10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

———————

FORM 10-Q

X	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2002
___	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: 000-50058

Portfolio Recovery Associates, Inc.
———————

(Exact name of registrant as specified in its charter)

Delaware	75-3078675
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

120 Corporate Boulevard, Norfolk, Virginia	23502
(Address of principal executive offices)	(zip code)

(888) 772-7326
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ___       NO    X  

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of December 16, 2002
Common Stock, $0.01 par value	13,520,000

PORTFOLIO RECOVERY ASSOCIATES, INC.

INDEX

			Page(s)
PART I.	OTHER INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Position as of			3
		December 31, 2001 and September 30, 2002 (unaudited)
	Consolidated Statements of Operations (unaudited)			4
		Three and nine months ended September 30, 2001 and 2002
	Consolidated Statements of Cash Flows (unaudited)			5
		Nine months ended September 30, 2001 and 2002
		Notes to Consolidated Financial Statements (unaudited)		6-14
Item 2.	Management’s Discussion and Analysis of Financial			15-24
		Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosure About Market Risk			25
Item 4.	Controls and Procedures			25
PART II.	OTHER INFORMATION
Item 2.	Changes in Securities and Use of Proceeds			26
Item 6.	Exhibits and Reports on Form 8-K			26
SIGNATURES				27
CERTIFICATION				28-30
Exhibit 99.1 – Certification Pursuant to 18 U.S.C.Section 1350, as adopted pursuant to                        Section 906 of the Sarbanes-Oxley Act of 2002

2

PORTFOLIO RECOVERY ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 2001 and September 30, 2002
(unaudited)

				December 31,			September 30,
Assets				2001			2002
Cash and cash equivalents				$	4,780,399		$	6,038,306
Finance receivables, net					47,986,744			55,132,522
Property and equipment, net					3,379,576			3,667,102
Other assets					901,789			616,626
		Total assets		$	57,048,508		$	65,454,556
Liabilities and Members’ Equity
Liabilities:
	Accounts payable			$	236,885		$	676,623
	Accrued expenses				614,698			646,348
	Accrued payroll and bonuses				1,674,371			1,861,011
	Revolving lines of credit				25,000,000			25,000,000
	Long-term debt				568,432			1,005,776
	Obligations under capital lease				825,313			582,100
	Interest rate swap contract				377,303			—
		Total liabilities			29,297,002			29,771,858
Equity:
	Members’ equity				28,128,809			35,682,698
	Accumulated other comprehensive income				(377,303	)		—
		Total equity			27,751,506			35,682,698
			Total liabilities and equity	$	57,048,508		$	65,454,556

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

3

PORTFOLIO RECOVERY ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OPERATIONS
For the Three and Nine Months Ended September 30, 2001 and 2002
(unaudited)

