CORPORATE

STATE OF ____________,}
}ss.
COUNTY OF ____________}

On this _____ day of _____________________ A.D. 19 ______, before me personally
appeared ________________ to me known to be the _________________ of
________________, the corporation that executed the within and foregoing
instrument and acknowledged the same instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and on
oath stated that they were authorized to execute said instrument.

IN WITNESS HEREOF, I have hereunto set my hand and affixed my official seal, the
day and year first above written.

_____________________________________________________
Notary Public in and for the State of __________

Residing at ____________________________________
My Commission expires __________________________

CORPORATE

STATE OF Colorado, }
}ss.
COUNTY OF Denver }

On this _____ day of _____________________ A.D. 19 ______, before me personally
appeared Mark E. Novack to me known to be the Vice President of MONY Realty
Partners, Inc. the corporation that executed the within and foregoing instrument
and acknowledged the same instrument to be the free and voluntary act and deed
of said corporation for the uses and purposes therein mentioned, and on oath
stated that they were authorized to execute said instrument.

IN WITNESS HEREOF, I have hereunto set my hand and affixed my official seal, the
day and year first above written.

_____________________________________________________
Notary Public in and for the State of Colorado

Residing at ____________________________________
My Commission expires __________________________

Page 42
<PAGE>

EXHIBIT "A"

SITE PLAN FOR THE PROJECT

Page 43
<PAGE>

EXHIBIT "B"

FLOOR PLAN OF THE PREMISES

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<PAGE>

EXHIBIT "C"

CONSTRUCTION WORK LETTER

Tenant accepts the Premises in "As Is" "Where Is" condition. Tenant will at
their sole cost and expense supply all furniture and other personal property
including voice and data cable, telephone switching, furniture installation,
setup and relocation as necessary.

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<PAGE>

EXHIBIT "D

RENT SCHEDULE

The total Monthly Rental (subject to adjustment by CPI increases, if applicable)
for the entire Term is equal to $522,747.00 and shall be payable monthly in
-----------
accordance with the provisions of the Lease in installments as set forth below:

<TABLE>
<CAPTION>
Months Monthly Rental
- --------------------------------------------------------------------------------
<S> <C>
1 Through 12 $14,093.75
13 Through 24 $14,516.50
25 Through 36 $14,952.00
</TABLE>

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<PAGE>

EXHIBIT "E"

RULES AND REGULATIONS

ATTACHED TO AND MADE A PART OF THE LEASE

The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable modifications and additions
hereto. In the case of any conflict between these regulations and the Lease,
the Lease shall be controlling.

1. Except with the prior written consent of Landlord, no tenant shall conduct
any retail sales in or from the Premises, or any business other than that
specifically provided for in the Lease.

2. Landlord reserves the right to prohibit personal goods and services vendors
from access to the Building except upon such reasonable terms and
conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of such
vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the
number of vendors who may be present at any one time in the Building. The
term "personal goods or services vendors" means persons who periodically
enter the Building of which the Premises are a part for the purpose of
selling goods or services to a tenant, other than goods or services which
are used by a tenant only for the purpose of conducting its business on the
Premises. "Personal goods or services" include, but are not limited to,
drinking water and other beverages, food, barbering services, and
shoeshining services.

3. The sidewalks, halls, passages, elevators, and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
entrances, elevators, stairways, balconies, janitorial closets, and roof
are not for the use of the general public, and Landlord shall in all cases
retain the right to control and prevent access thereto of all persons whose
presence in the judgment of Landlord shall be prejudicial to the safety,
character, reputation and interests of the Building and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom Tenant normally deals only for the purpose of
conducting its business on the Premises (such as clients, customers, office
suppliers and equipment vendors, and the like) unless such persons are
engaged in illegal activities. No tenant and no employees of any tenant
shall go upon the roof of the Building without the written consent of
Landlord.

4. The sashes, sash doors, windows, glass lights, and any lights or skylights
that reflect or admit light into the halls or other places of the Building
shall not be covered or obstructed. The toilet rooms, water and wash
closets and other water apparatus shall not be used for any purpose other
than that for which they were constructed, and no foreign substance of any
kind whatsoever shall be thrown therein, and the expense of any breakage,
stoppage or damage, resulting from the violation of this rule shall be
borne by the tenant who, or whose clerks, agents, employees, or visitors,
shall have caused it.

5. No sign, advertisement or notice visible from the exterior of the Premises
or Building shall be inscribed, painted or affixed by Tenant on any part of

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<PAGE>

the Building or the Premises without the prior written consent of Landlord.
If Landlord shall have given such consent at any time, whether before or
after the execution of this Lease, such consent shall in no way operate as
a waiver or release of any of the provisions hereof or of this Lease, and
shall be deemed to relate only to the particular sign, advertisement or
notice so consented to by Landlord and shall not be construed as dispensing
with the necessity of obtaining the specific written consent of Landlord
with respect to each and every such sign, advertisement or notice other
than the particular sign, advertisement or notice, as the case may be, so
consented to by Landlord.

6. In order to maintain the outward professional appearance of the Building,
all window coverings to be installed at the Premises shall be subject to
Landlord's prior reasonable approval. If Landlord, by a notice in writing
to Tenant, shall object to any curtain, blind, shade or screen attached to,
or hung in, or used in connection with, any window or door of the Premises,
such use of such curtain, blind, shade or screen shall be forthwith
discontinued by Tenant. No awnings shall be permitted on any part of the
Premises.

7. Tenant shall not do or permit anything to be done in the Premises, or bring
or keep anything therein, which shall in any way increase the rate of fire
insurance on the Building, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy
them; or conflict with the regulations of the Fire Department or the fire
laws, or with any insurance policy upon the Building, or any part thereof,
or with any rules and ordinances established by the Board of Health or
other governmental authority.

8. No safes or other objects larger or heavier than the freight elevators of
the Building are limited to carry shall be brought into or installed in the
Premises. Landlord shall have the power to prescribe the weight, method of
installation and position of such safes or other objects. The moving of
safes shall occur only between such hours as may be designated by, and only
upon previous notice to, the manager of the Building, and the persons
employed to move safes in or out of the Building must be acceptable to
Landlord. No freight, furniture, or bulky matter of any description shall
be received into the Building or carried into the elevators except during
hours and in a manner approved by Landlord.

9. Landlord shall clean the Premises as provided in the Lease, and except with
the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such
purpose, but Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and
cleanliness.

10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Building, and
Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be kept in or about the
Building. The Building and the Premises are smoke-free environments.

11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use, no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging.

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<PAGE>

12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.

13. If Tenant desires telephone or telegraph connections, Landlord will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or other otherwise shall be made without directions
from Landlord.

14. Each tenant, upon the termination of its tenancy, shall deliver to Landlord
all the keys of offices, rooms and toilet rooms, and security access
card/keys which shall have been furnished such tenant or which such tenant
shall have had made, and in the event of loss of any keys so furnished,
shall pay Landlord therefor.

15. No Tenant shall lay linoleum or other similar floor covering so that the
same shall be affixed to the floor of the Premises in any manner except by
a paste, or other material which may easily be removed with water, the use
of cement or other similar adhesive materials being expressly prohibited.
The method of affixing any such linoleum or other similar floor covering to
the floor, as well as the method of affixing carpets or rugs to the
Premises shall be subject to reasonable approval by Landlord. The expense
of repairing any damage resulting from a violation of this rule shall be
borne by Tenant by whom, or by those agents, clerks, employees or visitors,
the damage shall have been caused.

16. No furniture, packages or merchandise will be received in the Building or
carried up or down in the elevators, except between such hours and in such
elevators as shall be designated by Landlord.

17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. access to the Building or to the halls,
corridors, elevators or stairways in the Building, or to the Premises may
be refused unless the person seeking access is known to the building
watchman, if any, in charge and has a pass or is properly identified.
Landlord shall in no case be liable for damages for the admission to or
exclusion from the Building of any person whom Landlord has the right to
exclude under Rule 3 above. In case of invasion, mob, riot, public
excitement, or other commotion, Landlord reserves the right but shall not
be obligated to prevent access to the Building during the continuance of
the same by closing the doors or otherwise, for the safety of the tenants
and protection of property in the Building.

18. Tenant shall see that the windows and doors of the Premises are closed and
securely locked before leaving the Building and Tenant shall exercise
extraordinary care and caution that all water faucets or water apparatus
are entirely shut off before Tenant or Tenant's employees leave the
Building, and that all electricity, gas or air shall likewise be carefully
shut off, so as to prevent waste or damage, and for any default or
carelessness Tenant shall make good all injuries sustained by other tenants
or occupants of the Building or Landlord.

19. Tenant shall not alter any lock or install a new or additional lock or any
bolt on any door of the Premises without prior written consent of Landlord.
If Landlord shall give its consent, Tenant shall in each case furnish
Landlord with a key for any such lock.

20. Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of those to be provided by Landlord under the Lease.

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<PAGE>

21. No bicycle, shopping cart, or other vehicle or any animal shall be brought
into the Premises or the halls, corridors, elevators or any part of the
Building by Tenant.

22. Landlord shall have the right to prohibit the use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or their
desirability for other tenants, and upon written notice from Landlord,
Tenant will refrain from or discontinue such publicity.

23. Tenant shall not erect any aerial or antenna on the roof or exterior walls
of the Premises, Building, or Project without the prior written consent of
Landlord.

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<PAGE>

EXHIBIT "F"

AMENDMENT OF LEASE COMMENCEMENT DATE

In connection with that certain Office Lease dated G & W Investments, a nini
kumiai formed under the laws of Japan, as Landlord, and , as
Tenant concerning the Premises located at , Landlord and Tenant
hereby agree as follows:

1. The Lease Commencement Date stated in Section I. of the Office Lease is
amended to be, 19_____ and the Expiration Date stated in Section I. is
amended to be, 19_____.

2. Landlord has satisfactorily complied with all requirements and conditions
precedent to the commencement of the Term as specified in the Office Lease.

3. The Premises covered by the Office Lease and the tenant improvements
therein have been fully completed as required, are in good condition, are
ready for occupancy and have been accepted by Tenant.

4. Tenant has or shall commence paying Monthly Rental pursuant to the Office
Lease on _________________________, 19_____.

Dated effective this___ day of ___________, 199__.

"TENANT" "LANDLORD"

G & W Investments, a nini kumiai formed
under the laws of Japan

By: __________________________ By: MONY Realty Partners, Inc., a
Delaware corporation as its
agent

(Type Name and Title) By: _______________________________

Mark E. Novack
Vice President

[SAMPLE]

Page 51

<PAGE>

EXHIBIT 10.23

LEASE

BETWEEN

PSW TECHNOLOGIES, INC., AS TENANT

AND

BCIA NEW ENGLAND HOLDINGS LLC, AS LANDLORD

POINT WEST PLACE, FRAMINGHAM, MASSACHUSETTS

The submission of an unsigned copy of this document to Tenant for Tenant's
consideration does not constitute an offer to lease the Premises or an option to
or for the Premises. This document shall become effective and binding only upon
the execution and delivery of this Lease by both Landlord and Tenant.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
BASIC DATA; DEFINITIONS........................................................................... 1
-----------------------
1.1 Basic Data................................................................................. 1
----------
1.2 Definitions................................................................................ 3
-----------
1.3 Enumeration of Exhibits.................................................................... 6
-----------------------

ARTICLE 2
PREMISES AND APPURTENANT RIGHTS................................................................... 7
-------------------------------
2.1 Lease of Premises.......................................................................... 7
-----------------
2.2 Appurtenant Rights and Reservations........................................................ 7
-----------------------------------
2.3 Option to Extend........................................................................... 8
----------------

ARTICLE 3
BASIC RENT........................................................................................ 9
----------
3.1 Payment.................................................................................... 10
-------

ARTICLE 4
COMMENCEMENT AND CONDITION........................................................................ 10
--------------------------
4.1 Commencement Date.......................................................................... 10
-----------------
4.2 Preparation of the Premises................................................................ 11
---------------------------

ARTICLE 5
USE OF PREMISES................................................................................... 12
---------------
5.1 Permitted Use.............................................................................. 12
-------------
5.2 Installations and Alterations by Tenant.................................................... 13
---------------------------------------
5.3 Extra Hazardous Use........................................................................ 15
-------------------
5.4 Hazardous Materials........................................................................ 15
-------------------

ARTICLE 6
ASSIGNMENT AND SUBLETTING......................................................................... 16
-------------------------
6.1 Prohibition................................................................................ 16
-----------
6.2 Acceptance of Rent......................................................................... 17
------------------
6.3 Excess Payments............................................................................ 17
---------------
6.4 Landlord's Recapture Right................................................................. 18
--------------------------
6.5 Further Requirements....................................................................... 18
--------------------
</TABLE>

(i)
<PAGE>

<TABLE>
<S> <C>
6.6 Standards for Consent to Assignment and Subletting........................................... 19
--------------------------------------------------

ARTICLE 7
RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD.......... 20
7.1 Landlord Repairs............................................................................. 20
----------------
7.2 Tenant Repairs............................................................................... 21
--------------
7.3 Floor Load - Heavy Machinery................................................................. 21
----------------------------
7.4 Utility Services............................................................................. 22
----------------
7.5 Other Services............................................................................... 23
--------------
7.6 Interruption of Service...................................................................... 24
-----------------------

ARTICLE 8
REAL ESTATE TAXES................................................................................... 25
-----------------
8.1 Payments on Account of Real Estate Taxes..................................................... 25
----------------------------------------
8.2 Abatement.................................................................................... 26
---------

ARTICLE 9
OPERATING AND UTILITY EXPENSES...................................................................... 27
------------------------------
9.1 Definitions.................................................................................. 27
-----------
9.2 Tenant's Payment of Operating Expenses....................................................... 27
--------------------------------------

ARTICLE 10
INDEMNITY AND PUBLIC LIABILITY INSURANCE............................................................ 28
----------------------------------------
10.1 Tenant's Indemnity........................................................................... 28
------------------
10.2 Tenant Insurance............................................................................. 29
----------------
10.3 Tenant's Risk................................................................................ 29
-------------
10.4 Waiver of Subrogation........................................................................ 30
---------------------

ARTICLE 11
FIRE, EMINENT DOMAIN, ETC........................................................................... 30
-------------------------
11.1 Landlord's Right of Termination.............................................................. 30
-------------------------------
11.2 Restoration; Tenant's Right of Termination................................................... 30
------------------------------------------
11.3 Landlord's Insurance......................................................................... 31
--------------------
11.4 Abatement of Rent............................................................................ 31
-----------------
11.5 Condemnation Award........................................................................... 31
------------------

ARTICLE 12
HOLDING OVER; SURRENDER............................................................................. 32
-----------------------
12.1 Holding Over................................................................................. 32
------------
12.2 Surrender of Premises........................................................................ 32
---------------------
</TABLE>

(ii)
<PAGE>

<TABLE>
<S> <C>
ARTICLE 13
RIGHTS OF MORTGAGEES; TRANSFER OF TITLE............................................................. 32
---------------------------------------
13.1 Rights of Mortgagees......................................................................... 33
--------------------
13.2 Assignment of Rents and Transfer of Title.................................................... 33
-----------------------------------------
13.3 Notice to Mortgagee.......................................................................... 34
-------------------

ARTICLE 14
DEFAULT; REMEDIES................................................................................... 34
-----------------
14.1 Tenant's Default............................................................................. 34
----------------
14.2 Landlord's Remedies.......................................................................... 38
-------------------
14.3 Additional Rent.............................................................................. 39
---------------
14.4 Remedying Defaults........................................................................... 40
------------------
14.5 Remedies Cumulative.......................................................................... 40
-------------------
14.6 Attorneys' Fees.............................................................................. 40
---------------
14.7 Waiver....................................................................................... 40
------
14.8 Security Deposit............................................................................. 41
----------------
14.9 Landlord's Default........................................................................... 41
------------------

ARTICLE 15
MISCELLANEOUS PROVISIONS............................................................................ 41
------------------------
15.1 Rights of Access............................................................................. 41
----------------
15.2 Covenant of Quiet Enjoyment.................................................................. 42
---------------------------
15.3 Landlord's Liability......................................................................... 42
--------------------
15.4 Estoppel Certificate......................................................................... 43
--------------------
15.5 Relocation................................................................................... 43
----------
15.6 Brokerage.................................................................................... 43
---------
15.7 Rules and Regulations........................................................................ 43
---------------------
15.8 Invalidity of Particular Provisions.......................................................... 43
-----------------------------------
15.9 Provisions Binding, Etc...................................................................... 44
-----------------------
15.10 Recording.................................................................................... 44
---------
15.11 Notice....................................................................................... 44
------
15.12 When Lease Becomes Binding; Entire Agreement; Modification................................... 45
----------------------------------------------------------
15.13 Paragraph Headings and Interpretation of Sections............................................ 45
-------------------------------------------------
15.14 Dispute Resolution........................................................................... 45
------------------
15.15 Financial Statements......................................................................... 45
--------------------
15.16 Waiver of Jury Trial......................................................................... 46
--------------------
15.17 Time Is of the Essence....................................................................... 46
----------------------
15.18 Multiple Counterparts........................................................................ 46
---------------------
15.19 Governing Law................................................................................ 46
-------------
</TABLE>

(iii)
<PAGE>

EXHIBIT A
Location Plan of Premises.............................................. A-1

EXHIBIT B
Site Plan of Building.................................................. B-1

EXHIBIT C
Commencement Date Letter............................................... C-1

EXHIBIT D
Operating Expenses..................................................... D-1

EXHIBIT E
Rules and Regulations of Building...................................... E-1

(iv)
<PAGE>

L E A S E
---------

THIS LEASE is dated as of January __, 2000 between the Landlord and the
Tenant named below, and is of space in the Building described below.

ARTICLE
BASIC DATA; DEFINITIONS
-----------------------

1.1 Basic Data. Each reference in this Lease to any of the following
----------
terms shall be construed to incorporate the data for that term set forth in this
Section:

Landlord: BCIA New England Holdings LLC, a Delaware limited liability
company

Landlord's Address: c/o Boston Capital Institutional Advisors LLC, One
Boston Place, Boston, MA 02108

Tenant: PSW Technologies, Inc., a Delaware corporation

Tenant's Address: Building 3, Suite 2000
6300 Bridgepoint Parkway
Austin, TX 78730
Attn: General Counsel

Property: The land located in Framingham, Massachusetts, together with the
Building and other improvements thereon, all as shown on the site plan attached
hereto as Exhibit B.
---------

Building: The three-story building commonly known and numbered as 111
Speen Street, shown on the site plan attached hereto as Exhibit B.
---------

Building Rentable Area: Agreed to be 107,984 square feet.

Premises: The portion of the Building shown on the location plan attached
hereto as Exhibit A.
---------

Premises Rentable Area: Agreed to be 5,290 square feet.