			Three Months			Three Months			Nine Months			Nine Months
			Ended			Ended			Ended			Ended
			September 30,			September 30,			September 30,			September 30,
			2001			2002			2001			2002
Revenue:
	Income recognized on finance receivables		$	7,738,955		$	14,703,904		$	22,146,365		$	38,721,711
	Commissions			54,562			520,618			54,562			1,337,055
	Net gain on cash sales of defaulted consumer receivables			459,030			—			754,624			100,156
		Total revenue		8,252,547			15,224,522			22,955,551			40,158,922
Operating expenses:
	Compensation			4,108,143			5,507,580			10,820,050			15,719,635
	Legal, accounting and outside fees and services			939,840			2,197,040			2,500,628			5,438,622
	Communications			486,327			540,158			1,152,353			1,469,611
	Rent and occupancy			190,770			208,712			505,075			571,159
	Other operating expenses			333,794			323,877			848,331			999,448
	Depreciation			175,068			242,616			485,673			676,238
				6,233,942			9,019,983			16,312,110			24,874,713
		Income from operations		2,018,605			6,204,539			6,643,441			15,284,209
Other income and (expense):
	Interest income			14,859			—			60,816			1,699
	Interest expense			(678,417	)		(1,065,776	)		(2,134,794	)		(2,182,489	)
		Net income before extraordinary loss		1,355,047			5,138,763			4,569,463			13,103,419
Extraordinary loss				(231,564	)		—			(231,564	)		—
		Net income	$	1,123,483		$	5,138,763		$	4,337,899		$	13,103,419
Pro forma data (unaudited):
	Historical income before taxes		$	1,123,483		$	5,138,763		$	4,337,899		$	13,103,419
	Pro forma provision for income taxes		$	419,456		$	1,986,387		$	1,619,569		$	5,065,566
Pro forma net income before extraordinary loss			$	849,125		$	3,152,376		$	2,863,428		$	8,037,853
Pro forma extraordinary loss			$	(145,098	)	$	—		$	(145,098	)	$	—
Pro forma net income			$	704,027		$	3,152,376		$	2,718,330		$	8,037,853
Pro forma net income per common share before extraordinary loss
	Basic		$	0.08		$	0.32		$	0.28		$	0.80
	Diluted		$	0.07		$	0.27		$	0.25		$	0.70
Pro forma extraordinary loss per common share
	Basic		$	(0.01	)	$	—		$	(0.01	)	$	—
	Diluted		$	(0.01	)	$	—		$	(0.01	)	$	—
Pro forma net income per common share
	Basic		$	0.07		$	0.32		$	0.27		$	0.80
	Diluted		$	0.06		$	0.27		$	0.24		$	0.70
Pro forma weighted average number of shares outstanding
	Basic			10,000,000			10,000,000			10,000,000			10,000,000
	Diluted			11,484,846			11,496,385			11,449,114			11,489,580

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

4

PORTFOLIO RECOVERY ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2001 and 2002
(unaudited)

					Nine Months			Nine Months
					Ended			Ended
					September 30,			September 30,
					2001			2002
Operating activities:
	Net income				$	4,337,899		$	13,103,419
	Adjustments to reconcile net income to cash provided by operating activities:
		Depreciation and amortization				485,674			676,239
		Gain on sales of finance receivables, net				(754,624	)		(100,156	)
		(Gain)/loss on disposal of property and equipment				(1,766	)		—
		Extraordinary loss on extinguishement of debt				231,564			—
		Changes in operating assets and liabilities:
			Other assets			(712,945	)		285,162
			Accounts payable			217,230			439,738
			Accrued expenses			22,787			31,650
			Accrued payroll and bonuses			159,669			186,639
				Net cash provided by operating activities		3,985,488			14,622,691
Cash flows from investing activities:
	Purchases of property and equipment					(633,727	)		(924,878	)
	Acquisition of finance receivables, net of buybacks					(27,337,115	)		(26,214,185	)
	Collections applied to principal on finance receivables					15,844,710			19,167,807
	Proceeds from sale of finance receivables, net of allowances for returns					5,180,860			756
	Cash restricted for letter of credit					—			—
				Net cash used in investing activities		(6,945,272	)		(7,970,500	)
Cash flows from financing activities:
	Proceeds from capital contributions					—			—
	Distribution of capital					(146,846	)		(5,549,530	)
	Proceeds from lines of credit					27,588,539			—
	Payments on lines of credit					(22,779,775	)		—
	Proceeds from long-term debt					107,000			500,008
	Payments on building loan					(51,869	)		(62,664	)
	Payments of capital lease obligations					(237,156	)		(282,098	)
	Extraordinary loss on extinguishment of debt					—			—
				Net cash provided by financing activities		4,479,893			(5,394,284	)
				Net increase in cash and cash equivalents		1,520,109			1,257,907
Cash and cash equivalents, beginning of period						3,191,479			4,780,399
				Cash and cash equivalents, end of period	$	4,711,588		$	6,038,306
Supplemental disclosure of cash flow information:
	Cash paid for interest				$	2,272,170		$	2,093,814
Noncash investing and financing activities:
	Capital lease obligations incurred					555,168			38,885

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

5

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Organization and Business:
Portfolio Recovery Associates, Inc. was formed in August 2002. On November 8, 2002, Portfolio Recovery Associates, Inc. completed its initial public offering (“IPO”) of common stock. As a result, all of the membership units and warrants of Portfolio Recovery Associates, LLC were exchanged on a one to one basis for warrants and shares of a single class of common stock of Portfolio Recovery Associates, Inc. Portfolio Recovery Associates, Inc. now owns all outstanding membership units of Portfolio Recovery Associates, LLC and PRA Receivables Management, LLC (d/b/a Anchor Receivables Management). Portfolio Recovery Associates, LLC owns all of the membership units of PRA III, LLC, a special purpose borrowing entity, PRA AG Funding, a special purpose borrowing entity, and PRA Holding I, LLC, an entity established to hold real property. Another subsidiary, PRA II, was dissolved immediately prior to the IPO. Portfolio Recovery Associates, LLC, a Delaware limited liability company (“PRA”), and its subsidiaries (collectively, the “Company”) purchase, collect and manage portfolios of defaulted consumer receivables. The defaulted consumer receivables PRA collects are in substantially all cases either purchased from the credit originator or are collected on behalf of clients on a commission fee basis.

The consolidated financial statements of the Company include the accounts of PRA, PRA II, PRA AG Funding, PRA Holding I, Anchor and PRAIII.

The accompanying unaudited financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of the Company, however, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of December 31, 2001 and September 30, 2002, its results of operations for the three and nine-month periods ended September 30, 2001 and 2002, and its cash flows for the nine-month periods ended September 30, 2001 and 2002, respectively. The results of operations of the Company for the three and nine-month periods ended September 30, 2001 and 2002 may not be indicative of future results. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Registration Statement on Form S-1 as amended and effective as of November 6, 2002.

2. Finance Receivables:
The Company accounts for its investment in finance receivables using the interest method under the guidance of Practice Bulletin 6, “Amortization of Discounts on Certain Acquired Loans.” Static pools of relatively homogenous accounts are established. Once a static pool is established, the receivable accounts in the pool are not changed. Each static pool is recorded at cost, and is accounted for as a single unit for the recognition of income, principal payments and loss provision. Income on finance receivables is accrued monthly based on each static pool’s effective interest rate. This interest rate is estimated based on the timing and amount of anticipated cash flows using the Company’s proprietary collection models. Monthly cash flows greater than the interest accrual will reduce the carrying value of the static pool. Likewise, monthly cash flows that are less than the monthly accrual will accrete the carrying balance. Each pool is reviewed monthly and compared to the Company’s models to ensure complete amortization of the carrying balance by the end of each pool’s life.

In the event that cash collections would be inadequate to amortize the carrying balance, an impairment charge would be taken with a corresponding write-off of the receivable balance. Accordingly, we do not maintain an allowance for credit losses.

The agreements to purchase the aforementioned receivables include general representations and warranties from the sellers covering account holder death or bankruptcy, and accounts settled or disputed prior to sale. The representation and warranty period permitting the return of these accounts from the Company to the seller is typically 90 to 180 days.

6

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Changes in finance receivables for the year ended December 31, 2001 and the nine months ended September 30, 2002 were as follows:

		Year			Nine Months
		Ended			Ended
		December 31,			September 30,
		2001			2002
Balance at beginning of period		$	41,124,377		$	47,986,744
Acquisitions of finance receivables, net of buybacks			33,491,211			26,314,185
Cash collections			(53,147,672	)		(57,889,518	)
Income recognized on finance receivables			31,220,857			38,721,711
	Cash collections applied to principal		(21,926,815	)		(19,167,807	)
Cost of finance receivables sold, net of allowance for returns			(4,702,029	)		(600	)
Balance at end of period		$	47,986,744		$	55,132,522
Estimated Remaining Collections (“ERC”)		$	117,022,955		$	177,819,445

At the time of acquisition, the life of each pool is generally set at between 60 and 72 months based upon the proprietary models of the Company. As of September 30, 2002 the Company has $55,132,522 in finance receivables included in the Statement of Financial Position. Based upon current projections, cash collections applied to principal will be as follows for the twelve months in the periods ending:

September 30, 2003	$	15,499,571
September 30, 2004		13,183,518
September 30, 2005		12,356,765
September 30, 2006		9,868,031
September 30, 2007		3,903,761
September 30, 2008		318,808
September 30, 2009		2,068

7

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

3. Revolving Lines of Credit:

	December 31,		September 30,
	2001		2002
Line of credit with commercial lender, originated September 2001, collateralized by all receivables, collections on receivables and assets of PRAIII, LLC ; expires on September 15, 2005; interest is based on LIBOR and was 6.25% and 6.17% at December 31, 2001 and September 30, 2002, respectively; total credit available $40 million	$	25,000,000	$	25,000,000
	$	25,000,000	$	25,000,000

On September 18, 2001, PRA III arranged with a commercial lender to provide financing under a revolving line of credit of up to $40 million. The initial draw of $20 million was utilized to facilitate the purchase of all finance receivable portfolios from PRA and PRA II. PRA then used those funds to terminate an existing line of credit agreement. An additional $5 million was drawn in the initial funding to purchase additional portfolios from third parties in the normal course of business. Restrictive covenants under this agreement include:

• restrictions on monthly borrowings in excess of $4 million per month and quarterly borrowings in excess of $10 million;

• a maximum leverage ratio of not greater than 4 to 1 and net income of at least $0.01, calculated on a consolidated basis;

• a restriction on distributions in excess of 75% of our net income for any year;

• compliance with certain special purpose vehicle and corporate separateness covenants; and

• restrictions on change of control.

As of September 30, 2002 the Company is in compliance with all of the covenants of this agreement. Upon consummation of the reorganization discussed in Note 10, a waiver would have been required in order to remain in compliance with the terms of the agreement. Instead of obtaining a waiver, the indebtedness outstanding under this facility was paid off on November 14, 2002 with proceeds obtained from the Company’s IPO.

The Company has reached an agreement in principle with its lender to modify the terms of the loan agreement in keeping with the Company’s reduced borrowing needs following the IPO. Modifications include a reduction in the facility size from $40 million to $25 million, a $75,000 modification fee, a reduction in the borrowing spread, a reduction in certain monthly fees, and an increase in the facility’s non-use fee when the amount outstanding is less than $10 million.

On December 30, 1999, the Company entered into a $12.5 million credit agreement with AG PRA 1999 Funding Co., (“AG 1999”), that expired on June 30, 2002. AG 1999 is owned by affiliates of Angelo, Gordon & Co., the Company’s majority stockholder, and certain members of PRA management. Terms of the credit agreement included the possibility of AG 1999 earning contingent interest. Over the term of the agreement, the Company borrowed $6.6 million. In December 2001, the Company repaid all outstanding loans under this agreement and incurred an expense of $300,000 to extinguish the contingent interest provision. The Company incurred interest expense related to the agreement of $358,836 during the nine months ended September 30, 2001. In addition, in accordance with the agreement the management committee of PRA granted AG 1999 warrants to purchase 125,000 membership units of PRA which were immediately exercisable for $3.60 per unit. The agreement discussed above was entered into after arms’ length negotiations between the related party and the Company.

8

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In addition, PRA AG Funding, LLC maintains a $2.5 million revolving line of credit, with RBC Centura Bank which extends through July 2003. The line of credit bears interest at a spread over LIBOR. The terms of this agreement require that PRA maintain a current ratio of 1.6:1.0 or greater, the current ratio being defined to include finance receivables as a current asset and to include the credit facility in place as of September 30, 2002 as a current liability. The agreement further requires that PRA maintain a debt to tangible net worth ratio of 1.5:1.0 or less and a minimum balance sheet cash position at month end of $2 million. Distributions are limited under the terms of the facility to 75% of net income. PRA is in full compliance with these covenants. This $2.5 million facility had no amounts outstanding as of September 30, 2002.