Basic Rent: The Basic Rent is as follows:
<PAGE>

- -----------------------------------------------------------------------------
RENTAL PERIOD ANNUAL BASIC RENT MONTHLY
PAYMENT
- -----------------------------------------------------------------------------
From the Rent Commencement Date to the $158,700.00 $13,225.00
day immediately preceding the fifth (5th)
anniversary of the Rent Commencement
Date.
- -----------------------------------------------------------------------------

Notwithstanding the foregoing statement of Basic Rent, in the event that Tenant
uses any amount of Landlord's Contribution as reimbursement for the costs of
Tenant's Work, Landlord will amortize such amount into equal monthly payments
over the period beginning on the date that the next monthly payment of Basic
Rent is due from Tenant after Landlord has paid Landlord's Contribution to
Tenant and ending on the day immediately prior to the fifth anniversary of the
Rent Commencement Date at an interest rate of ten percent (10%) per annum. Such
amortized amount shall be added to the monthly Basic Rent and Tenant shall pay
such amount to Landlord at the times and in the manner provided in this Lease.

Base Year for Operating Expenses: Calendar year 2000.

Base Year for Taxes: The twelve month period beginning June 30, 1999.

Tenant's Proportionate Share: 4.90% (which is based on the ratio of (a)
Premises Rentable Area to (b) Building Rentable Area ).

Security Deposit: $26,450.00, to be held and disposed of as provided in
Section 14.8.

Scheduled Commencement Date: February 1, 2000.

Rent Commencement Date: March 1, 2000.

Term: Five (5) years, commencing on the Commencement Date and expiring at
the close of the day immediately preceding the fifth (5th) anniversary of the
Rent Commencement Date, except that if the Rent Commencement Date is other than
the first day of a calendar month, the expiration of the Term shall be at the
close of the last day of the calendar month in which such anniversary falls.
The Term shall include any extension thereof that is expressly provided for by
this Lease and that is effected strictly in accordance with this Lease; if no
extension of the Term is expressly provided for by this Lease, no right to
extend the Term shall be implied by this provision.

2
<PAGE>

Initial General Liability Insurance: $2,000,000.00 per
occurrence/$3,000,000.00 aggregate (combined single limit) for property damage,
bodily injury or death.

Permitted Uses: Executive and general offices.

Tenant's Share of Parking Spaces: The number of parking spaces equal to 4.0
spaces for every 1,000 square foot of Premises Rentable Area.

Cost of Tenant's Electricity for Lights & Plugs: $5,290.00 per year
(based on $1.00 per rentable square foot).

Landlord's Contribution: An amount not to exceed $26,450.00.

Landlord's Construction Representative: Jan Craig, CB Richard Ellis.

Tenant's Construction Representative: Shelbi Hearn

1.2 Definitions. When used in Lease, the capitalized terms set forth
-----------
below shall bear the meanings set forth below.

Adequate Assurance: As defined in Section 14.1.

Adequate Assurance of Future Performance: As defined in Section 14.1.

Additional Rent: All charges and sums payable by Tenant as set forth in
this Lease, other than and in addition to Basic Rent.

Agent: BCIA Property Management LLC, or such other person or entity from
time to time designated by Landlord.

Alterations: As defined in Section 5.2.

Bankruptcy Code: As defined in Section 14.1.

Base Operating Expenses: Actual Operating Expenses for the Base Year for
Operating Expenses.

Base Taxes: Actual Taxes assessed for the Base Year for Taxes.

Base Year for Operating Expenses: As defined in Section 1.1.

3
<PAGE>

Base Year for Taxes: As defined in Section 1.1.

Basic Rent: As defined in Section 1.1.

Brokers: Spaulding & Slye and Equis Corporation

Building: As defined in Section 1.1.

Building Rentable Area: As defined in Section 1.1.

Business Day: All days except Saturdays, Sundays, and other days when
national banks in the state in which the property is located are not open for
business.

Commencement Date: As defined in Section 4.1.

Common Facilities: As defined in Section 2.2.

Cost of Tenant's Electricity for Lights & Plugs: As defined in Section 1.1.

Default of Tenant: As defined in Section 14.1.

Environmental Condition: Any disposal, release or threat of release of
Hazardous Materials on, from or about the Building or the Property or storage of
Hazardous Materials on, from or about the Building or the Property.

Environmental Laws: Any federal, state and/or local statute, ordinance,
bylaw, code, rule and/or regulation now or hereafter enacted, pertaining to any
aspect of the environment or human health, including, without limitation,
Chapter 21C, Chapter 21D, and Chapter 21E of the General Laws of Massachusetts
and the regulations promulgated by the Massachusetts Department of Environmental
Protection, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. (S) 9601 et seq., the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. (S) 6901 et seq., the Toxic Substances Control Act, 15
U.S.C. (S)2061 et seq., the Federal Clean Water Act, 33 U.S.C. (S)1251, and the
Federal Clean Air Act, 42 U.S.C. (S)7401 et seq.

Essential Services: As defined in Section 7.6.

Event of Bankruptcy: As defined in Section 14.1.

Force Majeure: Collectively and individually, strikes or other labor
trouble, fire or other casualty, acts of God, governmental preemption of
priorities or other controls in connection with

4
<PAGE>

a national or other public emergency or shortages of fuel, supplies or labor
resulting therefrom, or any other cause, whether similar or dissimilar, beyond
the reasonable control of the party required to perform an obligation.

Holder: As defined in Section 13.1.

Hazardous Materials: Shall mean each and every element, compound, chemical
mixture, contaminant, pollutant, material, waste or other substance which is
defined, determined or identified as hazardous or toxic under any Environmental
Law, including, without limitation, any "oil," "hazardous material," "hazardous
waste," "hazardous substance" or "chemical substance or mixture", as the
foregoing terms (in quotations) are defined in any Environmental Laws.

Initial General Liability Insurance: As defined in Section 1.1.

Land: The land that constitutes a portion of the Property.

Landlord: As defined in Section 1.1.

Landlord's Construction Representative: As defined in Section 1.1.

Landlord's Contribution: As defined in Section 1.1.

Landlord's Address: As defined in Section 1.1.

Mortgage: As defined in Section 13.1.

Operating Expenses: As defined in Section 9.1.

Operating Year: As defined in Section 9.1.

Permitted Uses: As defined in Section 1.1.

Plans: As defined in Section 4.2.

Premises: As defined in Section 1.1.

Premises Rentable Area: As defined in Section 1.1.

Property: As defined in Section 1.1.

5
<PAGE>

Recapture Date: As defined in Section 6.4.

Rent Commencement Date: As defined in Section 1.1.

Rules and Regulations: As defined in Section 2.2.

Scheduled Commencement Date: As defined in Section 1.1.

Security Deposit: As defined in Section 1.1.

Service Interruption: As defined in Section 7.6.

Successor: As defined in Section 13.1.

Taxes: As defined in Section 8.1.

Tax Year: As defined in Section 8.1.

Tenant: As defined in Section 1.1.

Tenant's Address: As defined in Section 1.1.

Tenant's Construction Representative: As defined in Section 1.1.

Tenant's Proportionate Share: As defined in Section 1.1.

Tenant's Removable Property: As defined in Section 5.2.

Tenant's Work: As defined in Section 4.2.

Term: As defined in Section 1.1.

Tenant's Share of Parking Spaces: As defined is Section 1.1.

Termination Date: As defined in Section 15.5.

1.3 Enumeration of Exhibits. The following Exhibits are a part of this
-----------------------
Lease, are incorporated herein by reference attached hereto, and are to be
treated as a part of this Lease for all purposes. Undertakings contained in
such Exhibits are agreements on the part of Landlord and Tenant, as the case may
be, to perform the obligations stated therein.

6
<PAGE>

Exhibit A - Location Plan of the Premises
Exhibit B - Site Plan of Buildings
Exhibit C - Commencement Date Letter
Exhibit D - Operating Expenses
Exhibit E - Rules and Regulations

ARTICLE 2
PREMISES AND APPURTENANT RIGHTS
-------------------------------

2.1 Lease of Premises. Landlord hereby leases to Tenant and Tenant hereby
-----------------
leases from Landlord the Premises for the Term and upon the terms and conditions
hereinafter set forth.

2.2 Appurtenant Rights and Reservations.
-----------------------------------

(a) Tenant shall have, as appurtenant to the Premises, the non-
exclusive right to use, and permit its invitees to use in common with Landlord
and others, (i) public or common lobbies, hallways, stairways, elevators and
common walkways necessary for access to the Building and the Premises, and if
the portion of the Premises on any floor includes less than the entire floor,
the common toilets, corridors and elevator lobby of such floor; and (ii) the
access roads, driveways, parking areas, loading areas, pedestrian sidewalks,
landscaped areas, trash enclosures, recreation areas and other areas or
facilities, if any, which are located in or on the Property and designated by
Landlord from time to time for the non-exclusive use of tenants and other
occupants of the Building (the "Common Facilities"); but such rights shall
always be subject to reasonable rules and regulations from time to time
established by Landlord pursuant to Section 15.7 (the "Rules and Regulations")
and to the right of Landlord to designate and change from time to time areas and
facilities so to be used.

(b) Excepted and excluded from the Premises and the Common Facilities
are the ceiling, floor, perimeter walls and exterior windows (except the inner
surface of each thereof), and any space in the Premises used for shafts, stacks,
pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other
Building facilities, but the entry doors (and related glass and finish work) to
the Premises are a part thereof. Landlord shall have the right to place in the
Premises (but in such manner as to reduce to a minimum interference with
Tenant's use of the Premises) interior storm windows, sun control devices,
utility lines, equipment, stacks, pipes, conduits, ducts and the like. In the
event that Tenant shall install any hung ceilings or walls in the Premises,
Tenant shall install and maintain, as Landlord may require, proper access panels
therein to afford access to any facilities above the ceiling or within or behind
the walls. Tenant shall be entitled to install any such ceilings or walls only
in compliance with the other terms and conditions of this Lease.

7
<PAGE>

(c) Tenant shall also have the right (subject to the Rules and
Regulations) to use, on a non-exclusive, unreserved basis, Tenant's Share of
Parking Spaces.

(d) Landlord shall cause Tenant's name to be listed on the building
directory in the Building lobby.

2.3 Option to Extend.
----------------

(a) Provided that, at the time of such exercise, (i) this Lease is in
full force and effect, (ii) no Default of Tenant shall have occurred and be
continuing (either at the time of exercise or at the commencement of an Extended
Term), (iii) Tenant shall not have paid any amount of Basic Rent or Additional
Rent after the due date therefor twice in the prior twelve (12) month period,
and (iv) Tenant shall then be occupying the entire Premises and shall not have
assigned or sublet the Premises, Tenant shall have the right and option to
extend the Term of this Lease for one (1) extended term (the "Extended Term") of
five (5) years by giving written notice to Landlord not later than nine (9)
months nor earlier than twelve (12) months prior to the expiration date of the
Initial Term. The effective giving of such notice of extension by Tenant shall
automatically extend the Term of this Lease for the Extended Term, and no
instrument of renewal or extension need be executed. In the event that Tenant
fails timely to give such notice to Landlord, this Lease shall automatically
terminate at the end of the Initial Term, and Tenant shall have no further
option to extend the Term of this Lease. The Extended Term shall commence on
the day immediately succeeding the expiration date of the Initial Term, and
shall end on the day immediately preceding the fifth anniversary of the first
day of the Extended Term. The Extended Term shall be on all the terms and
conditions of this Lease, except: (i) during the Extended Term, Tenant shall
have no further option to extend the Term, and (ii) the Basic Rent for the
Extended Term shall be the greater of (x) the Fair Market Rental Value for the
Premises as of the commencement of the Extended Term, determined pursuant to
paragraph (b), or (y) the Basic Rent due for the last year of the Initial Term.

(b) Promptly after receiving Tenant's notice extending the Term of this
Lease pursuant to paragraph (a) above, Landlord shall provide Tenant with
Landlord's good faith estimate of the Fair Market Rental Value of the Premises
for the Extended Term based upon rents being paid by tenants renewing leases in
the area in which the Property is located. If Tenant is unwilling to accept
Landlord's estimate of Fair Market Rental Value as set forth in Landlord's
notice referred to above, and the parties are unable to reach agreement thereon
within thirty (30) days after the delivery of such notice by Landlord, then
Landlord and Tenant shall, not later than thirty (30) days after the expiration
of the aforesaid thirty (30) day period, each retain a real estate professional
with at least ten (10) years continuous experience in the business of appraising
or marketing commercial real estate in the greater Boston area who shall, within
thirty (30) days of his or her selection, prepare a written report summarizing
his or her determination of the Fair

8
<PAGE>

Market Rental Value for such Extended Term. Landlord and Tenant shall
simultaneously exchange such reports; provided, however, if either party has not
obtained such a report within sixty (60) days after Tenant receives Landlord's
notice, then the determination set forth in the other party's report shall be
final and binding upon the parties. If both parties receive reports within such
time and the lower determination is within ten percent (10%) of the higher
determination, then the greater of (i) the annual Basic Rent in effect
immediately preceding such Extended Term or (ii) the average of the two
determinations shall be deemed to be the Fair Market Rental Value for such
Extended Term. If the lower determination is not within ten percent (10%) of the
higher determination, then Landlord and Tenant shall mutually select a person
with the qualifications stated above (the "Final Professional") to resolve the
dispute as to the Fair Market Rental Value for such Extended Term. If Landlord
and Tenant cannot agree upon the designation of the Final Professional within
thirty (30) days of the exchange of the first valuation reports, either party
may apply to the American Arbitration Association, the Greater Boston Real
Estate Board, or any successor thereto, for the designation of a Final
Professional. Within ten (10) days of the selection of the Final Professional,
Landlord and Tenant shall each submit to the Final Professional a copy of their
respective real estate professional's determination of the Fair Market Rental
Value for such Extended Term. The Final Professional shall not perform his or
her own valuation, but rather shall, within thirty (30) days after such
submissions, select the submission which is closest to the determination of the
Fair Market Rental Value for such Extended Term which the Final Professional
would have made acting alone. The Final Professional shall give notice of his or
her selection to Landlord and Tenant and such decision shall be final and
binding upon Landlord and Tenant, provided, however, in no event shall the Fair
Market Rental Value be less than the annual Basic Rent in effect immediately
preceding such Extended Term. Each party shall pay the fees and expenses of its
real estate professional and counsel, if any, in connection with any proceeding
under this paragraph, and the parties shall each pay one-half of the fees and
expenses of the Final Professional.

ARTICLE 3
BASIC RENT
----------

3.1 Payment.
-------

(a) Tenant agrees to pay the Basic Rent and Additional Rent to
Landlord, or as directed by Landlord, commencing on the Rent Commencement Date,
without offset, abatement (except as provided in Section 11.1), deduction or
demand. Basic Rent shall be payable in equal monthly installments, in advance,
on the first day of each and every calendar month during the Term of this Lease,
to Landlord at Landlord's Address or at such other place as Landlord shall from
time to time designate by notice, in lawful money of the United States. In the
event that any installment of Basic Rent or any regularly scheduled payment of
Additional Rent is not paid within three (3) days of when due, Tenant shall pay,
in addition to any charges under Section 14.4, at Landlord's request an
administrative fee equal to 5% of the overdue payment. Landlord

9
<PAGE>

and Tenant agree that all amounts due from Tenant under or in respect of this
Lease, whether labeled Basic Rent, Additional Rent or otherwise, shall be
considered as rental reserved under this Lease for all purposes, including
without limitation regulations promulgated pursuant to the Bankruptcy Code, and
including further without limitation Section 502(b) thereof.

(b) Basic Rent for any partial month shall be pro-rated on a daily
basis, and if the first day on which Tenant must pay Basic Rent shall be other
than the first day of a calendar month, the first payment which Tenant shall
make to Landlord shall be equal to a proportionate part of the monthly
installment of Basic Rent for the partial month from the first day on which
Tenant must pay Basic Rent to the last day of the month in which such day
occurs, plus the installment of Basic Rent for the succeeding calendar month.

ARTICLE 4
COMMENCEMENT AND CONDITION
--------------------------

4.1 Commencement Date. The Commencement Date shall be the first to occur
-----------------
of:

(a) the Scheduled Commencement Date set forth in Section 1.1 hereof,
-----------
or

(b) the day Tenant's personnel occupy all or any part of the Premises
for the conduct of its business prior to the Scheduled Commencement Date.

Promptly upon the occurrence of the Commencement Date, Landlord and Tenant shall
enter into a letter agreement substantially in the form annexed hereto as
Exhibit C, but the failure by either party to execute such a letter shall have
- ---------
no effect on the Commencement Date, as hereinabove determined.

4.2 Preparation of the Premises.
---------------------------

(a) Tenant is currently preparing, at its sole cost and expense, plans
for the layout of the improvements which Tenant desires to have performed in the
Premises (the "Tenant's Plans"). Tenant's Plans shall be submitted to Landlord
for its approval no later than the date of execution of this Lease and Landlord
shall approve or disapprove of Tenant's Plans within five (5) Business Days of
receiving them. Any disapproval shall be accompanied by a reasonably specific
statement of reasons therefor. At Tenant's sole cost and expense, Tenant shall
cause Tenant's Plans to be revised in a manner sufficient to remedy the
Landlord's objections and/or respond to the Landlord's concerns and for such
revised plans to be redelivered to Landlord, and Landlord shall either approve
or disapprove Tenant's revised plans within five (5) Business Days following the
date of submission. Tenant's Plans shall be stamped by a Massachusetts-
registered architect and engineer, such architect and engineer being subject to

10
<PAGE>

Landlord's approval, and shall comply with all applicable laws, ordinances and
regulations (including, without limitation, the applicable requirements of the
Americans with Disabilities Act of 1990, and the regulations promulgated
thereunder) and the requirements of the Rules and Regulations and shall be in a
form satisfactory to appropriate governmental authorities responsible for
issuing permits, approvals and licenses required for construction. If Tenant's
Plans shall not be approved by the Landlord by June 1, 2000 (the "Final Plans
Date"), Landlord shall have the right, without limitation of other rights or
remedies, to terminate this Lease by giving notice thereof to the Tenant at any
time after the Final Plans Date (such termination right to end if such time, if
any, and Landlord approves Tenant's Plans). Upon such termination, this Lease
shall cease and come to an end in accordance with the terms of such notice and
without further obligation or liability on the part of either party, except that
Tenant shall pay to Landlord the damages suffered by Landlord by reason of such
termination including, without limitation, an amount equal to Landlord's out-of-
pocket expenses incurred in connection with this Lease, including, without
limitation, brokerage and legal fees through the effective termination date.