4. Property and Equipment:
Property and equipment, at cost, consist of the following as of the dates indicated::

		December 31,			September 30,
		2001			2002
Software		$	1,036,172		$	1,262,208
Computer equipment			1,130,786			1,357,977
Furniture and fixtures			848,901			923,186
Equipment			640,574			991,653
Leasehold improvements			277,469			290,080
Building and improvements			1,057,643			1,130,147
Land			100,515			100,515
	Less accumulated depreciation		(1,712,484	)		(2,388,664	)
Net property and equipment		$	3,379,576		$	3,667,102

5. Hedging Activity:
During 2001, the Company entered into an interest rate swap for the purpose of managing exposure to fluctuations in interest rates related to variable rate financing. The interest rate swap effectively fixed the interest rate on $10 million of the Company’s outstanding debt. The swap required payment or receipt of the difference between a fixed rate of 5.33% and a variable rate of interest based on 1-month LIBOR. The unrealized gains and losses associated with the change in market value of the interest rate swap are recognized as other comprehensive income. This swap transaction, which was to expire in May 2004, was paid in full and terminated in September 2002.

The only expenses incurred related to the swap agreement were interest expenses of $51,981 and $792,047 for the nine months ending September 30, 2001 and 2002, respectively. The interest paid in 2002 represents monthly interest plus the final extinguishment amount of $541,762. The net interest payments are a component of “Interest Expense” on the income statement and a reduction of net income in the cash flow statement.

6. Long-Term Debt:
In July 2000, the Company purchased a building in Hutchinson, Kansas. The building was financed with a commercial loan for $550,000 with a variable interest rate based on LIBOR. This commercial loan is collateralized by the real estate in Kansas. Interest rates varied between 6.09% and 9.26% in the first nine months of 2001 and 4.08% and 4.47% in the first nine months of 2002. Monthly principal payments on the loan are $4,583 for an amortized term of 10 years. A balloon payment of $275,000 is due July 21, 2005, which results in a five-year principal payout. The loan matures July 21, 2005.

On February 9, 2001, the Company purchased a generator for its Norfolk location. The generator was financed with a commercial loan for $107,000 with a fixed rate of 7.9%. This commercial loan is collateralized by the generator. Monthly payments on the loan are $2,170 and the loan matures on February 1, 2006.

9

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

On February 20, 2002, the Company completed the construction of a satellite parking lot at its Norfolk location. The parking lot was financed with a commercial loan for $500,000 with a fixed rate of 6.47%. The loan is collateralized by the parking lot. The loan required only interest payments during the first six months. Beginning October 1, 2002, monthly payments on the loan are $9,797 and the loan matures on September 1, 2007.

Annual payments including interest on all loans outstanding as of September 30, 2002 are as follows:

2002		$	69,814
2003			219,090
2004			216,248
2005			465,455
2006			121,905
2007 and beyond			88,174
			1,180,686
Less amount representing interest			(174,910	)
	Principal due	$	1,005,776

Under each of the commercial loans discussed above, the Company is subject to certain covenants, the most restrictive of which include minimum net worth requirements and the maintenance of certain financial ratios. As of December 31, 2001 and September 30, 2002 the Company was in compliance with all such debt covenants.

7. Members’ Equity:
As a result of our IPO on November 8, 2002, the Company issued 3,470,000 shares of stock at a public offering price of $13.00 per share, resulting in net proceeds to us of $12.09 per share. In addition, another 1,015,000 shares were sold by a non-employee stockholder, PRA Investments, LLC, which did not result in any additional proceeds being received by the Company. Immediately following the IPO, the Company had 13,470,000 shares outstanding, not including any shares issued for reserved options or warrants. The IPO resulted in all outstanding units of Portfolio Recovery Associates, LLC, and all outstanding warrants to acquire units of Portfolio Recovery Associates, LLC being exchanged for shares and options in Portfolio Recovery Associates, Inc. on a one to one basis.

Prior to the IPO on November 8, 2002, there were two classes of members in PRA: operating members and capital members. On April 6, 1999, PRA amended and restated its limited liability company operating agreement (the “Agreement”), to authorize the issuance of 20,000,000 membership units. From December 31, 1999 until the IPO, 10,000,000 membership units were outstanding of which the capital members owned 8,797,000 (87.97%) membership units of the business, while the operating members owned the remaining 1,203,000 (12.03%) membership units. Allocations and distributions of profits and losses were based on the aforementioned percentages.