(b) Promptly after approval of Tenant's Plans and execution of this
lease by both parties, Tenant shall exercise all reasonable efforts to complete
the work specified therein necessary to prepare the Premises for Tenant's
occupancy ("Tenant's Work") and Landlord shall afford Tenant access to the
Premises for such purposes, provided, however, that such right of access shall
be upon all of the terms and conditions of this Lease except for the payment of
Basic Rent and Additional Rent. All Tenant's Work shall be completed in
accordance with the requirements set forth in the Rules and Regulations.
Landlord shall reimburse Tenant for the costs incurred by the Tenant with
respect to the performance of Tenant's Work (the "Cost of Tenant's Work") up to
the amount of Landlord's Contribution. To the extent that the Cost of Tenant's
Work exceeds the Landlord's Contribution, Tenant shall be entirely responsible
for such excess. Landlord's Contribution shall be payable by Landlord to Tenant
(or, at Landlord's election, directly to Tenant's contractor) upon written
requisition to Landlord in installments according to reasonable construction
disbursement procedures, as Tenant's Work progresses. In any case, prior to
payment of any such installment Tenant shall deliver to Landlord a written
request, which request shall be given no more frequently than once every thirty
(30) days, for such disbursement, which shall be accompanied by: (i) invoices
for Tenant's Work covered by any previous requisition; (ii) copies of partial
lien waivers or final lien waivers (in the case of a final installment); and
(iii) a certificate signed by the Tenant's architect and an officer of the
Tenant certifying that Tenant's Work represented by the aforementioned invoices
has been completed substantially in accordance with Tenant's Plans and that the
remaining portion of Landlord's Contribution is sufficient to pay in full for
the completion of Tenant's Work. If at any time the amount of Landlord's
Contribution is insufficient to pay for the remaining amount of Tenant's Work,
then Tenant shall pay from its own funds all further sums necessary to enable
Tenant and Tenant's architect to again make the certification required under
(iii) above.

11
<PAGE>

(c) The Premises are being leased in their as is condition. The
Premises are being leased without representation or warranty by Landlord. Tenant
acknowledges that it has inspected the Premises and common areas of the Building
and, except for Tenant's Work, has found them satisfactory.

ARTICLE 5
USE OF PREMISES
---------------

5.1 Permitted Use.
-------------

(a) Tenant agrees that the Premises shall be used and occupied by
Tenant only for Permitted Uses and for no other use without Landlord's express
written consent.

(b) Tenant agrees to conform to the following provisions during the
Term of this Lease:

(i) Tenant shall cause all freight to be delivered to or
removed from the Building and the Premises in accordance with the Rules and
Regulations established by Landlord therefor;

(ii) Tenant will not place on the exterior of the Premises
(including both interior and exterior surfaces of doors and interior
surfaces of windows) or on any part of the Building outside the Premises,
any sign, symbol, advertisement or the like visible to public view outside
of the Premises. Landlord will not withhold consent for signs or lettering
on the entry doors to the Premises provided such signs conform to sign
standards for the building adopted by Landlord in its sole discretion and
Tenant has submitted to Landlord a plan or sketch in reasonable detail
(showing, without limitation, size, color, location, materials and method
of affixation) of the sign to be placed on such entry doors. Landlord
agrees, however, to maintain a tenant directory in the lobby of the
Building (and, in the case of multi-tenant floors, in that floor's elevator
lobby) in which will be placed Tenant's name and the location of the
Premises in the Building;

(iii) Tenant shall not perform any act or carry on any practice
which may injure the Premises, or any other part of the Building, or cause
any offensive odors or loud noise or constitute a nuisance or a menace to
any other tenant or tenants or other persons in the Building;

(iv) Tenant shall, in its use of the Premises, comply with the
requirements of all applicable governmental laws, rules and regulations,
including,

12
<PAGE>

without limitation, the Americans With Disabilities Act of 1990 and the
regulations of the Massachusetts Architectural Access Board; and

(v) Tenant shall not abandon the Premises.

5.2 Installations and Alterations by Tenant.
---------------------------------------

(a) Tenant shall make no alterations, additions (including, for the
purposes hereof, wall-to-wall carpeting), or improvements (collectively,
"Alterations") in or to the Premises (including any Alterations, other than
Landlord's Work, necessary for Tenant's initial occupancy of the Premises)
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed with respect to non-structural Alterations that
do not affect or involve the Building's electrical, plumbing or mechanical
systems or any other Building systems. Notwithstanding the foregoing, Tenant may
make non-structural Alterations that do not affect or involve the Building's
electrical, plumbing or mechanical systems or any other Building systems and
costing less than $5,000.00 without Landlord's prior consent. Any Alterations
shall be in accordance with the Rules and Regulations in effect with respect
thereto and with plans and specifications meeting the requirements set forth in
the Rules and Regulations and approved in advance by Landlord. All work shall be
(i) be performed in a good and workmanlike manner and in compliance with all
applicable laws, ordinances and regulations; (ii) be made at Tenant's sole cost
and expense; (iii) become part of the Premises and the property of Landlord; and
(iv) be coordinated with any work being performed by Landlord in such a manner
as not to damage the Building or interfere with the construction or operation of
the Building. At Landlord's request, Tenant shall, before its work is started,
secure assurances satisfactory to Landlord in its reasonable discretion
protecting Landlord against claims arising out of the furnishing of labor and
materials for the Alterations.

If any Alterations shall involve the removal of fixtures, equipment or
other property in the Premises which are not Tenant's Removable Property, such
fixtures, equipment or property shall be promptly replaced by Tenant at its
expense with new fixtures, equipment or property of like utility and of at least
equal quality.

(b) All articles of personal property and all business fixtures,
machinery and equipment and furniture owned or installed by Tenant solely at its
expense in the Premises ("Tenant's Removable Property") shall remain the
property of Tenant and may be removed by Tenant at any time prior to the
expiration or earlier termination of the Term, provided that Tenant, at its
expense, shall repair any damage to the Building caused by such removal.

(c) Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit, and that
no mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or other estate or interest of

13
<PAGE>

Landlord in and to the Premises, the Building or the Property. To the maximum
extent permitted by law, before such time as any contractor commences to perform
work on behalf of Tenant, such contractor (and any subcontractors) shall furnish
a written statement acknowledging the provisions set forth in the prior clause.
Tenant agrees to pay promptly when due the entire cost of any work done on
behalf of Tenant, its agents, employees or independent contractors, and not to
cause or permit any liens for labor or materials performed or furnished in
connection therewith to attach to all or any part of the Property and
immediately to discharge any such liens which may so attach. If, notwithstanding
the foregoing, any lien is filed against all or any part of the Property for
work claimed to have been done for, or materials claimed to have been furnished
to, Tenant or its agents, employees or independent contractors, Tenant, at its
sole cost and expense, shall cause such lien to be dissolved promptly after
receipt of notice that such lien has been filed, by the payment thereof or by
the filing of a bond sufficient to accomplish the foregoing. If Tenant shall
fail to discharge any such lien, Landlord may, at its option, discharge such
lien and treat the cost thereof (including attorneys' fees incurred in
connection therewith) as Additional Rent payable upon demand, it being expressly
agreed that such discharge by Landlord shall not be deemed to waive or release
the default of Tenant in not discharging such lien. Tenant shall indemnify and
hold Landlord harmless from and against any and all expenses, liens, claims,
liabilities and damages based on or arising, directly or indirectly, by reason
of the making of any alterations, additions or improvements by or on behalf of
Tenant to the Premises under this Section, which obligation shall survive the
expiration or termination of this Lease.

(d) In the course of any work being performed by Tenant (including,
without limitation, the "field installation" of any Tenant's Removable
Property), Tenant agrees to use labor compatible with that being employed by
Landlord for work in the Building or on the Property or other buildings owned by
Landlord or its affiliates (which term, for purposes hereof, shall include,
without limitation, entities which control or are under common control with or
are controlled by Landlord or, if Landlord is a partnership or limited liability
company, by any partner or member of Landlord) and not to employ or permit the
use of any labor or otherwise take any action which might result in a labor
dispute involving personnel providing services in the Building or on the
Property pursuant to arrangements made by Landlord.

5.3 Extra Hazardous Use. Tenant covenants and agrees that Tenant will not
-------------------
do or permit anything to be done in or upon the Premises, or bring in anything
or keep anything therein, which shall increase the rate of property or liability
insurance on the Premises or the Property above the standard rate applicable to
Premises being occupied for the Permitted Uses. If the premium or rates payable
with respect to any policy or policies of insurance purchased by Landlord or
Agent with respect to the Property increases as a result of any act or activity
on or use of the Premises during the Term or payment by the insurer of any claim
arising from any act or neglect of Tenant, its employees, agents, contractors or
invitees, Tenant shall pay such increase, from time to time, within fifteen (15)
days after demand therefor by Landlord, as Additional Rent.

14
<PAGE>

5.4 Hazardous Materials.
-------------------

(a) Tenant may use chemicals such as adhesives, lubricants, ink,
solvents and cleaning fluids of the kind and in amounts and in the manner
customarily found and used in business offices in order to conduct its business
at the Premises and to maintain and operate the business machines located in the
Premises. Tenant shall not use, store, handle, treat, transport, release or
dispose of any other Hazardous Materials on or about the Premises or the
Property without Landlord's prior written consent, which Landlord may withhold
or condition in Landlord's sole discretion.

(b) Any handling, treatment, transportation, storage, disposal or use
of Hazardous Materials by Tenant in or about the Premises or the Property and
Tenant's use of the Premises shall comply with all applicable Environmental
Laws.

(c) Tenant shall indemnify, defend upon demand with counsel
reasonably acceptable to Landlord, and hold Landlord harmless from and against,
any liabilities, losses claims, damages, interest, penalties, fines, attorneys'
fees, experts' fees, court costs, remediation costs, and other expenses which
result from the use, storage, handling, treatment, transportation, release,
threat of release or disposal of Hazardous Materials in or about the Premises or
the Property by Tenant or Tenant's agents, employees, contractors or invitees.

(d) Tenant shall give written notice to Landlord as soon as
reasonably practicable of (i) any communication received by Tenant from any
governmental authority concerning Hazardous Materials which relates to the
Premises or the Property, and (ii) any Environmental Condition of which Tenant
is aware.

ARTICLE 6
ASSIGNMENT AND SUBLETTING
-------------------------

6.1 Prohibition.
-----------

(a) Tenant covenants and agrees that neither this Lease nor the term
and estate hereby granted, nor any interest herein or therein, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, whether voluntarily,
involuntarily, by operation of law or otherwise, and that neither the Premises
nor any part thereof will be encumbered in any manner by reason of any act or
omission on the part of Tenant, or used or occupied or permitted to be used or
occupied, by anyone other than Tenant, or for any use or purpose other than a
Permitted Use, or be sublet (which term, without limitation, shall include
granting of concessions, licenses and the like) in whole or in part, or be
offered or advertised for assignment or subletting by

15
<PAGE>

Tenant or any person acting on behalf of Tenant, without, in each case, the
prior written consent of Landlord. Without limiting the foregoing, any agreement
pursuant to which: (x) Tenant is relieved from the obligation to pay, or a third
party agrees to pay on Tenant's behalf, all or any portion of the Basic Rent or
Additional Rent under this Lease; and/or (y) a third party undertakes or is
granted by or on behalf of Tenant the right to assign or attempt to assign this
Lease or sublet or attempt to sublet all or any portion of the Premises, shall
for all purposes hereof be deemed to be an assignment of this Lease and subject
to the provisions of this Article 6. The provisions of this paragraph (a) shall
apply to a transfer (by one or more transfers) of a controlling portion of or
interest in the stock or partnership or membership interests or other evidences
of equity interests of Tenant as if such transfer were an assignment of this
Lease; provided that if equity interests in Tenant at any time are or become
traded on a public stock exchange, the transfer of equity interests in Tenant on
a public stock exchange shall not be deemed an assignment within the meaning of
this Article.

(b) The provisions of paragraph (a) shall not apply to either (x)
transactions with an entity into or with which Tenant is merged or consolidated,
or to which all or substantially all of Tenant's assets are transferred, or (y)
transactions with any entity which controls or is controlled by Tenant or is
under common control with Tenant; provided that in any such event:

(i) the successor to Tenant has a net worth, computed in
accordance with generally accepted accounting principles consistently
applied, at least equal to the greater of (1) the net worth of Tenant
immediately prior to such merger, consolidation or transfer, or (2) the net
worth of Tenant herein named on the date of this Lease,

(ii) proof satisfactory to Landlord of such net worth shall have
been delivered to Landlord at least ten (10) days prior to the effective
date of any such transaction, and

(iii) the assignee agrees directly with Landlord, by written
instrument in form satisfactory to Landlord in its reasonable discretion,
to be bound by all the obligations of Tenant hereunder, including, without
limitation, the covenant against further assignment and subletting.

6.2 Acceptance of Rent. If this Lease be assigned, or if the Premises or
------------------
any part thereof be sublet or occupied by anyone other than Tenant, whether or
not in violation of the terms and conditions of the Lease, Landlord may, at any
time and from time to time, collect rent and other charges from the assignee,
subtenant or occupant, and apply the net amount collected to the rent and other
charges herein reserved, but no such assignment, subletting, occupancy,
collection or modification of any provisions of this Lease shall be deemed a
waiver of this covenant, or the acceptance of the assignee, subtenant or
occupant as a tenant or a release of

16
<PAGE>

Tenant from the further performance of covenants on the part of Tenant to be
performed hereunder. Any consent by Landlord to a particular assignment,
subletting or occupancy or other act for which Landlord's consent is required
under paragraph (a) of Section 6.1 shall not in any way diminish the prohibition
stated in paragraph (a) of Section 6.1 as to any further such assignment,
subletting or occupancy or other act or the continuing liability of the original
named Tenant. No assignment or subletting hereunder shall relieve Tenant from
its obligations hereunder, and Tenant shall remain fully and primarily liable
therefor. Landlord may revoke any consent by Landlord to a particular
assignment, subletting or occupancy if the assignment or sublease does not
provide that the assignee, subtenant or other occupant agrees to be
independently bound by and upon all of the covenants, agreements, terms,
provisions and conditions set forth in this Lease on the part of Tenant to be
kept and performed.

6.3 Excess Payments. If Tenant assigns this Lease or sublets the Premises
---------------
or any portion thereof, Tenant shall pay to Landlord as Additional Rent fifty
percent (50%) of the amount, if any, by which (a) any and all compensation
received by Tenant as a result of such assignment or subletting, net of
reasonable expenses actually incurred by Tenant in connection with such
assignment or subletting, exceeds (b) in the case of an assignment, the Basic
Rent and Additional Rent under this Lease, and in the case of a subletting, the
portion of the Basic Rent and Additional Rent allocable to the portion of the
Premises subject to such subletting. Such payments shall be made on the date the
corresponding payments under this Lease are due. Notwithstanding the foregoing,
the provisions of this Section shall impose no obligation on Landlord to consent
to an assignment of this Lease or a subletting of all or a portion of the
Premises.

6.4 Landlord's Recapture Right. Notwithstanding anything herein to the
--------------------------
contrary, in addition to withholding or granting consent with respect to any
proposed assignment of this Lease or proposed sublease of all or a portion of
the Premises, Landlord shall have the right, to be exercised in writing within
thirty (30) days after Tenant has given Landlord written notice that Tenant
intends to assign this Lease or sublease all or any portion of the Premises, to
terminate this Lease (in the event of a proposed assignment) or recapture that
portion of the Premises to be subleased (in the event of a proposed sublease).
In the case of a proposed assignment, this Lease shall terminate as of the date
(the "Recapture Date") which is sixty (60) days after the date of Landlord's
election as if such date were the last day of the Term of this Lease. If
Landlord exercises the rights under this Section in connection with a proposed
sublease, this Lease shall be deemed amended to eliminate the proposed sublease
premises from the Premises as of the Recapture Date, and thereafter all Basic
Rent and Additional Rent shall be appropriately prorated to reflect the
reduction of the Premises as of the Recapture Date.

6.5 Further Requirements. Tenant shall reimburse Landlord on demand, as
--------------------
Additional Rent, for any out-of-pocket costs (including reasonable attorneys'
fees and expenses) incurred by Landlord in connection with any actual or
proposed assignment or sublease or other

17
<PAGE>

act described in paragraph (a) of Section 6.1, whether or not consummated,
including the costs of making investigations as to the acceptability of the
proposed assignee or subtenant. Any sublease to which Landlord gives its consent
shall not be valid or binding on Landlord unless and until Tenant and the
sublessee execute a consent agreement in form and substance satisfactory to
Landlord in its reasonable discretion and a fully executed counterpart of such
sublease has been delivered to Landlord. In the event that Landlord consents to
any sublease under the provisions of this Article, the sublease shall provide
that: (i) the term of the sublease must end no later than one day before the
last day of the Term of this Lease; (ii) such sublease is subject and
subordinate to this Lease; (iii) Landlord may enforce the provisions of the
sublease, including collection of rents; and (iv) in the event of termination of
this Lease or reentry or repossession of the Premises by Landlord, Landlord may,
at its sole discretion and option, take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such subtenant shall,
at Landlord's option, attorn to Landlord, but nevertheless Landlord shall not
(A) be liable for any previous act or omission of Tenant under such sublease;
(B) be subject to any defense or offset previously accrued in favor of the
subtenant against Tenant; or (C) be bound by any previous modification of such
sublease made without Landlord's written consent or by any previous prepayment
of more than one month's rent.

6.6 Standards for Consent to Assignment and Subletting. In the event
--------------------------------------------------
Landlord does not exercise its option pursuant to Section 6.4 to recapture the
Premises or terminate this Lease in whole or in part and providing that Tenant
is not in default of any of Tenant's obligations under this Lease, Landlord's
consent to a proposed assignment or sublease shall not be unreasonably withheld,
provided and upon condition that:

(i) In Landlord's judgment the proposed assignee or subtenant
is engaged in a business which is in keeping with the then standards
of the Building and Property and the proposed use is limited to the
Permitted Use expressly permitted under Section 1.1 and will not
violate any negative covenant as to use contained in any other lease
of space in the Property;

(ii) The proposed assignee or subtenant is a reputable person or
entity with sufficient financial worth considering the responsibility
involved, based on evidence provided by Tenant (and others) to
Landlord, as determined by Landlord in its reasonable discretion;

(iii) Neither (a) the proposed assignee or sublessee nor (b) any
person or entity which, directly or indirectly, controls, is
controlled by, or is under common control with, the proposed assignee
or sublessee or any person or entity who controls the proposed
assignee or sublessee, is then an occupant of any part of the
Property;

18
<PAGE>

(iv) The proposed assignee or sublessee is not a person or
entity with whom Landlord is then negotiating to lease space at the
Property;

(v) The proposed sublease or assignment shall be in form
satisfactory to Landlord and shall comply with the applicable
provisions of this Article 6;

(vi) There shall not be more than two business entities with a
sublease of the Premises;

(vii) The amount of the aggregate rent to be paid by the
proposed subtenant is not less than the then current market rent per
rentable square foot for the Premises as determined by Landlord in its
sole discretion, reasonably exercised; and

(viii) Tenant shall not have (a) advertised or publicized in any
way the availability of the Premises without prior notice to and
approval by Landlord, or (b) listed the Premises for subletting,
whether through a broker, agent, representative, or otherwise at a
rental rate less than the greater of (1) the Annual Basic Rent and
Additional Rent then payable hereunder for such space, or (2) the
Annual Basic Rent and Additional Rent at which Landlord is then
offering to lease other space in the Building.

ARTICLE 7
RESPONSIBILITY FOR REPAIRS AND CONDITION
OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD
-------------------------------------------------

7.1 Landlord Repairs.
----------------

(a) Except as otherwise provided in this Lease, Landlord agrees to
keep in good order, condition and repair the roof, public areas, exterior walls
(including exterior glass) and structure of the Building (including all
plumbing, mechanical and electrical systems installed by Landlord, but
specifically excluding any supplemental heating, ventilation or air conditioning
equipment or systems installed at Tenant's request or as a result of Tenant's
requirements in excess of building standard design criteria), all insofar as
they affect the Premises, except that Landlord shall in no event be responsible
to Tenant for the repair of glass in the Premises, the doors (or related glass
and finish work) leading to the Premises, or any condition in the Premises or
the Building caused by any act or neglect of Tenant, its invitees or
contractors. Landlord shall also keep and maintain all Common Facilities in a
good and clean order, condition and repair, free of snow and ice and
accumulation of dirt and rubbish, and shall keep and maintain all landscaped
areas in the Complex in a neat and orderly condition. Landlord shall not be

19
<PAGE>

responsible to make any improvements or repairs to the Building other than as
expressly in this Section 7.1 provided, unless expressly provided otherwise in
this Lease.

(b) Landlord shall never be liable for any failure to make repairs
which Landlord has undertaken to make under the provisions of this Section 7.1
or elsewhere in this Lease, unless Tenant has given notice to Landlord of the
need to make such repairs, and Landlord has failed to commence to make such
repairs within a reasonable time after receipt of such notice, or fails to
proceed with reasonable diligence to complete such repairs.

7.2 Tenant Repairs.
--------------

(a) Tenant will keep the Premises and every part thereof neat and
clean, and will maintain the same in good order, condition and repair, excepting
only those repairs for which Landlord is responsible under the terms of this
Lease, reasonable wear and tear of the Premises, and damage by fire or other
casualty or as a consequence of the exercise of the power of eminent domain; and
Tenant shall surrender the Premises, at the end of the Term, in such condition.
Without limitation, Tenant shall comply with all laws, codes and ordinances from
time to time in effect and all directions, rules and regulations of governmental
agencies having jurisdiction, and the standards recommended by the local Board
of Fire Underwriters applicable to Tenant's use and occupancy of the Premises,
and shall, at Tenant's expense, obtain all permits, licenses and the like
required thereby. Subject to Section 10.4 regarding waiver of subrogation,
Tenant shall be responsible for the cost of repairs which may be made necessary
by reason of damage to the Building caused by any act or neglect of Tenant, or
its contractors or invitees (including any damage by fire or other casualty
arising therefrom).

(b) If repairs are required to be made by Tenant pursuant to the
terms hereof, and Tenant fails to make the repairs, upon not less than ten (10)
days' prior written notice (except that no notice shall be required in the event
of an emergency), Landlord may make or cause such repairs to be made (but shall
not be required to do so), and the provisions of Section 14.4 shall be
applicable to the costs thereof. Landlord shall not be responsible to Tenant for
any loss or damage whatsoever that may accrue to Tenant's stock or business by
reason of Landlord's making such repairs.

7.3 Floor Load - Heavy Machinery.
----------------------------

(a) Tenant shall not place a load upon any floor in the Premises
exceeding the floor load per square foot of area which such floor was designed
to carry and which is allowed by law. Landlord reserves the right to prescribe
the weight and position of all business machines and mechanical equipment,
including safes, which shall be placed so as to distribute the weight. Business
machines and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient, in Landlord's judgment, to absorb and
prevent vibration,

20
<PAGE>

noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy
equipment, freight, bulky matter or fixtures into or out of the Building without
Landlord's prior consent, which consent may include a requirement to provide
insurance, naming Landlord as an insured, in such amounts as Landlord may deem
reasonable.

(b) If any such safe, machinery, equipment, freight, bulky matter or
fixtures requires special handling, Tenant agrees to employ only persons holding
a Master Rigger's License to do such work, and that all work in connection
therewith shall comply with applicable laws and regulations. Any such moving
shall be at the sole risk and hazard of Tenant, and Tenant will exonerate,
indemnify and save Landlord harmless against and from any liability, loss,
injury, claim or suit resulting directly or indirectly from such moving.

7.4 Utility Services.
----------------

(a) Landlord shall, on Business Days from 8:00 a.m. to 6:00 p.m. and
Saturdays from 8:00 a.m. to 1:00 p.m., furnish heating and cooling as normal
seasonal changes may require to provide reasonably comfortable space temperature
and ventilation for occupants of the Premises under normal business operation
and an electrical load not exceeding 3.0 watts per square foot of Premises
Rentable Area. If Tenant shall require air conditioning, heating or ventilation
outside the hours and days above specified, Landlord may furnish such service
and Tenant shall pay therefor such charges as may from time to time be in effect
for the Building upon demand as Additional Rent. In the event Tenant introduces
into the Premises personnel or equipment which overloads the capacity of the
Building system or in any other way interferes with the system's ability to
perform adequately its proper functions, supplementary systems may, if and as
needed, at Landlord's option, be provided by Landlord, and the cost of such
supplementary systems shall be payable by Tenant to Landlord upon demand as
Additional Rent.

(b) Tenant shall be responsible for the payment of all utilities used
and consumed in the Premises. Tenant shall pay for all separately metered
utilities used and consumed in the Premises directly to the provider thereof.
Landlord shall charge Tenant the Cost of Tenant's Electricity for Lights and
Plugs set forth in Section 1.1 above, plus Tenant's Proportionate Share of the
electricity and natural gas used in connection with the HVAC system for the
Building. Tenant shall pay Landlord such amounts as Additional Rent hereunder
within thirty (30) days after receipt of each such invoice. The obligation to
pay for electricity used and consumed in the Premises during the last month of
the Term hereof shall survive expiration of the Term.

Landlord shall purchase and install, at Tenant's expense, all lamps, tubes,
bulbs, starters and ballasts. In order to assure that the foregoing requirements
are not exceeded and to avert possible adverse effect on the Building's electric
system, Tenant shall not, without Landlord's prior consent, connect any
fixtures, appliances or equipment to the Building's electric distribution

21
<PAGE>

system other than personal computers, facsimile transceivers, typewriters,
pencil sharpeners, adding machines, photocopiers, word and data processors,
clocks, radios, hand-held or desk top calculators, dictaphones, desktop
computers and other similar small electrical equipment normally found in
business offices and not drawing more than 15 amps at 120/208 volts.

(c) From time to time during the Term of this Lease, Landlord shall
have the right to have an electrical consultant selected by Landlord make a
survey of Tenant's electric usage, the result of which survey shall be
conclusively binding upon Landlord and Tenant. In the event that such survey
shows that Tenant has exceeded the requirements set forth in paragraph (b), in
addition to any other rights Landlord may have hereunder, Tenant shall, upon
demand, reimburse Landlord for the cost of such survey and the cost, as
determined by such consultant, of electricity usage in excess of such
requirements as Additional Rent.

7.5 Other Services.
--------------

Landlord shall also provide:

(a) Passenger elevator service from the existing passenger elevator
system in common with Landlord and others entitled thereto.

(b) Warm water for lavatory purposes and cold water (at temperatures
supplied by the city in which the Property is located) for drinking, lavatory
and toilet purposes. If Tenant uses water for any purpose other than for
ordinary lavatory and drinking purposes, Landlord may assess a reasonable charge
for the additional water so used, or install a water meter and thereby measure
Tenant's water consumption for all purposes. In the latter event, Tenant shall
pay the cost of the meter and the cost of installation thereof as Additional
Rent upon demand and shall keep such meter and installation equipment in good
working order and repair. Tenant agrees to pay for water consumed, as shown on
such meter, together with the sewer charge based on such meter charges, as and
when bills are rendered, and in the event Tenant fails timely to make any such
payment, Landlord may pay such charges and collect the same from Tenant upon
demand as Additional Rent.

(c) Cleaning and janitorial services to the Premises, provided the
same are kept in order by Tenant, substantially in accordance with the cleaning
standards from time to time in effect for the Building.

(d) Access to the Premises at all times, subject to security
precautions from time to time in effect, if any, and subject always to
restrictions based on emergency conditions.

If and to the extent that Tenant desires to provide security for the Premises or
for such persons or their property, Tenant shall be responsible for so doing,
after having first consulted with

22
<PAGE>

Landlord and after obtaining Landlord's consent, which shall not be unreasonably
withheld. Landlord expressly disclaims any and all responsibility and/or
liability for the physical safety of Tenant's property, and for that of Tenant's
employees, agents, contractors and invitees, and, without in any way limiting
the operation of Article 10 hereof, Tenant, for itself and its agents,
contractors, invitees and employees, hereby expressly waives any claim, action,
cause of action or other right which may accrue or arise as a result of any
damage or injury to the person or property of Tenant or any such agent, invitee,
contractor or employee. Tenant agrees that, as between Landlord and Tenant, it
is Tenant's responsibility to advise its employees, agents, contractors and
invitees as to necessary and appropriate safety precautions.

7.6 Interruption of Service.
-----------------------

(a) Landlord reserves the right to curtail, suspend, interrupt and/or
stop the supply of water, sewage, electrical current, cleaning, and other
services, and to curtail, suspend, interrupt and/or stop use of entrances and/or
lobbies serving access to the Building, or other portions of the Property,
without thereby incurring any liability to Tenant, when necessary by reason of
accident or emergency, or for repairs, alterations, replacements or improvements
in the judgment of Landlord reasonably exercised desirable or necessary, or when
prevented from supplying such services or use due to any act or neglect of
Tenant or Tenant's agents employees, contractors or invitees or any person
claiming by, through or under Tenant or by Force Majeure, including, but not
limited to, strikes, lockouts, difficulty in obtaining materials, accidents,
laws or orders, or inability, by exercise of reasonable diligence, to obtain
electricity, water, gas, steam, coal, oil or other suitable fuel or power.
Except as set forth in paragraph (b) below, no diminution or abatement of rent
or other compensation, nor any direct, indirect or consequential damages shall
or will be claimed by Tenant as a result of, nor shall this Lease or any of the
obligations of Tenant be affected or reduced by reason of, any such
interruption, curtailment, suspension or stoppage in the furnishing of the
foregoing services or use, irrespective of the cause thereof. Except as set
forth in paragraph (b) below, failure or omission on the part of Landlord to
furnish any of the foregoing services or use as provided in this paragraph shall
not be construed as an eviction of Tenant, actual or constructive, nor entitle
Tenant to an abatement of rent, nor to render the Landlord liable in damages,
nor release Tenant from prompt fulfillment of any of its covenants under this
Lease.

(b) Notwithstanding anything contained in this Lease to the contrary,
if (i) an interruption or curtailment, suspension or stoppage of an Essential
Service (as said term is hereinafter defined) shall occur, except any of the
same due to any act or neglect of Tenant or Tenant's agents employees,
contractors or invitees or any person claiming by, through or under Tenant (any
such interruption of an Essential Service being hereinafter referred to as a
"Service Interruption"), and (ii) such Service Interruption occurs or continues
as a result of the negligence or a wrongful conduct of the Landlord or
Landlord's agents, servants, employees or contractors, and (iii) such Service
Interruption continues for more than fifteen (15) Business

23
<PAGE>

Days after Landlord shall have received notice thereof from Tenant, and (iv) as
a result of such Service Interruption, the conduct of Tenant's normal operations
in the Premises are materially and adversely affected, then there shall be an
abatement of one day's Basic Rent for each day during which such Service
Interruption continues after such thirty (30) Business Day period; provided,
however, that if any part of the Premises is reasonably useable for Tenant's
normal business operations or if Tenant conducts all or any part of its
operations in any portion of the Premises notwithstanding such Service
Interruption, then the amount of each daily abatement of Basic Rent and
Additional Rent shall only be proportionate to the nature and extent of the
interruption of Tenant's normal operations or ability to use the Premises. The
rights granted to Tenant under this paragraph (b) shall be Tenant's sole and
exclusive remedy resulting from a failure of Landlord to provide services, and
Landlord shall not otherwise be liable for any loss or damage suffered or
sustained by Tenant resulting from any failure or cessation of services. For
purposes hereof, the term "Essential Services" shall mean the following
services: access to the Premises, water and sewer/septic service and
electricity, but only to the extent that Landlord has an obligation to provide
same to Tenant under this Lease. Any abatement of Basic Rent under this
paragraph shall apply only with respect to Basic Rent allocable to the period
after each of the conditions set forth in subsections (i) through (iv) hereof
shall have been satisfied and only during such times as each of such conditions
shall exist.

ARTICLE 8
REAL ESTATE TAXES
-----------------

8.1 Payments on Account of Real Estate Taxes.
----------------------------------------

(a) "Tax Year" shall mean a twelve-month period commencing on July 1
and falling wholly or partially within the Term, and "Taxes" shall mean (i) all
taxes, assessments (special or otherwise), levies, fees and all other government
levies, exactions and charges of every kind and nature, general and special,
ordinary and extraordinary, foreseen and unforeseen, which are, at any time
prior to or during the Term, imposed or levied upon or assessed against the
Property or any portion thereof, or against any Basic Rent, Additional Rent or
other rent of any kind or nature payable to Landlord by anyone on account of the
ownership, leasing or operation of the Property, or which arise on account of or
in respect of the ownership, development, leasing, operation or use of the
Property or any portion thereof; (ii) all gross receipts taxes or similar taxes
imposed or levied upon, assessed against or measured by any Base Rent,
Additional Rent or other rent of any kind or nature or other sum payable to
Landlord by anyone on account of the ownership, development, leasing, operation,
or use of the Property or any portion thereof; (iii) all value added, use and
similar taxes at any time levied, assessed or payable on account of the
ownership, development, leasing, operation, or use of the Property or any
portion thereof; and (iv) reasonable expenses of any proceeding for abatement of
any of the foregoing items included

24
<PAGE>

in Taxes, provided Landlord prevails in such abatement proceeding; but the
amount of special taxes or special assessments included in Taxes shall be
limited to the amount of the installment (plus any interest, other than penalty
interest, payable thereon) of such special tax or special assessment required to
be paid during the year in respect of which such Taxes are being determined.
There shall be excluded from Taxes all income, estate, succession, inheritance
and transfer taxes of Landlord; provided, however, that if at any time during
the Term the present system of ad valorem taxation of real property shall be
changed so that a capital levy, franchise, income, profits, sales, rental, use
and occupancy, or other tax or charge shall in whole or in part be substituted
for, or added to, such ad valorem tax and levied against, or be payable by,
Landlord with respect to the Property or any portion thereof, such tax or charge
shall be included in the term "Taxes" for the purposes of this Article.

(b) In the event that Taxes during any Tax Year shall exceed Base
Taxes, Tenant shall pay to Landlord, as Additional Rent, an amount equal to (i)
the excess of Taxes for such Tax Year over Base Taxes, multiplied by (ii)
Tenant's Proportionate Share, such amount to be apportioned for any portion of a
Tax Year in which the Commencement Date falls or the Term expires.

(c) Estimated payments by Tenant on account of Taxes shall be made on
the first day of each and every calendar month during the Term of this Lease, in
the fashion herein provided for the payment of Basic Rent. The monthly amount so
to be paid to Landlord shall be sufficient to provide Landlord by the time real
estate tax payments are due with a sum equal to Tenant's required payment, as
reasonably estimated by Landlord from time to time, on account of Taxes for the
then current Tax Year. Promptly after receipt by Landlord of bills for such
Taxes, Landlord shall advise Tenant of the amount thereof and the computation of
Tenant's payment on account thereof. If estimated payments theretofore made by
Tenant for the Tax Year covered by such bills exceed the required payment on
account thereof for such Tax Year, Landlord shall credit the amount of
overpayment against subsequent obligations of Tenant on account of Taxes (or
promptly refund such overpayment if the Term of this Lease has ended and Tenant
has no further obligation to Landlord); but if the required payments on account
thereof for such Tax Year are greater than estimated payments theretofore made
on account thereof for such Tax Year, Tenant shall pay the difference to
Landlord within thirty (30) days after being so advised by Landlord, and the
obligation to make such payment for any period within the Term shall survive
expiration of the Term.

8.2 Abatement. If Landlord shall receive any tax refund or reimbursement
---------
of Taxes or sum in lieu thereof with respect to any Tax Year all or any portion
of which falls within the Term, then out of any balance remaining thereof after
deducting Landlord's expenses in obtaining such refund, Landlord shall pay to
Tenant, provided there does not then exist a Default of Tenant, an amount equal
to such refund or reimbursement or sum in lieu thereof (exclusive of

25
<PAGE>

any interest, and apportioned if such refund is for a Tax Year a portion of
which falls outside the Term,) multiplied by Tenant's Proportionate Share;
provided, that in no event shall Tenant be entitled to receive more than the
payments made by Tenant on account of Taxes for such Tax Year pursuant to
paragraph (b) of Section 8.1 or to receive any payments or abatement of Basic
Rent if Taxes for any year are less than Base Taxes or if Base Taxes are abated.
If Landlord shall receive a tax refund or reimbursement with respect to the Base
Taxes, Landlord shall advise Tenant of the amount thereof and Tenant shall pay
to Landlord, within thirty (30) days after being so advised by Landlord, the
difference between the reduced Base Taxes and the amounts previously paid by
Tenant for each applicable prior Tax Year in the Term, and the obligation to
make such payment for any period within the Term shall survive expiration of the
Term.

ARTICLE 9
OPERATING AND UTILITY EXPENSES
------------------------------

9.1 Definitions. "Operating Year" shall mean each calendar year all or
-----------
any part of which falls within the Term, and "Operating Expenses" shall mean the
aggregate costs and expenses incurred by Landlord with respect to the operation,
administration, cleaning, repair, maintenance and management of the Property,
all as set forth in Exhibit D attached hereto, provided that if during any
portion of the Operating Year for which Operating Expenses are being computed,
less than all of the Building was occupied by tenants or Landlord was not
supplying all tenants with the services being supplied under this Lease, actual
Operating Expenses incurred shall be extrapolated reasonably by Landlord on an
item by item basis to the estimated Operating Expenses that would have been
incurred if the Building were fully occupied for such Operating Year and such
services were being supplied to all tenants, and such extrapolated amount shall,
for the purposes hereof, be deemed to be the Operating Expenses for such
Operating Year.