In accordance with the Agreement, the PRA management committee was authorized to issue warrants to partners, employees or vendors to purchase membership units. Generally, warrants granted had a term between 5 and 7 years and vest within 3 years. Warrants have been issued at or above the fair market value on the date of grant. Warrants vest and expire according to terms established at the grant date.

10

The following summarizes all warrant related transactions from January 1, 1999 through September 30, 2002:

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

				Weighted
				Average
	Warrants			Exercise
	Outstanding			Price
January 1, 1999		—		$	—
Granted		2,325,000			4.17
Exercised		—			—
Cancelled		—			—
December 31, 1999		2,325,000			4.17
Granted		65,000			4.20
Exercised		—			—
Cancelled		(230,000	)		4.20
December 31, 2000		2,160,000			4.17
Granted		155,000			4.20
Exercised		—			—
Cancelled		(120,000	)		4.20
December 31, 2001		2,195,000			4.17
Granted		50,000			10.00
Exercised		—			—
Cancelled		(10,000	)		4.20
September 30, 2002		2,235,000		$	4.30

At September 30, 2002, the Company had exercisable warrants outstanding of 2,066,667. All but 205,000 were issued to employees and operating members of PRA. Of the 205,000 issued to non-employees, 125,000 were issued to AG 1999 (see Note 3) and 80,000 were issued and vested to SMR Research Corporation, a vendor of the Company in connection with a business agreement to utilize certain software. All of the warrants vest in 3 years except for the 80,000 warrants granted to SMR Research Corporation in 1999 of which 20,000 vested immediately and 60,000 were vested in the following year and the 125,000 warrants granted to AG 1999 in 1999 which vested immediately. During the nine months ended September 30, 2002, 50,000 warrants were granted which vest 15,000 in one year, 10,000 in each of the 3 subsequent years and 5,000 based on performance which is expected to occur in the first year. The majority of outstanding warrants will vest at the IPO, however, the total number of warrants that will not vest is 125,000; 75,000 of which were granted in 2001 and 50,000 of which were granted in 2002. For the warrants that accelerate due to the IPO discussed in Note 10, a pro forma expense of $15,000 will be incurred in fiscal 2002, instead of 2003 and 2004 which would have been prescribed under the normal vesting schedule in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). These accelerated warrants will be treated under APB 25 as they were granted under that accounting principle. All warrants and stock options issued in 2002 and later will be accounted for under SFAS No. 123, “Accounting for Stock Based Compensation”, (“SFAS 123”).

The warrants issued to AG 1999 and SMR Research Corporation would be convertible into capital member units and all other warrants would be convertible into operating member units.

11

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The following information is as of September 30, 2002:

		Warrants Outstanding						Warrants Exercisable
				Weighted-
				Average		Weighted-				Weighted-
				Remaining		Average				Average
Exercise		Number		Contractual		Exercise		Number		Exercise
Prices		Outstanding		Life		Price		Exercisable		Price
$	4.20		2,060,000		3.69	$	4.20		1,941,667	$	4.20
$	3.60		125,000		2.75	$	3.60		125,000	$	3.60
$	10.00		50,000		5.95	$	10.00		—	$	10.00
Total at 09/30/02			2,235,000		3.69	$	4.30		2,066,667	$	4.16

Prior to November 8, 2002, the Company applied APB 25 in accounting for stock based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income for warrants granted at or above fair value to warrants issued prior to the IPO. In connection with the IPO, the Company adopted SFAS 123, and it will be applied prospectively to all granted warrants and stock options. This accounting standard must be adopted as of the beginning of the Company’s fiscal year, which is January 1.