9.2 Tenant's Payment of Operating Expenses.
--------------------------------------

(a) In the event that for any Operating Year Operating Expenses shall
exceed Base Operating Expenses, Tenant shall pay to Landlord, as Additional
Rent, an amount equal to (i) such excess Operating Expenses multiplied by (ii)
Tenant's Proportionate Share, such amount to be apportioned for any portion of
an Operating Year in which the Commencement Date falls or the Term of this Lease
ends.

26
<PAGE>

(b) Estimated payments by Tenant on account of Operating Expenses
shall be made on the first day of each and every calendar month during the Term
of this Lease, in the fashion herein provided for the payment of Basic Rent. The
monthly amount so to be paid to Landlord shall be sufficient to provide Landlord
by the end of each Operating Year a sum equal to Tenant's required payment, as
reasonably estimated by Landlord from time to time during each Operating Year,
on account of Operating Expenses for such Operating Year. After the end of each
Operating Year, Landlord shall submit to Tenant a reasonably detailed accounting
of Operating Expenses for such Operating Year, and Landlord shall certify to the
accuracy thereof. If estimated payments theretofore made for such Operating Year
by Tenant exceed Tenant's required payment on account thereof for such Operating
Year according to such statement, Landlord shall credit the amount of
overpayment against subsequent obligations of Tenant with respect to Operating
Expenses (or promptly refund such overpayment if the Term of this Lease has
ended and Tenant has no further obligation to Landlord); but if the required
payments on account thereof for such Operating Year are greater than the
estimated payments (if any) theretofore made on account thereof for such
Operating Year, Tenant shall make payment to Landlord within thirty (30) days
after being so advised by Landlord, and the obligation to make such payment for
any period within the Term shall survive expiration of the Term.

ARTICLE 10
INDEMNITY AND PUBLIC LIABILITY INSURANCE
----------------------------------------

10.1 Tenant's Indemnity. Except to the extent arising from the gross
------------------
negligence or willful misconduct of Landlord or its agents or employees, Tenant
agrees to indemnify and save harmless Landlord and Landlord's partners, members,
shareholders, officers, directors, managers, employees, agents and contractors
from and against all claims, losses, cost, damages, liability or expenses of
whatever nature arising: (i) from any accident, injury or damage whatsoever to
any person, or to the property of any person, occurring in or about the
Premises; (ii) from any accident, injury or damage whatsoever to any person, or
to property of any person, occurring outside of the Premises but on or about the
Property, where such accident, damage or injury results or is claimed to have
resulted from any act or omission on the part of Tenant or Tenant's agents,
employees, contractors, invitees or sublessees; or (iii) the use or occupancy of
the Premises or of any business conducted therein, and, in any case, occurring
after the Commencement Date until the expiration of the Term of this Lease and
thereafter so long as Tenant is in occupancy of any part of the Premises. This
indemnity and hold harmless agreement shall include indemnity against all
losses, costs, damages, expenses and liabilities incurred in or in connection
with any such claim or any proceeding brought thereon, and the defense thereof,
including, without limitation, reasonable attorneys' fees and costs at both the
trial and appellate levels.

27
<PAGE>

10.2 Tenant Insurance. Tenant agrees to maintain in full force from the
----------------
date upon which Tenant first enters the Premises for any reason, throughout the
Term of this Lease, and thereafter so long as Tenant is in occupancy of any part
of the Premises, a policy of commercial general liability and property damage
insurance (including broad form contractual liability, independent contractor's
hazard and completed operations coverage) under which Tenant is named as an
insured and Landlord, Agent (and such other persons as are in privity of estate
with Landlord as may be set out in a notice from time to time) are named as
additional insureds, and under which the insurer agrees to indemnify and hold
Landlord, Agent and those in privity of estate with Landlord, harmless from and
against all cost, expense and/or liability arising out of or based upon any and
all claims, accidents, injuries and damages set forth in Section 10.1. Tenant
may satisfy such insurance requirements by including the Premises in a so-called
"blanket" and/or "umbrella" insurance policy, provided that the amount of
coverage allocated to the Premises shall fulfill the requirements set forth
herein. Each policy required hereunder shall be non-cancelable and non-amendable
with respect to Landlord, Agent and Landlord's said designees without thirty
(30) days' prior notice, shall be written on an "occurrence" basis, and shall be
in at least the amounts of the Initial General Liability Insurance specified in
Section 1.1 or such greater amounts as Landlord in its reasonable discretion
shall from time to time request, and a duplicate original or certificates
thereof satisfactory to Landlord, together with a photocopy of the entire
policy, shall be delivered to Landlord.

10.3 Tenant's Risk. Tenant agrees to use and occupy the Premises and to
-------------
use such other portions of the Property as Tenant is herein given the right to
use at Tenant's own risk. Landlord shall not be liable to Tenant, its employees,
agents, invitees or contractors for any damage, injury, loss, compensation, or
claim (including, but not limited to, claims for the interruption of or loss to
Tenant's business) based on, arising out of or resulting from any cause
whatsoever, including, but not limited to, repairs to any portion of the
Premises or the Property, any fire, robbery, theft, mysterious disappearance
and/or any other crime or casualty, the actions of any other tenants of the
Building or of any other person or persons, or any leakage in any part or
portion of the Premises or the Building, or from water, rain or snow that may
leak into, or flow from any part of the Premises or the Building, or from
drains, pipes or plumbing fixtures in the Building, unless due to the gross
negligence or willful misconduct of Landlord or Landlord's agents, contractors
or employees. Any goods, property or personal effects stored or placed in or
about the Premises shall be at the sole risk of Tenant, and neither Landlord nor
Landlord's insurers shall in any manner be held responsible therefor.
Notwithstanding the foregoing, Landlord shall not be released from liability for
any injury, loss, damages or liability to the extent arising from any gross
negligence or willful misconduct of Landlord, its servants, employees or agents
acting within the scope of their authority on or about the Premises; provided,
however, that in no event shall Landlord, its servants, employees or agents have
any liability to Tenant based on any loss with respect to or interruption in the
operation of Tenant's business. Tenant shall carry "all-risk" property insurance
on a "replacement cost" basis, insuring Tenant's

28
<PAGE>

Removable Property and any Alterations made by Tenant pursuant to Section 5.2,
to the extent that the same have not become the property of Landlord.

10.4 Waiver of Subrogation. The parties hereto shall each procure an
---------------------
appropriate clause in, or endorsement on, any property insurance policy on the
Premises or any personal property, fixtures or equipment located thereon or
therein, pursuant to which the insurer waives subrogation or consents to a
waiver of right of recovery in favor of either party, its respective agents or
employees. Having obtained such clauses and/or endorsements, each party hereby
agrees that it will not make any claim against or seek to recover from the other
or its agents or employees for any loss or damage to its property or the
property of others resulting from fire or other perils covered by such property
insurance.

ARTICLE 11
FIRE, EMINENT DOMAIN, ETC.
--------------------------

11.1 Landlord's Right of Termination. If the Premises or the Building are
-------------------------------
substantially damaged by fire or casualty (the term "substantially damaged"
meaning damage of such a character that the same cannot, in the ordinary course,
reasonably be expected to be repaired within sixty (60) days from the time that
repair work would commence), or if any part of the Building is taken by any
exercise of the right of eminent domain, then Landlord shall have the right to
terminate this Lease (even if Landlord's entire interest in the Premises may
have been divested) by giving notice of Landlord's election so to do within
ninety (90) days after the occurrence of such casualty or the effective date of
such taking, whereupon this Lease shall terminate thirty (30) days after the
date of such notice with the same force and effect as if such date were the date
originally established as the expiration date hereof.

11.2 Restoration; Tenant's Right of Termination. If the Premises or the
------------------------------------------
Building are damaged by fire or other casualty, and this Lease is not terminated
pursuant to Section 12.1, Landlord shall thereafter use reasonable efforts to
restore the Building and the Premises (excluding any Alterations made by Tenant
pursuant to Section 5.2) to proper condition for Tenant's use and occupation,
provided that Landlord's obligation shall be limited to the amount of insurance
proceeds available therefor. If, for any reason, such restoration shall not be
substantially completed within six months after the expiration of the ninety-day
period referred to in Section 11.1 (which six-month period may be extended for
such periods of time as Landlord is prevented from proceeding with or completing
such restoration due to Force Majeure, but in no event for more than an
additional three months), Tenant shall have the right to terminate this Lease by
giving notice to Landlord thereof within thirty (30) days after the expiration
of such period (as so extended) provided that such restoration is not completed
within such period. This Lease shall cease and come to an end without further
liability or obligation on the part of either party thirty (30) days after such
giving of notice by Tenant unless, within such thirty-day period,

29
<PAGE>

Landlord substantially completes such restoration. Such right of termination
shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's
failure so to complete such restoration, and time shall be of the essence with
respect thereto.

11.3 Landlord's Insurance. Landlord agrees to maintain in full force and
--------------------
effect, during the Term of this Lease, property damage insurance with such
deductibles and in such amounts as may from time to time be carried by
reasonably prudent owners of similar buildings in the area in which the Property
is located, provided that in no event shall Landlord be required to carry other
than fire and extended coverage insurance or insurance in amounts greater than
80% of the actual insurable cash value of the Building (excluding footings and
foundations). Landlord may satisfy such insurance requirements by including the
Property in a so-called "blanket" insurance policy, provided that the amount of
coverage allocated to the Property shall fulfill the foregoing requirements.

11.4 Abatement of Rent. If the Premises or the Building are damaged by
-----------------
fire or other casualty, Basic Rent and Additional Rent payable by Tenant shall
abate proportionately for the period during which, by reason of such damage,
there is substantial interference with Tenant's use of the Premises, having
regard for the extent to which Tenant may be required to discontinue Tenant's
use of all or an undamaged portion of the Premises due to such damage, but such
abatement or reduction shall end if and when Landlord shall have substantially
completed sufficient restoration that Tenant is reasonably able to use the
Premises and the Premises are in substantially the condition in which they were
prior to such damage (excluding any Alterations made by Tenant pursuant to
Section 5.2). If the Premises shall be affected by any exercise of the power of
eminent domain, Basic Rent and Additional Rent payable by Tenant shall be justly
and equitably abated and reduced according to the nature and extent of the loss
of use thereof suffered by Tenant. In no event shall Landlord have any liability
for damages to Tenant for inconvenience, annoyance, or interruption of business
arising from any fire or other casualty or eminent domain.

11.5 Condemnation Award. Landlord shall have and hereby reserves and
------------------
excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover
for damages to the Property and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of any taking, by exercise
of the right of eminent domain, and by way of confirming the foregoing, Tenant
hereby grants and assigns, and covenants with Landlord to grant and assign to
Landlord, all rights to such damages or compensation, and covenants to deliver
such further assignments and assurances thereof as Landlord may from time to
time request, and Tenant hereby irrevocably appoints Landlord its attorney-in-
fact to execute and deliver in Tenant's name all such assignments and
assurances. Nothing contained herein shall be construed to prevent Tenant from
prosecuting in any condemnation proceedings a claim for the value of any of
Tenant's Removable Property installed in the Premises by Tenant at Tenant's

30
<PAGE>

expense and for relocation expenses, provided that such action shall not affect
the amount of compensation otherwise recoverable by Landlord from the taking
authority.

ARTICLE 12
HOLDING OVER; SURRENDER
-----------------------

12.1 Holding Over. Any holding over by Tenant after the expiration of
------------
the Term of this Lease shall be treated as a daily tenancy at sufferance at a
rental equal to one hundred and fifty percent (150%) of the Basic Rent then in
effect plus the Additional Rent herein provided (prorated on a daily basis).
Tenant shall also pay to Landlord all damages, direct and/or indirect, sustained
by reason of any such holding over. In all other respects, such holding over
shall be on the terms and conditions set forth in this Lease as far as
applicable. Landlord may, but shall not be required to, and only on written
notice to Tenant after the expiration of the Term hereof, elect to treat such
holding over as a renewal of one (1) year, to be on the terms and conditions set
forth in this Section.

12.2 Surrender of Premises. Upon the expiration or earlier termination
---------------------
of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord
the Premises in neat and clean condition and in good order, condition and
repair, together with all alterations, additions and improvements which may have
been made or installed in, on or to the Premises prior to or during the Term of
this Lease (except as hereinafter provided), excepting only ordinary wear and
use and damage by fire or other casualty for which, under other provisions of
this Lease, Tenant has no responsibility to repair or restore. Tenant shall
remove all of Tenant's Removable Property and, to the extent specified by
Landlord, all alterations and additions made by Tenant and all partitions wholly
within the Premises unless installed initially by Landlord in preparing the
Premises for Tenant's occupancy; and shall repair any damages to the Premises or
the Building caused by such removal. Any Tenant's Removable Property which shall
remain in the Building or on the Premises after the expiration or termination of
the Term of this Lease shall be deemed conclusively to have been abandoned, and
either may be retained by Landlord as its property or may be disposed of in such
manner as Landlord may see fit, at Tenant's sole cost and expense.

ARTICLE 13
RIGHTS OF MORTGAGEES; TRANSFER OF TITLE
---------------------------------------

13.1 Rights of Mortgagees. This Lease shall be subject and subordinate
--------------------
to the lien and terms of any mortgage, deed of trust or ground lease or similar
encumbrance (collectively, a "Mortgage", and the holder thereof from time to
time the "Holder") from time to time encumbering the Premises, whether executed
and delivered prior to or subsequent to the date of

31
<PAGE>

this Lease, unless the Holder shall elect otherwise. If this Lease is
subordinate to any Mortgage and the Holder or any other party shall succeed to
the interest of Landlord pursuant to the Mortgage (such Holder or other party, a
"Successor"), at the election of the Holder or Successor, Tenant shall attorn to
the or Successor and this Lease shall continue in full force and effect between
the Holder or Successor and Tenant. Tenant agrees to execute such instruments of
subordination or attornment in confirmation of the foregoing agreement as the
Holder or Successor reasonably may request, and Tenant hereby appoints the
Holder or Successor as Tenant's attorney-in-fact to execute such subordination
or attornment agreement upon default of Tenant in complying with the Holder's or
Successor's request.

13.2 Assignment of Rents and Transfer of Title.
-----------------------------------------

(a) With reference to any assignment by Landlord of Landlord's
interest in this Lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to the holder of a mortgage on property
which includes the Premises, Tenant agrees that the execution thereof by
Landlord, and the acceptance thereof by the holder of such mortgage shall never
be treated as an assumption by such holder of any of the obligations of Landlord
hereunder unless such holder shall, by notice sent to Tenant, specifically
otherwise elect and, except as aforesaid, such holder shall be treated as having
assumed Landlord's obligations hereunder only upon foreclosure of such holder's
mortgage and the taking of possession of the Premises.

(b) In no event shall the acquisition of Landlord's interest in the
Property by a purchaser which, simultaneously therewith, leases Landlord's
entire interest in the Property back to the seller thereof be treated as an
assumption by operation of law or otherwise, of Landlord's obligations
hereunder, but Tenant shall look solely to such seller-lessee, and its
successors from time to time in title, for performance of Landlord's obligations
hereunder. In any such event, this Lease shall be subject and subordinate to the
lease to such purchaser. For all purposes, such seller-lessee, and its
successors in title, shall be the Landlord hereunder unless and until Landlord's
position shall have been assumed by such purchaser-lessor.

(c) Except as provided in paragraph (b) of this Section, in the event
of any transfer of title to the Property by Landlord, Landlord shall thereafter
be entirely freed and relieved from the performance and observance of all
covenants and obligations hereunder.

13.3 Notice to Mortgagee. After receiving notice from Landlord of any
-------------------
Holder of a Mortgage which includes the Premises, no notice from Tenant to
Landlord alleging any default by Landlord shall be effective unless and until a
copy of the same is given to such Holder (provided Tenant shall have been
furnished with the name and address of such Holder), and the curing of any of
Landlord's defaults by such Holder shall be treated as performance by Landlord.

32
<PAGE>

ARTICLE 14
DEFAULT; REMEDIES
-----------------

14.1 Tenant's Default.
----------------

(a) If at any time subsequent to the date of this Lease any one or
more of the following events (herein referred to as a "Default of Tenant") shall
happen:

(i) Tenant shall fail to pay the Basic Rent or Additional Rent
hereunder when due and such failure shall continue for five (5) Business
Days after notice to Tenant from Landlord; or

(ii) Tenant shall neglect or fail to perform or observe any
other covenant herein contained on Tenant's part to be performed or
observed and Tenant shall fail to remedy the same within thirty (30) days
after notice to Tenant specifying such neglect or failure, or if such
failure is of such a nature that Tenant cannot reasonably remedy the same
within such thirty (30) day period, Tenant shall fail to commence promptly
(and in any event within such thirty (30) day period) to remedy the same
and to prosecute such remedy to completion with diligence and continuity
(and in any event, within ninety (90) days after the notice described in
this subparagraph (ii)); or

(iii) Tenant's leasehold interest in the Premises shall be taken
on execution or by other process of law directed against Tenant; or

(iv) Tenant shall make an assignment for the benefit of
creditors or shall be adjudicated insolvent, or shall file any petition or
answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present or
future Federal, State or other statute, law or regulation for the relief of
debtors (other than the Bankruptcy Code, as hereinafter defined), or shall
seek or consent to or acquiesce in the appointment of any trustee, receiver
or liquidator of Tenant or of all or any substantial part of its
properties, or shall admit in writing its inability to pay its debts
generally as they become due; or

(v) An Event of Bankruptcy (as hereinafter defined) shall
occur with respect to Tenant; or

(vi) A petition shall be filed against Tenant under any law
(other than the Bankruptcy Code) seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief
under any present or future Federal, State or other statute, law or
regulation and shall remain undismissed or unstayed for an aggregate of
sixty (60) days (whether or not consecutive), or if any trustee,

33
<PAGE>

conservator, receiver or liquidator of Tenant or of all or any substantial
part of its properties shall be appointed without the consent or
acquiescence of Tenant and such appointment shall remain unvacated or
unstayed for an aggregate of sixty (60) days (whether or not consecutive);

(vii) If: (x) Tenant shall fail to pay the Basic Rent or
Additional Rent hereunder when due or shall fail to perform or observe any
other covenant herein contained on Tenant's part to be performed or
observed and Tenant shall cure any such failure within the applicable grace
period set forth in clauses (i) or (ii) above; or (y) a Default of Tenant
of the kind set forth in clauses (i) or (ii) above shall occur and Landlord
shall, in its sole discretion, permit Tenant to cure such Default of Tenant
after the applicable grace period has expired; and the same or a similar
---
failure shall occur more than once within the next 365 days (whether or not
such similar failure is cured within the applicable grace period); or

(viii) The occurrence of any of the events described in
paragraphs (a)(iv)-(a)(vi) with respect to any guarantor of all or any
portions of Tenant's obligations under this Lease;

then in any such case Landlord may terminate this Lease as hereinafter provided.

(b) For purposes of clause (a)(v) above, an "Event of Bankruptcy"
means the filing of a voluntary petition by Tenant, or the entry of an order for
relief against Tenant, under Chapter 7, 11, or 13 of the Bankruptcy Code, and
the term "Bankruptcy Code" means 11 U.S.C (S)101, et seq.. If an Event of
-------
Bankruptcy occurs, then the trustee of Tenant's bankruptcy estate or Tenant as
debtor-in-possession may (subject to final approval of the court) assume this
Lease, and may subsequently assign it, only if it does the following within
sixty (60) days after the date of the filing of the voluntary petition, the
entry of the order for relief (or such additional time as a court of competent
jurisdiction may grant, for cause, upon a motion made within the original sixty-
day period):

(i) file a motion to assume the Lease with the appropriate
court;

(ii) satisfy all of the following conditions, which Landlord
and Tenant acknowledge to be commercially reasonable:

(A) cure all Defaults of Tenant under this Lease or provide Landlord
with Adequate Assurance (as defined below) that it will (x) cure
all monetary Defaults of Tenant hereunder within ten (10) days
from the date of the assumption; and (y) cure all nonmonetary
Defaults

34
<PAGE>

of Tenant hereunder within thirty (30) days from the date of the
assumption;

(B) compensate Landlord and any other person or entity, or provide
Landlord with Adequate Assurance that within ten (10) days after
the date of the assumption, it will compensate Landlord and such
other person or entity, for any pecuniary loss that Landlord and
such other person or entity incurred as a result of any Default
of Tenant, the trustee, or the debtor-in-possession;

(C) provide Landlord with Adequate Assurance of Future Performance
(as defined below) of all of Tenant's obligations under this
Lease; and

(D) deliver to Landlord a written statement that the conditions
herein have been satisfied.

(c) For purposes only of the foregoing paragraph (b), and in addition
to any other requirements under the Bankruptcy Code, any future federal
bankruptcy law and applicable case law, "Adequate Assurance" means at least
meeting the following conditions, which Landlord and Tenant acknowledge to be
commercially reasonable:

(i) entering an order segregating sufficient cash to pay
Landlord and any other person or entity under paragraph (b) above, and

(ii) granting to Landlord a valid first lien and security
interest (in form acceptable to Landlord) in all property comprising the
Tenant's "property of the estate," as that term is defined in Section 541
of the Bankruptcy Code, which lien and security interest secures the
trustee's or debtor-in-possession's obligation to cure the monetary and
nonmonetary defaults under the Lease within the periods set forth in
paragraph (b) above.

(d) For purposes only of paragraph (b) above, and in addition to any
other requirements under the Bankruptcy Code, any future federal bankruptcy law
and applicable case law, "Adequate Assurance of Future Performance" means at
least meeting the following conditions, which Landlord and Tenant acknowledge to
be commercially reasonable:

(i) the trustee or debtor-in-possession depositing with
Landlord, as security for the timely payment of rent and other monetary
obligations, an amount equal to the sum of two (2) months' Basic Rent plus
an amount equal to two (2) months' installments on account of Escalation
Charges;

35
<PAGE>

(ii) the trustee or the debtor-in-possession agreeing to pay in
advance, on each day that the Basic Rent is payable, the monthly
installments on account of Escalation Charges;

(iii) the trustee or debtor-in-possession providing adequate
assurance of the source of the rent and other consideration due under this
Lease;

(iv) Tenant's bankruptcy estate and the trustee or debtor-in-
possession providing Adequate Assurance that the bankruptcy estate (and any
successor after the conclusion of the Tenant's bankruptcy proceedings) will
continue to have sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure Landlord that the
bankruptcy estate (and any successor after the conclusion of the Tenant's
bankruptcy proceedings) will have sufficient funds to fulfill Tenant's
obligations hereunder.

(e) If the trustee or the debtor-in-possession assumes the Lease
under paragraph (b) above and applicable bankruptcy law, it may assign its
interest in this Lease only if the proposed assignee first provides Landlord
with Adequate Assurance of Future Performance of all of Tenant's obligations
under the Lease, and if Landlord determines, in the exercise of its reasonable
business judgment, that the assignment of this Lease will not breach any other
lease, or any mortgage, financing agreement, or other agreement relating to the
Property by which Landlord or the Property is then bound (and Landlord shall not
be required to obtain consents or waivers from any third party required under
any lease, mortgage, financing agreement, or other such agreement by which
Landlord is then bound).

(f) For purposes only of paragraph (e) above, and in addition to any
other requirements under the Bankruptcy Code, any future federal bankruptcy law
and applicable case law, "Adequate Assurance of Future Performance" means at
least the satisfaction of the following conditions, which Landlord and Tenant
acknowledge to be commercially reasonable:

(i) the proposed assignee submitting a current financial
statement, audited by a certified public accountant, that allows a net
worth and working capital in amounts determined in the reasonable business
judgment of Landlord to be sufficient to assure the future performance by
the assignee of Tenant's obligation under this Lease; and

36
<PAGE>

(ii) if requested by Landlord in the exercise of its reasonable
business judgment, the proposed assignee obtaining a guarantee (in form and
substance satisfactory to Landlord) from one or more persons who satisfy
Landlord's standards of creditworthiness.

14.2 Landlord's Remedies.
-------------------

(a) Upon the occurrence of a Default of Tenant, Landlord may
terminate this Lease by notice to Tenant, specifying a date not less than five
(5) days after the giving of such notice on which this Lease shall terminate and
this Lease shall come to an end on the date specified therein as fully and
completely as if such date were the date herein originally fixed for the
expiration of the Term of this Lease, and Tenant will then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided..

(b) If this Lease shall have been terminated as provided in this
Article, then Landlord may re-enter the Premises, either by summary proceedings,
ejectment or otherwise, and remove and dispossess Tenant and all other persons
and any and all property from the same, as if this Lease had not been made.

(c) If this Lease shall have been terminated as provided in this
Article, Tenant shall pay the Basic Rent and Additional Rent up to the time of
such termination, and thereafter Tenant, until the end of what would have been
the Term of this Lease in the absence of such termination, and whether or not
the Premises shall have been relet, shall be liable to Landlord for, and shall
pay to Landlord, as liquidated current damages: (x) the Basic Rent and
Additional Rent payable hereunder if such termination had not occurred, less the
net proceeds, if any, of any reletting of the Premises, after deducting all
expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorneys' fees,
advertising, expenses of employees, alteration costs and expenses of preparation
for such reletting; and (y) if this Lease provides that Tenant was entitled to
occupy the Premises for any period of time without paying Basic Rent, the amount
of Basic Rent that Tenant would have paid for any such period. Tenant shall pay
the portion of such current damages referred to in clause (x) above to Landlord
monthly on the days which the Basic Rent would have been payable hereunder if
this Lease had not been terminated, and Tenant shall pay the portion of such
current damages referred to in clause (y) above to Landlord upon such
termination.

(d) At any time after termination of this Lease as provided in this
Article, whether or not Landlord shall have collected any such current damages,
as liquidated final damages and in lieu of all such current damages beyond the
date of such demand, at Landlord's election Tenant shall pay to Landlord an
amount equal to the excess, if any, of the Basic Rent and Additional Rent which
would be payable hereunder from the date of such demand assuming that, for the
purposes of this paragraph, annual payments by Tenant on account of Taxes and

37
<PAGE>

Operating Expenses would be the same as the payments required for the
immediately preceding Operating or Tax Year for what would be the then unexpired
Term of this Lease if the same remained in effect, over the then fair net rental
value of the Premises for the same period.

(e) In case of any Default of Tenant, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (i) re-let the
Premises or any part or parts thereof, either in the name of Landlord or
otherwise, for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Term of this Lease and may grant concessions or free rent to the
extent that Landlord considers advisable and necessary to re-let the same and
(ii) make such alterations, repairs and decorations in the Premises as Landlord
considers advisable and necessary for the purpose of reletting the Premises; and
the making of such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Tenant
hereby expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed, or
in the event of Landlord obtaining possession of the Premises, by reason of the
violation by Tenant of any of the covenants and conditions of this Lease.

14.3 Additional Rent. If Tenant shall fail to pay when due any sums under
---------------
this Lease designated as an Escalation Charge or other Additional Rent, Landlord
shall have the same rights and remedies as Landlord has hereunder for failure to
pay Basic Rent.

14.4 Remedying Defaults. Landlord shall have the right, but shall not be
------------------
required, to pay such sums or do any act which requires the expenditure of
monies which may be necessary or appropriate by reason of the failure or neglect
of Tenant to perform any of the provisions of this Lease, and in the event of
the exercise of such right by Landlord, Tenant agrees to pay to Landlord
forthwith upon demand all such sums, together with interest thereon at a rate
equal to 3% over the base rate in effect from time to time at The First National
Bank of Boston or its successor(but in no event less than 18% per annum), as
Additional Rent. Any payment of Basic Rent and Additional Rent payable hereunder
not paid when due shall, at the option of Landlord, bear interest at a rate
equal to 3% over the base rate in effect from time to time at The First National
Bank of Boston or its successor (but in no event less than 18% per annum) from
the due date thereof and shall be payable forthwith on demand by Landlord, as
Additional Rent.

14.5 Remedies Cumulative. The specified remedies to which Landlord may
-------------------
resort hereunder are not intended to be exclusive of any remedies or means of
redress to which Landlord may at any time be entitled lawfully, and Landlord may
invoke any remedy (including the remedy of specific performance) allowed at law
or in equity as if specific remedies were not herein provided for.

38
<PAGE>

14.6 Attorneys' Fees. In the event of any litigation by the parties
---------------
concerning this Lease and enforcement of obligations hereunder, the prevailing
party shall be entitled to recover from the opposing party reasonable attorneys
fees and other expenses of litigation.

14.7 Waiver.
------

(a) Failure on the part of Landlord or Tenant to complain of any
action or non-action on the part of the other, no matter how long the same may
continue, shall never be a waiver by Tenant or Landlord, respectively, of any of
the other's rights hereunder. Further, no waiver at any time of any of the
provisions hereof by Landlord or Tenant shall be construed as a waiver of any of
the other provisions hereof, and a waiver at any time of any of the provisions
hereof shall not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any action by
the other requiring such consent or approval shall not be construed to waive or
render unnecessary Landlord's or Tenant's consent or approval to or of any
subsequent similar act by the other.

(b) No payment by Tenant, or acceptance by Landlord, of a lesser
amount than shall be due from Tenant to Landlord shall be treated otherwise than
as a payment on account of the earliest installment of any payment due from
Tenant under the provisions hereof. The acceptance by Landlord of a check for a
lesser amount with an endorsement or statement thereon, or upon any letter
accompanying such check, that such lesser amount is payment in full, shall be
given no effect, and Landlord may accept such check without prejudice to any
other rights or remedies which Landlord may have against Tenant.

14.8 Security Deposit. If a security deposit is specified in Section 1.1
----------------
hereof, Tenant agrees that the same will be paid upon execution and delivery of
this Lease, and that Landlord shall hold the same throughout the Term of this
Lease as security for the performance by Tenant of all obligations on the part
of Tenant hereunder. Landlord shall have the right from time to time, without
prejudice to any other remedy Landlord may have on account thereof, to apply
such deposit, or any part thereof, to Landlord's damages arising from, or to
cure, any Default of Tenant. If Landlord shall so apply any or all of such
deposit, Tenant shall immediately upon demand deposit with Landlord the amount
so applied to be held as security hereunder. Landlord shall return the deposit,
or so much thereof as shall not have theretofore been applied in accordance with
the terms of this Section, to Tenant on the expiration or earlier termination of
the Term of this Lease and surrender of possession of the Premises by Tenant to
Landlord at such time, provided that there is then existing no Default of Tenant
(nor any circumstance which, with the passage of time or the giving of notice,
or both, would constitute a Default of Tenant). While Landlord holds such
deposit, Landlord shall have no obligation to pay interest on the same and shall
have the right to commingle the same with Landlord's other funds. If Landlord
conveys Landlord's interest under this Lease, the deposit, or any part thereof
not previously applied, may be turned over by Landlord to Landlord's grantee,
and, if so turned over, Tenant agrees to look

39
<PAGE>

solely to such grantee for proper application of the deposit in accordance with
the terms of this Section, and the return thereof in accordance herewith. The
holder of a mortgage shall not be responsible to Tenant for the return or
application of any such deposit, whether or not it succeeds to the position of
Landlord hereunder, unless such deposit shall have been received in hand by such
holder.

14.9 Landlord's Default. Landlord shall in no event be in default under
------------------
this Lease unless Landlord shall neglect or fail to perform any of its
obligations hereunder and shall fail to remedy the same within thirty (30) days
after notice to Landlord specifying such neglect or failure, or if such failure
is of such a nature that Landlord cannot reasonably remedy the same within such
thirty (30) day period, Landlord shall fail to commence promptly (and in any
event within such thirty (30) day period) to remedy the same and to prosecute
such remedy to completion with diligence and continuity.

ARTICLE 15
MISCELLANEOUS PROVISIONS
------------------------

15.1 Rights of Access. Landlord and Agent shall have the right to enter
----------------
the Premises at all reasonable hours for the purpose of inspecting the Premises,
doing maintenance or making repairs or otherwise exercising its rights or
fulfilling its obligations under this Lease, and Landlord and Agent also shall
have the right to make access available at all reasonable hours to prospective
or existing mortgagees, purchasers or tenants of any part of the Property.

15.2 Covenant of Quiet Enjoyment. Subject to the terms and conditions of
---------------------------
this Lease, on payment of the Basic Rent and Additional Rent and observing,
keeping and performing all of the other terms and conditions of this Lease on
Tenant's part to be observed, kept and performed, Tenant shall lawfully,
peaceably and quietly enjoy the Premises during the term hereof, without
hindrance or ejection by any persons lawfully claiming under Landlord to have
title to the Premises superior to Tenant. The foregoing covenant of quiet
enjoyment is in lieu of any other covenant, express or implied.

15.3 Landlord's Liability.
--------------------

(a) Tenant agrees to look solely to Landlord's equity interest in the
Property at the time of recovery for recovery of any judgment against Landlord,
and agrees that neither Landlord nor any successor of Landlord shall be
personally liable for any such judgment, or for the payment of any monetary
obligation to Tenant. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Tenant might otherwise have to
obtain injunctive relief against Landlord or any successor of Landlord, or to
take any action not

40
<PAGE>

involving the personal liability of Landlord or any successor of Landlord to
respond in monetary damages from Landlord's assets other than Landlord's equity
interest in the Property.

(b) In no event shall Landlord ever be liable to Tenant for any loss
of business or any other indirect or consequential damages suffered by Tenant
from whatever cause.

(c) Where provision is made in this Lease for Landlord's consent, and
Tenant shall request such consent, and Landlord shall fail or refuse to give
such consent, Tenant shall not be entitled to any damages for any withholding by
Landlord of its consent, it being intended that Tenant's sole remedy shall be an
action for specific performance or injunction, and that such remedy shall be
available only in those cases where Landlord has expressly agreed in writing not
to unreasonably withhold its consent. Furthermore, whenever Tenant requests
Landlord's consent or approval (whether or not provided for herein), Tenant
shall pay to Landlord, on demand, as Additional Rent, any reasonable expenses
incurred by Landlord (including without limitation reasonable attorneys' fees
and costs, if any) in connection therewith.

(d) Any repairs or restoration required or permitted to be made by
Landlord under this Lease may be made during normal business hours, and Landlord
shall have no liability for damages to Tenant for inconvenience, annoyance or
interruption of business arising therefrom.

15.4 Estoppel Certificate. Tenant shall, at any time and from time to
--------------------
time, upon not less than ten (10) business days prior written notice by
Landlord, execute, acknowledge and deliver to Landlord an estoppel certificate
containing such statements of fact as Landlord reasonably requests.

15.5 Relocation. Landlord reserves the right to relocate Tenant, upon prior
----------
written notice, to other comparable space within the Building at Landlord's sole
cost and expense at any time during the Lease Term; provided, however, that
Landlord shall pay all reasonable costs of moving Tenant to such other space
including the breakdown, move and set-up of furniture and equipment, moving
files, and replacing stationery and signage with substantially equivalent
materials.

15.6 Brokerage. Tenant warrants and represents that Tenant has dealt with
---------
no broker in connection with the consummation of this Lease other than Broker,
and, in the event of any brokerage claims against Landlord predicated upon prior
dealings with Tenant, Tenant agrees to defend the same and indemnify Landlord
against any such claim (except any claim by Broker).

15.7 Rules and Regulations. Tenant shall abide by the Rules and
---------------------
Regulations from time to time established by Landlord, it being agreed that such
Rules and Regulations will be established and applied by Landlord in a non-
discriminatory fashion, such that all Rules and

41
<PAGE>

Regulations shall be generally applicable to other tenants of the Building of
similar nature to the Tenant named herein. Landlord agrees to use reasonable
efforts to insure that any such Rules and Regulations are uniformly enforced,
but Landlord shall not be liable to Tenant for violation of the same by any
other tenant or occupant of the Building, or persons having business with them.
In the event that there shall be a conflict between such Rules and Regulations
and the provisions of this Lease, the provisions of this Lease shall control.
The Rules and Regulations currently in effect are set forth in Exhibit E.

15.8 Invalidity of Particular Provisions. If any term or provision of
-----------------------------------
this Lease, or the application thereof to any person or circumstance shall, to
any extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.

15.9 Provisions Binding, Etc. Except as herein otherwise provided, the
-----------------------
terms hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant (except in the case
of Tenant, only such successors and assigns as may be permitted hereunder) and,
----
if Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and permitted assigns. Each term and each provision
of this Lease to be performed by Tenant shall be construed to be both a covenant
and a condition. Any reference in this Lease to successors and assigns of
Tenant shall not be construed to constitute a consent to assignment by Tenant.

15.10 Recording. Tenant agrees not to record this Lease, but, if the Term
---------
of this Lease (including any extended term) is seven (7) years or longer, each
party hereto agrees, on the request of the other, to execute a notice of lease
in recordable form and complying with applicable law. In no event shall such
document set forth the rent or other charges payable by Tenant under this Lease;
and any such document shall expressly state that it is executed pursuant to the
provisions contained in this Lease, and is not intended to vary the terms and
conditions of this Lease. At Landlord's request, promptly upon expiration of or
earlier termination of the Term, Tenant shall execute and deliver to Landlord a
release of any document recorded in the real property records for the location
of the Property evidencing this Lease, and Tenant hereby appoints Landlord
Tenant's attorney-in-fact, coupled with an interest, to execute any such
document if Tenant fails to respond to Landlord's request to do so within
fifteen (15) days. The obligations of Tenant under this Section shall survive
the expiration or any earlier termination of the Term.

15.11 Notice. All notices or other communications required hereunder
------
shall be in writing and shall be deemed duly given if delivered in person (with
receipt therefor), if sent by reputable overnight delivery or courier service
(e.g., Federal Express) providing for receipted

42
<PAGE>

delivery, or if sent by certified or registered mail, return receipt requested,
postage prepaid, to the following address:

(a) if to Landlord at Landlord's Address, to the attention of Karl
W. Weller.

(b) if to Tenant, at Tenant's Address, to the attention of General
Counsel, and after the Commencement Date, at the Premises,
with a copy to Tenant's Address.

Where receipt of notice or other communication shall be conclusively
established by either (i) return of a return receipt indicating that the notice
has been delivered; or (ii) return of the letter containing the notice with an
indication from the courier or postal service that the addressee has refused to
accept delivery of the notice. Either party may change its address for the
giving of notices by notice given in accordance with this Section.

15.12 When Lease Becomes Binding; Entire Agreement; Modification. The
----------------------------------------------------------
submission of this document for examination and negotiation does not constitute
an offer to lease, or a reservation of, or option for, the Premises, and this
document shall become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. This Lease is the entire agreement between
Landlord and Tenant, and this Lease expressly supersedes any negotiations,
considerations, representations and understandings and proposals or other
written documents relating hereto. This Lease may be modified or altered only by
written agreement between Landlord and Tenant, and no act or omission of any
employee or agent of Landlord shall alter, change or modify any of the
provisions hereof.

15.13 Paragraph Headings and Interpretation of Sections. The paragraph
-------------------------------------------------
headings throughout this instrument are for convenience and reference only, and
the words contained therein shall in no way be held to explain, modify, amplify
or aid in the interpretation, construction or meaning of the provisions of this
Lease. The provisions of this Lease shall be construed as a whole, according to
their common meaning (except where a precise legal interpretation is clearly
evidenced), and not for or against either party. Use in this Lease of the words
"including," "such as" or words of similar import, when followed by any general
term, statement or matter, shall not be construed to limit such term, statement
or matter to the specified item(s), whether or not language of non-limitation,
such as "without limitation" or "including, but not limited to," or words of
similar import, are used with reference thereto, but rather shall be deemed to
refer to all other terms or matters that could fall within a reasonably broad
scope of such term, statement or matter.

15.14 Dispute Resolution. In the event of a dispute between Landlord and
------------------
Tenant pursuant to this Lease (other than a dispute relating to the payment of
Basic Rent and Additional Rent the parties agree that prior to pursuing other
available remedies (excluding giving notices of

43
<PAGE>

default), they will attempt to directly negotiate resolution of their dispute.
If negotiation is unsuccessful, then they agree to participate in at least three
hours of mediation to be facilitated by a mediator mutually acceptable to them
under the mediation procedures set by the mediator. The mediation session shall
be conducted within thirty (30) days of the date on which the mediator receives
the request to mediate. The costs of such mediation shall be shared equally by
the parties.

15.15 Financial Statements. Tenant shall, without charge therefor, at any
--------------------
time, within ten (10) days following a request by Landlord, deliver to Landlord,
or to any other party designated by Landlord, a true and accurate copy of
Tenant's most recent financial statements. All requests made by Tenant regarding
subleases or assignments must be accompanied by the most recent financial
statement of Tenant's prospective subtenant or prospective assignee.

15.16 Waiver of Jury Trial. Landlord and Tenant hereby each waive trial
--------------------
by jury in any action, proceeding or counterclaim brought by either against the
other, on or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant or Tenant's
use or occupancy of the Premises.

15.17 Time Is of the Essence. Time is of the essence of each provision of
----------------------
this Lease.

15.18 Multiple Counterparts. This Lease may be executed in multiple
---------------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document.

15.19 Governing Law. This Lease shall be governed by the laws of the
-------------
state in which the Property is located.

44
<PAGE>

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed, under seal, by persons hereunto duly authorized, as of the date first
set forth above.

LANDLORD:

BCIA NEW ENGLAND HOLDINGS LLC, a Delaware
limited liability company

By: BCIA NEW ENGLAND HOLDINGS MASTER LLC, a
Delaware limited liability company, its
Manager

By: BCIA NEW ENGLAND HOLDINGS MANAGER LLC,
a Delaware limited liability company,
its Manager

By: BCIA NEW ENGLAND HOLDINGS MANAGER
CORP., a Delaware corporation, its
Manager

By: /s/ Karl W. Weller
------------------------------
Karl W. Weller
Executive Vice President

TENANT:

PSW TECHNOLOGIES, INC., a Delaware
corporation

By: /s/ Timothy D. Webb
----------------------------------
Name: Timothy D. Webb
Title: President & CEO

45
<PAGE>

EXHIBIT A
Location Plan of Premises

46
<PAGE>

EXHIBIT B
Site Plan of Building

B-1
<PAGE>

EXHIBIT C
Commencement Date Letter

_______________, 1999

[Name of Contact]
[Name of Tenant]
[Address of Tenant]

RE: [Name of Tenant]
[Premises Rentable Area and Floor]
[Address of Building]

Dear [Name of Contact]:

Reference is made to that certain Lease, dated as of ,1999,
between [Landlord], as Landlord and [Tenant] as Tenant, with respect to Premises
on the ___________ floor of the above-referenced building. In accordance with
Section 4.1 of the Lease, this is to confirm that the Commencement Date of the
Term of the Lease occurred on ___________________________, and that the Term of
the Lease shall expire on ________________________________.

If the foregoing is in accordance with your understanding, kindly execute
the enclosed duplicate of this letter, and return the same to us.

Very truly yours,

[Landlord]

By:__________________________________
Name: __________________________
Title: _________________________

C-1
<PAGE>

Accepted and Agreed:

[Tenant]

By:____________________________
Name:______________________
Title:_____________________
Date:______________________

C-2
<PAGE>

EXHIBIT D
Operating Expenses

Operating Expenses shall include the following, without limitation:

1. All expenses incurred by Landlord or Landlord's agents which shall be
directly related to employment of personnel, including amounts
incurred for wages, salaries and other compensation for services,
payroll, social security, unemployment and similar taxes, workmen's
compensation insurance, disability benefits, pensions,
hospitalization, retirement plans and group insurance, uniforms and
working clothes and the cleaning thereof, and expenses imposed on
Landlord or Landlord's agents pursuant to any collective bargaining
agreement for the services of employees of Landlord or Landlord's
agents in connection with the operation, repair, maintenance,
cleaning, management and protection of the Property, including,
without limitation, day and night supervisors, manager, accountants,
bookkeepers, janitors, carpenters, engineers, mechanics, electricians
and plumbers and personnel engaged in supervision of any of the
persons mentioned above; provided that, if any such employee is also
employed on other property of Landlord, such compensation shall be
suitably prorated among the Property and such other properties.

2. The cost of services, utilities, materials and supplies furnished or
used in the operation, repair, maintenance, cleaning, management and
protection of the Property.

3. The cost of replacements for tools and other similar equipment used in
the repair, maintenance, cleaning and protection of the Property,
provided that, in the case of any such equipment used jointly on other
property of Landlord, such costs shall be suitably prorated among the
Property and such other properties.

4. Where the Property is managed by Landlord or an affiliate of Landlord,
a sum equal to the amounts customarily charged by management firms in
the Greater Boston area for similar properties, whether or not
actually paid, or where managed by other than Landlord or an affiliate
thereof, the amounts accrued for management, together with, in either
case, amounts accrued for legal and other professional fees relating
to the Property, but excluding such fees and commissions paid in
connection with services rendered for securing or renewing leases and
for matters not related to the normal administration and operation of
the Property.

D-1
<PAGE>

5. Premiums for insurance against damage or loss to the Property from
such hazards as Landlord shall determine, including, but not by way of
limitation, insurance covering loss of rent attributable to any such
hazards, and public liability insurance.

6. If, during the Term of this Lease, Landlord shall make a capital
expenditure, the total cost of which is not properly includable in
Operating Expenses for the Operating Year in which it was made, there
shall nevertheless be included in such Operating Expenses for the
Operating Year in which it was made and in Operating Expenses for each
succeeding Operating Year the annual charge-off of such capital
expenditure. Annual charge-off shall be determined by dividing the
original capital expenditure plus an interest factor, reasonably
----
determined by Landlord, as being the interest rate then being charged
for long-term mortgages by institutional lenders on like properties
within the locality in which the Property is located, by the number of
years of useful life of the capital expenditure; and the useful life
shall be determined reasonably by Landlord in accordance with
generally accepted accounting principles and practices in effect at
the time of making such expenditure.

7. Costs for electricity, water and sewer use charges, gas and other
utilities supplied to the Property and not paid for directly by
tenants.

8. Betterment assessments, provided the same are apportioned equally over
the longest period permitted by law, and to the extent, if any, not
included in Taxes.

9. Amounts paid to independent contractors for services, materials and
supplies furnished for the operation, repair, maintenance, cleaning
and protection of the Property.

In no event shall Operating Expenses include:

1. Cost of repairs or other work occasioned by the exercise of right of
eminent domain;

2. Leasing commissions, attorneys' fees, costs and disbursements and
other expenses which are incurred in connection with negotiations or
disputes with tenants, other occupants or prospective tenants;

3. Depreciation and amortization;

2
<PAGE>

4. Ground rents, principal payments, or any interest expense on any loans
secured by mortgages placed upon the Building and underlying land (or
a leasehold interest therein);

5. Any particular items and services for which Tenant otherwise
reimburses Landlord by direct payment over and above Basic Rent and
Operating Expenses;

6. Advertising and promotional expenditures;

7. Any costs, fines or penalties incurred due to violations by Landlord
of any governmental law, ordinance, rule or authority; and

8. Any expense for which Landlord is compensated through proceeds of
insurance.

3
<PAGE>

EXHIBIT E
Rules and Regulations of Building

The following regulations are generally applicable:

1. If the Building is occupied by more than one tenant, the public
sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by
Tenant (except as necessary for deliveries) or used for any purpose
other than ingress and egress to and from the Premises.

2. If the Building is occupied by more than one tenant, no awnings,
curtains, blinds, shades, screens or other projections shall be
attached to or hung in, or used in connection with, any window of the
Premises or any outside wall of the Building. Such awnings, curtains.
blinds, shades, screens or other projections must be of a quality,
type, design and color, and attached in the manner, approved by
Landlord.

3. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Building, nor, if the Building is
occupied by more than one tenant, displayed through interior windows
into the atrium of the Building, nor placed in the halls, corridors or
vestibules, provided that show cases or articles may be displayed
through interior windows into the atrium of the Building (if any) with
Landlord's prior written approval, such approval not to be
unreasonably withheld or delayed so long as such display does not
adverse affect the aesthetic integrity of the Building.

4. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed
and constructed, and no sweepings, rubbish, rags, acids or like
substances shall be deposited therein. All damages resulting from any
misuse of the fixtures shall be borne by the Tenant.

5. Tenant shall not use the Premises or any part thereof or permit the
Premises or any part thereof to be used as a public employment bureau
or for the sale of property of any kind at auction, except in
connection with Tenant's business.

6. Tenant must, upon the termination of its tenancy, return to the
Landlord all locks, cylinders and keys to offices and toilet rooms of
the Premises.

7. Landlord reserves the right to exclude from the Building after
business hours and at all hours on days other than Business Days all
persons connected with or calling upon the Tenant who are not escorted
in the Building by an employee of Tenant.

E-1
<PAGE>

Tenant shall be responsible for all persons to whom it allows access
and shall be liable to the Landlord for all wrongful acts of such
persons.

8. The requirements of Tenant will be attended to only upon application
at the Building Management Office. Employees of Landlord shall not
perform any work or do anything outside of their regular duties,
unless under special instructions from the office of the Landlord.

9. There shall not be used in any space in the Building, or in the public
halls of the Building, either by Tenant or by jobbers or others, in
the delivery or receipt of merchandise, any hand trucks, except those
equipped with rubber tires and side guards.

10. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.

11. If the Building is occupied by more than one tenant, no tenant shall
make, or permit to be made, any unseemly or disturbing noises or
disturb or interfere with occupants of this or any neighboring
building or premises or those having business with them whether by use
of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. No tenant shall throw
anything out of the doors, windows or skylights or down the
passageways.

12. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.

13. No smoking shall be permitted in the Premises or the Building.
Smoking shall only be permitted in smoking areas outside of the
Building which have been designated by the Landlord.

14. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and street address of the
Building.

15. The rules and regulations set forth in Attachment I to this Exhibit,
which is by this reference made a part hereof ,are applicable to any
Alterations being undertaken by or for Tenant in the Premises pursuant
to Section 5.2 of the Lease:

E-2
<PAGE>

Attachment I to Exhibit E
Rules and Regulations for Tenant Alterations
--------------------------------------------

A. General
-------

1. All Alterations made by Tenant in, to or about the Premises shall be
made in accordance with the requirements of this Exhibit and by contractors or
mechanics approved by Landlord.

2. Tenant shall, prior to the commencement of any work, submit for
Landlord's written approval, complete plans for the Alterations, with full
details and specifications for all of the Alterations, in compliance with
Section D below.

3. Alterations must comply with the Building Code applicable to the
Property and the requirements, rules and regulations and any other governmental
agencies having jurisdiction.

4. No work shall be permitted to commence before Tenant obtains and
furnishes to Landlord copies of all necessary licenses and permits from all
governmental authorities having jurisdiction.

5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Building operations, must be scheduled
and performed before or after normal business hours, and Tenant shall provide
Agent with at least 24 hours' notice prior to proceeding with such work.

6. All inquiries, submissions, approvals and all other matters shall be
processed through Agent.

7. All work, if performed by a contractor or subcontractor, shall be
subject to reasonable supervision and inspection by Landlord's representative.
Such supervision and inspection shall be at Tenant's sole expense and Tenant
shall pay Landlord's reasonable charges for such supervision and inspection.

B. Prior to Commencement of Work
-----------------------------

1. Tenant shall submit to the Building manager a request to perform the
work. The request shall include the following enclosures:

EI-1
<PAGE>

(i) A list of Tenant's contractors and/or subcontractors for
Landlord's approval.

(ii) Four complete sets of plans and specifications properly
stamped by a registered architect or professional
engineer.

(iii) A properly executed building permit application form.

(iv) Four executed copies of the Insurance Requirements
Agreement in the form attached to this Exhibit as
Attachment II and made a part hereof from Tenant's
contractor and, if requested by Landlord, from the
contractor's subcontractors.

(v) Contractor's and subcontractor's insurance certificates,
including an indemnity in accordance with the Insurance
Requirements Agreement.

2. Landlord will return the following to Tenant:

(i) Two sets of plans approved or a disapproved with specific
comments as to the reasons therefor (such approval or
comments shall not constitute a waiver of approval of
governmental authorities).

(ii) Two fully executed copies of the Insurance Requirements
Agreement.

3. Landlord's approval of the plans, drawings, specifications or other
submissions in respect of any Alterations shall create no liability or
responsibility on the part of Landlord for their completeness, design
sufficiency or compliance with requirements of any applicable laws, rules or
regulations of any governmental or quasi-governmental agency, board or
authority.

4. Tenant shall obtain a building permit from the Building Department and
necessary permits from other governmental agencies. Tenant shall be responsible
for keeping current all permits. Tenant shall submit copies of all approved
plans and permits to Landlord and shall post the original permit on the Premises
prior to the commencement of any work.

EI-2
<PAGE>

C. Requirements and Procedures
---------------------------

1. All structural and floor loading requirements shall be subject to the
prior approval of Landlord's structural engineer.

2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers and all mechanical and electrical work shall be performed
by contractors who are engaged by Landlord in constructing, operating or
maintaining the Building. When necessary, Landlord will require engineering and
shop drawings, which drawings must be approved by Landlord before work is
started. Drawings are to be prepared by Tenant and all approvals shall be
obtained by Tenant.

3. Elevator service for construction work shall be charged to Tenant at
standard Building rates. Prior arrangements for elevator use shall be made with
Building manager by Tenant. No material or equipment shall be carried under or
on top of elevators. If an operating engineer is required by any union
regulations, such engineer shall be paid for by Tenant.

4. If shutdown of risers and mains for electrical, HVAC, sprinkler and
plumbing work is required, such work shall be supervised by Landlord's
representative. No work will be performed in Building mechanical equipment
rooms without Landlord's approval and under Landlord's supervision.

5. Tenant's contractor shall:

(i) have a superintendent or foreman on the Premises at all
times;

(ii) police the job at all times, continually keeping the
Premises orderly;

(iii) maintain cleanliness and protection of all areas,
including elevators and lobbies.

(iv) protect the front and top of all peripheral HVAC units and
thoroughly clean them at the completion of work;

(v) block off supply and return grills, diffusers and ducts to
keep dust from entering into the Building air conditioning
system; and

(vi) avoid the disturbance of other tenants.

EI-3
<PAGE>

6. If Tenant's contractor is negligent in any of its responsibilities,
Tenant shall be charged for corrective work.

7. All equipment and installations must be equal to the standards
generally in effect with respect to the remainder of the Building. Any
deviation from such standards will be permitted only if indicated or specified
on the plans and specifications and approved by Landlord.

8. A properly executed air balancing report signed by a professional
engineer shall be submitted to Landlord upon the completion of all HVAC work.

9. Upon completion of the Alterations, Tenant shall submit to Landlord a
permanent certificate of occupancy and final approval by the other governmental
agencies having jurisdiction.

10. Tenant shall submit to Landlord a final "as-built" set of drawings
showing all items of the Alterations in full detail.

11. Additional and differing provisions in the Lease, if any, will be
applicable and will take precedence.

D. Standards for Plans and Specifications.
--------------------------------------

Whenever Tenant shall be required by the terms of the Lease (including this
Exhibit) to submit plans to Landlord in connection with any Alterations, such
plans shall include at least the following:

1. Floor plan indicating location of partitions and doors (details
required of partition and door types).

2. Location of standard electrical convenience outlets and telephone
outlets.

3. Location and details of special electrical outlets; e.g.,
----
photocopiers, etc.

4. Reflected ceiling plan showing layout of standard ceiling and lighting
fixtures. Partitions to be shown lightly with switches located indicating
fixtures to be controlled.

5. Locations and details of special ceiling conditions, lighting
fixtures, speakers, etc.

6. Location and specifications of floor covering, paint or paneling with
paint colors referenced to standard color system.

EI-4
<PAGE>

7. Finish schedule plan indicating wall covering, paint, or paneling with
paint colors referenced to standard color system.

8. Details and specifications of special millwork, glass partitions,
rolling doors and grilles, blackboards, shelves, etc.

9. Hardware schedule indicating door number keyed to plan, size, hardware
required including butts, latchsets or locksets, closures, stops, and any
special items such as thresholds, soundproofing, etc. Keying schedule is
required.

10. Verified dimensions of all built-in equipment (file cabinets, lockers,
plan files, etc.)

11. Location and weights of storage files.

12. Location of any special soundproofing requirements.

13. Location and details of special floor areas exceeding 50 pounds of
live load per square foot.

14. All structural, mechanical, plumbing and electrical drawings, to be
prepared by the base building consulting engineers, necessary to complete the
Premises in accordance with Tenant's Plans.

15. All drawings to be uniform size (30" x 46") and shall incorporate the
standard project electrical and plumbing symbols and be at a scale of 1/8" = 1'
or larger.

16. All drawings shall be stamped by an architect (or, where applicable,
an engineer) licensed in the jurisdiction in which the Property is located and
without limiting the foregoing, shall be sufficient in all respects for
submission to applicable authorization in connection with a building permit
application.

EI-5
<PAGE>

Attachment II to Exhibit E
Contractor's Insurance Requirements
-----------------------------------

Building:

Landlord:

Tenant:

Premises:

The undersigned contractor or subcontractor ("Contractor") has been hired by the
tenant named above (hereinafter called "Tenant") of the Building named above (or
by Tenant's contractor) to perform certain work ("Work") for Tenant in the
Premises identified above. Contractor and Tenant have requested the landlord
named above ("Landlord") to grant Contractor access to the Building and its
facilities in connection with the performance of the Work, and Landlord agrees
to grant such access to Contractor upon and subject to the following terms and
conditions:

1. Contractor agrees to indemnify and save harmless Landlord and its
respective officers, employees and agents and their affiliates, subsidiaries and
partners, and each of them, from and with respect to any claims, demands, suits,
liabilities, losses and expenses, including reasonable attorneys' fees, arising
out of or in connection with the Work (and/or imposed by law upon any or all of
them) because of personal injuries, bodily injury (including death at any time
resulting therefrom) and loss of or damage to property, including consequential
damages, whether such injuries to person or property are claimed to be due to
negligence of the Contractor, Tenant, Landlord or any other party entitled to be
indemnified as aforesaid except to the extent specifically prohibited by law
(and any such prohibition shall not void this Agreement but shall be applied
only to the minimum extent required by law).

2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:

(a) Workmen's Compensation and Employers, Liability Insurance
covering each and every workman employed in, about or upon the Work, as provided
for in each and every statute applicable to Workmen's Compensation and
Employers' Liability Insurance.

EII-1
<PAGE>

(b) Comprehensive General Liability Insurance including coverages for
Protective and Contractual Liability (to specifically include coverage for the
indemnification clause of this Agreement) for not less than the following
limits:

Personal Injury:

$3,000,000 per person
$10,000,000 per
occurrence

Property Damage:
$3,000,000 per occurrence $3,000,000 aggregate

(c) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the Work)
for not less than the following limits:

Bodily Injury:
$1,000,000 per person
$1,000,000 per occurrence

Property Damage:
$1,000,000 per occurrence

Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that it has
complied with the above requirements regarding insurance and providing that the
insurer will give Landlord ten (10) days' prior written notice of the
cancellation of any of the foregoing policies.

3. Contractor shall require all of its subcontractors engaged in the Work
to provide the following insurance:

(a) Comprehensive General Liability Insurance including Protective
and Contractual Liability coverages with limits of liability at least equal to
the limits stated in paragraph 2(b).

(b) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the Work)
with limits of liability at least equal to the limits stated in paragraph 2(c).

EII-2
<PAGE>

Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.

Agreed to and executed this day of , 19 .

Contractor:

By:____________________________________________

E-13

<PAGE>

EXHIBIT 10.24

PSW TECHNOLOGIES, INC.

2000 NON-OFFICER STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------------------

ARTICLE ONE

GENERAL PROVISIONS
------------------

I. PURPOSE OF THE PLAN

This 2000 Non-Officer Stock Option/Stock Issuance Plan is intended to
promote the interests of PSW Technologies, Inc., a Delaware corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into two separate equity programs:

(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock, and

(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary).

B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III. ADMINISTRATION OF THE PLAN

A. Administration of the Plan with respect to all persons eligible
to participate in the Plan may, at the Board's discretion, be vested in the
Committee, or the Board may retain the power to administer those programs with
respect to all such persons.

B. Members of the Committee shall serve for such period of time as
the Board may determine and may be removed by the Board at any time. The Board
may also at any time terminate the functions of any Committee and reassume all
powers and authority previously delegated to such committee.
<PAGE>

C. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Plan or any option or stock issuance thereunder.

D. Service on the Committee shall constitute service as a Board
member, and members of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:

(i) Employees who are not officers or directors of the
Corporation, and

(ii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).

B. The Plan Administrator shall have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the time or times at
which each option is to become exercisable, the vesting schedule (if any)
applicable to the option shares and the maximum term for which the option is to
remain outstanding and (ii) with respect to stock issuances under the Stock
Issuance Program, which eligible persons are to receive stock issuances, the
time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.

C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 250,000 shares.

2
<PAGE>

B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Section
III of Article Two. Unvested shares issued under the Plan and subsequently
cancelled or repurchased by the Corporation, at the original issue price paid
per share, pursuant to the Corporation's repurchase rights under the Plan, shall
be added back to the number of shares of Common Stock reserved for issuance
under the Plan and shall accordingly be available for reissuance through one or
more subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance.

C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.

3
<PAGE>

ARTICLE TWO

DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------

I. OPTION TERMS

Each option shall be a Non-Statutory Option and shall be evidenced by
one or more documents in the form approved by the Plan Administrator; provided,
--------
however, that each such document shall comply with the terms specified below.

A. Exercise Price.
--------------

1. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date unless otherwise determined by the Plan Administrator.

2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in one or more
of the forms specified below:

(i) cash or check made payable to the Corporation,

(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or

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

Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.

B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

4
<PAGE>

C. Effect of Termination of Service.
--------------------------------

1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term. If such
period is not specified in the documents evidencing the option, then the
option shall remain exercisable for a period of ninety (90) days following
the Optionee's cessation of Service.

(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.

(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.

(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.

(v) In the event of an Involuntary Termination following
a Corporate Transaction, the provisions of Section II of this Article Two
shall govern the period for which the outstanding options are to remain
exercisable following the Optionee's cessation of Service and shall
supersede any provisions to the contrary in this section.

2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or

5
<PAGE>

(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested under the option had the Optionee continued in Service.

D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.

E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.

F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, a Non-Statutory Option may, to the extent permitted by the Plan
Administrator, be assigned in whole or in part during the Optionee's lifetime
(i) as a gift to one or more members of the Optionee's immediate family, to a
trust in which Optionee and/or one or more such family members hold more than
fifty percent (50%) of the beneficial interest or to an entity in which more
than fifty percent (50%) of the voting interests are owned by one or more such
family members or (ii) pursuant to a domestic relations order. The terms
applicable to the assigned portion shall be the same as those in effect for the
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.

6
<PAGE>

B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.

C. Notwithstanding Section II.A. and Section II.B. of this Article
Two, the Plan Administrator shall have the discretion, exercisable either at the
time the option is granted or at any time while the option remains outstanding,
to provide for the automatic acceleration of one or more outstanding options
(and the automatic termination of one or more outstanding repurchase rights with
the immediate vesting of the shares of Common Stock subject to those rights)
upon the occurrence of a Corporate Transaction, whether or not those options are
to be assumed or replaced (or those repurchase rights are to be assigned) in the
Corporate Transaction. The Plan Administrator shall also have the discretion to
grant options which do not accelerate whether or not such options are assumed
(and to provide for repurchase rights that do not terminate whether or not such
rights are assigned) in connection with a Corporate Transaction.

D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same.

F. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of any options which are
assumed or replaced in a Corporate Transaction and do not otherwise accelerate
at that time (and the termination of any of the Corporation's outstanding
repurchase rights which do not otherwise terminate at the time of the Corporate
Transaction) in the event the Optionee's Service should subsequently terminate
by reason of an Involuntary Termination within eighteen (18) months following
the effective date of such Corporate Transaction. Any options so accelerated
shall remain exercisable for fully-vested shares until the earlier of (i) the
-------
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination.

G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any

7
<PAGE>

such option acceleration (and the termination of any outstanding repurchase
rights) upon the subsequent Involuntary Termination of the Optionee's Service
within a specified period (not to exceed eighteen (18) months) following the
effective date of such Change in Control. Any options accelerated in connection
with a Change in Control shall remain fully exercisable until the expiration or
sooner termination of the option term.

H. The grant of options under the Discretionary Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.

III. CANCELLATION AND REGRANT OF OPTIONS

(i) The Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
option holders, the cancellation of any or all outstanding options under
the Discretionary Option Grant Program and to grant in substitution new
options covering the same or different number of shares of Common Stock but
with an exercise price per share based on the Fair Market Value per share
of Common Stock on the new grant date.

8
<PAGE>

ARTICLE THREE

STOCK ISSUANCE PROGRAM
----------------------

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.

A. Purchase Price.
--------------

1. The purchase price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
issuance date unless otherwise determined by the Plan Administrator.

2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:

(i) cash or check made payable to the Corporation, or

(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).

B. Vesting Provisions.
------------------

1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives.

2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.

9
<PAGE>

4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.

5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
cessation of the Participant's Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time, whether before or
after the Participant's cessation of Service or the attainment or non-attainment
of the applicable performance objectives.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.

B. Notwithstanding Section II.A. of this Article Three, the Plan
Administrator shall have the discretionary authority, exercisable either at the
time the unvested shares are issued or any time while the Corporation's
repurchase rights remain outstanding under the Stock Issuance Program, to
provide that those rights shall automatically terminate in whole or in part, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in the event of a Corporate Transaction, whether or not those repurchase
rights are to be assigned to the successor corporation (or its parent) in
connection with such Corporate Transaction. The Plan Administrator shall also
have the discretion to provide for repurchase rights with terms different from
those in effect under this Section II in connection with a Corporate
Transaction.

C. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or any time while the
Corporation's repurchase rights remain outstanding, to provide that any
repurchase rights that are assigned in the Corporate Transaction shall
automatically terminate, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction.

10
<PAGE>

D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to (i) provide for the
automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon the
occurrence of a Change in Control or (ii) condition any such accelerated vesting
upon the subsequent Involuntary Termination of the Participant's Service within
a specified period (not to exceed eighteen (18) months) following the effective
date of such Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

11
<PAGE>

ARTICLE FOUR

MISCELLANEOUS
-------------

I. FINANCING

A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price for shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In all events, the maximum credit available to the
Optionee or Participant may not exceed the sum of (i) the aggregate option
exercise price or purchase price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee or the Participant in connection with the option exercise or share
purchase.

B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights or upon the issuance
or vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.

B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Withholding Taxes incurred by such holders in connection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:

(i) Stock Withholding: The election to have the
-----------------
Corporation withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate Fair Market Value equal
to the percentage of the Withholding Taxes (not to exceed one hundred
percent (100%)) designated by the holder.

(ii) Stock Delivery: The election to deliver to the
--------------
Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by such
holder (other than in connection with the option exercise or share vesting
triggering the Withholding Taxes) with an aggregate Fair Market Value equal
to the percentage

12
<PAGE>

of the Withholding Taxes (not to exceed one hundred percent (100%))
designated by the holder.

III. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan shall become effective upon its adoption by the Board.

B. The Plan shall terminate upon the earliest of (i) ten (10) years from
--------
the date of adoption of the Plan by the Board, (ii) the date on which all shares
available for issuance under the Plan shall have been issued as fully-vested
shares pursuant to the exercise of the options or the issuance of shares under
the Plan or (iii) the termination of all outstanding options in connection with
a Corporate Transaction. Upon such Plan termination, all outstanding options and
unvested stock issuances shall continue to have force and effect in accordance
with the provisions of the documents evidencing such options or issuances.

IV. AMENDMENT OF THE PLAN

The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect any rights and obligations with respect to
options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification.

V. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.

VI. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.

B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in

13
<PAGE>

any way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining such person) or of the Optionee or the Participant, which rights are
hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.

14
<PAGE>

APPENDIX
--------

The following definitions shall be in effect under the Plan:

A. Board shall mean the Corporation's Board of Directors.
-----

B. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, or

(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.

C. Code shall mean the Internal Revenue Code of 1986, as amended.
----

D. Committee shall mean the committee of one (1) or more Board
---------
members appointed by the Board to administer the Plan.

E. Common Stock shall mean the Corporation's common stock.
------------

F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.

A-1
<PAGE>

G. Corporation shall mean PSW Technologies, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of PSW Technologies, Inc. which shall by appropriate
action adopt the Plan.

H. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.

I. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

J. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.

K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.

L. Involuntary Termination shall mean the termination of the
-----------------------
Service of any individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or

(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.

A-2
<PAGE>

M. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).

N. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.

O. Non-Statutory Option shall mean an option not intended to
--------------------
satisfy the requirements of Code Section 422.

P. Optionee shall mean any person to whom an option is granted
--------
under the Discretionary Option Grant Program.

Q. Parent shall mean any corporation (other than the Corporation)
------
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

R. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.

S. Plan shall mean the Corporation's 2000 Non-Officer Stock Option/
----
Stock Issuance Plan, as set forth in this document.

T. Plan Administrator shall mean the particular entity, whether the
------------------
Committee or the Board, which is authorized to administer the Plan.

U. Service shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.

V. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.

W. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

X. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.

A-3
<PAGE>

Y. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

Z. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.

A-4

<PAGE>

EXHIBIT 10.25

INDEMNITY AGREEMENT

This Indemnity Agreement, dated as of January 1, 1999, is made by and
between PSW Technologies, Inc., a Delaware corporation (the "Company"), and
[First_Last] (the "Indemnitee").

RECITALS
--------

A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.

B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.

C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.

D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.

E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.

F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to

1
<PAGE>

encourage such individuals to take the business risks necessary for the success
of the Company and its subsidiaries, it is necessary for the Company to
contractually indemnify its directors, officers and agents and the directors,
officers and agents of its subsidiaries, and to assume for itself maximum
liability for expenses and damages in connection with claims against such
directors, officers and agents in connection with their service to the Company
and its subsidiaries, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Company and its
subsidiaries and the Company's stockholders.

G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.

H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.

I. Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.

AGREEMENT
---------

NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

1. Definitions.
-----------

(a) Agent. For the purposes of this Agreement, "agent" of the
-----
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.

(b) Expenses. For purposes of this Agreement, "expenses"
--------
include all out-of-pocket costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in

2
<PAGE>

connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement or
Section 145 or otherwise; provided, however, that "expenses" shall not include
any judgments, fines, ERISA excise taxes or penalties, or amounts paid in
settlement of a proceeding.

(c) Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.

(d) Subsidiary. For purposes of this Agreement, "subsidiary"
----------
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.

2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
------------------
to serve as agent of the Company, at its will (or under separate agreement, if
such agreement exists), in the capacity Indemnitee currently serves as an agent
of the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.

3. Liability Insurance.
-------------------

(a) Maintenance of D&O Insurance. The Company hereby covenants
----------------------------
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.

(b) Rights and Benefits. In all policies of D&O Insurance, the
-------------------
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.

(c) Limitation on Required Maintenance of D&O Insurance.
---------------------------------------------------
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.

3
<PAGE>

4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee as follows:

(a) Successful Defense. To the extent the Indemnitee has been
------------------
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.

(b) Third Party Actions. If the Indemnitee is a person who was
-------------------
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.

(c) Derivative Actions. If the Indemnitee is a person who was or
------------------
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.

(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
------------------------------------
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.

4
<PAGE>

(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) for which payment is actually
made to or on behalf of Indemnitee under a valid and collectible insurance
policy of D&O Insurance, or under a valid and enforceable indemnity clause,
by-law or agreement.

5. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.

6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
---------------------------------
the Company shall advance all expenses incurred by the Indemnitee in connection
with the investigation, defense, settlement or appeal of any proceeding to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.

7. Notice and Other Indemnification Procedures.
-------------------------------------------

(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.

(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently

5
<PAGE>

incurred by the Indemnitee with respect to the same proceeding, provided that
(i) the Indemnitee shall have the right to employ his counsel in any such
proceeding at the Indemnitee's expense; and (ii) if (A) the employment of
counsel by the Indemnitee has been previously authorized by the Company, (B) the
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and the Indemnitee in the conduct of any such
defense, or (C) the Company shall not, in fact, have employed counsel to assume
the defense of such proceeding, then the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.

8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

(a) Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.

(b) Lack of Good Faith. To indemnify the Indemnitee for any
------------------
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c) Unauthorized Settlements. To indemnify the Indemnitee under
------------------------
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.

9. Non-exclusivity. The provisions for indemnification and
---------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.

10. Enforcement. Any right to indemnification or advances granted by
-----------
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a

6
<PAGE>

claim for indemnification is made under this Agreement (other than an action
brought to enforce a claim for expenses pursuant to Section 6 hereof, provided
that the required undertaking has been tendered to the Company) that Indemnitee
is not entitled to indemnification because of the limitations set forth in
Sections 4 and 8 hereof. Neither the failure of the Corporation (including its
Board of Directors or its stockholders) to have made a determination prior to
the commencement of such enforcement action that indemnification of Indemnitee
is proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders) that such indemnification
is improper, shall be a defense to the action or create a presumption that
Indemnitee is not entitled to indemnification under this Agreement or otherwise.

11. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

12. Survival of Rights.
------------------

(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.

(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.

13. Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.

14. Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.

7
<PAGE>

15. Modification and Waiver. No supplement, modification or amendment
-----------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

16. Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

17. Governing Law. This Agreement shall be governed exclusively by and
-------------
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.

The parties hereto have entered into this Indemnity Agreement
effective as of the date first above written.

THE COMPANY:
PSW TECHNOLOGIES, INC.

By \s\ Timothy D. Webb
---------------------------------------
Title President & Chief Executive Officer
------------------------------------
Address: Bldg. 3, Suite 200
6300 Bridgepoint Parkway
Austin, Texas 78730
Attn: General Counsel

INDEMNITEE:

--------------------------------------
[First_Last]
Address: [Address_1]
[Address_2]
[Address_3]
[Address_4]

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
Form S-8 No. 333-28739 pertaining to the 1996 Stock Option/Stock Issuance Plan
and the Employee Stock Purchase Plan of PSW Technologies, Inc., and in the
Registration Statement Form S-8 No. 333-59873 pertaining to the 1996 Stock
Option/Stock Issuance Plan of our report dated January 14, 2000, with respect
to the financial statements of PSW Technologies, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.

/s/ Ernst & Young LLP

Austin, Texas
March 10, 2000

<PAGE>
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