Had compensation cost for warrants granted under the Agreement been determined pursuant to SFAS 123, the Company’s net income would have decreased. Using a fair-value (minimum value calculation), the following assumptions were used:

Warrants issue year:		1999		2000		2001		2002
Expected life from vest date (in years):
	Employees	0.00		0.00		4.00		3.00
	Operating members	6.00		5.00		0.00		0.00
Risk-free interest rates		5.37%-6.47	%	6.30	%	4.66%-4.77	%	4.53	%
Volatility		N/A		N/A		N/A		N/A
Dividend yield		N/A		N/A		N/A		N/A

The fair value model utilizes the risk-free interest rate at grant with an expected exercise date sometime in the future generally assuming an exercise date in the first half of 2005. In addition, warrant valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Prior to our IPO, the Company’s warrants had characteristics significantly different from those of traded warrants, and changes in the subjective input assumptions can materially affect the fair value estimate. Based upon the above assumptions, the weighted average fair value of employee warrants granted during the nine months ended September 30, 2001 and 2002 was $0.35 and $1.24, respectively.

For purposes of pro forma disclosures, the estimated fair value of the warrants is amortized over the warrants’ vesting period. Had the Company’s warrants been accounted for under SFAS 123, net income would have been reduced to the following pro forma amounts for the nine months ended September 30, 2001 and 2002:

Net income:		2001		2002
As reported	$	4,337,899	$	13,103,419
Pro forma	$	4,329,542	$	13,090,151

12

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Effective December 30, 1999, PRA’s management committee issued warrants to acquire 125,000 membership units to an affiliate of Angelo, Gordon & Co. (see Note 3). The warrants immediately vested and are exercisable at $3.60 per unit. The warrants are exercisable in whole or in part and expire March 31, 2005. As these warrants are not issued as compensation to an employee or operating member of the Company, an expense of $15,362 and $10,241 was incurred and recognized during the nine months ended September 30, 2001 and 2002, respectively. The value of the warrants was calculated using the fair value approach as designated by SFAS 123 which utilizes a comparison of the discounted value of the underlying units discounted using a risk-free interest rate at the date of grant.

Effective August 18, 1999, PRA’s management committee issued warrants to acquire 200,000 membership units to SMR Research Corporation. The warrants were to vest over a 60 month period and are exercisable at $4.20 per unit. The warrants vested as to 80,000 membership units and the remaining 120,000 membership units were cancelled upon the termination of an agreement between the Company and SMR Research Corporation. The value of the warrants was calculated using the intrinsic method and no expense was recognized on these warrants. The fair value approach was then applied, as designated by SFAS 123, which utilizes a comparison of the discounted value of the underlying units discounted using a risk-free interest rate at the date of grant, these warrants were shown to have a negative present value and as such no expense has been recorded.

8. Operating Member Agreement:
These operating member agreements will be terminated effective as of the date of the IPO and replaced with employment agreements as discussed in Note 9. Prior to the IPO, the operating member agreement detailed each operating member’s contribution to the Company. It also sets forth criteria necessary to maintain the Company’s status as a limited liability company. Additionally, it describes a special discount, which will be applied if an operating member leaves the Company within two years of the commencement date. At September 30, 2002 there were six operating members, two of whom were designated as operating managers.

9. Contingencies and Commitments:
Employment Agreements:
The Company has employment agreements with each of its operating members, the terms of which expire on December 31, 2002 or December 31, 2004. Such agreements provide for base salary payments as well as bonuses which are based on the attainment of specific management goals. Remaining compensation under these agreements is approximately $1,753,501. The agreements also contain confidentiality and non-compete provisions. Replacement employment agreements are in the process of being finalized.

Leases:
The Company is party to various operating and capital leases with respect to its facilities and equipment. Please refer to the Company’s consolidated financial statements and notes thereto in the Company’s Registration Statement on Form S-1, as amended as filed with the Securities and Exchange Commission for discussion of these leases. Effective November 13, 2002, the Company reached an agreement to lease a property for the opening of another call center. The terms of the lease are for seven years and four months commencing in the first quarter of 2003 with an annual escalation of 3.5% over the monthly base rent. This new call center is located in Hampton, Virginia.

Litigation:
The Company is from time to time subject to routine litigation incidental to its business. The Company believes that the results of any pending legal proceedings will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company.

10. Subsequent Event:

Initial Public Offering:
PRA completed an offering of its common stock for sale in the IPO on November 8, 2002. At the completion of the IPO, PRA is treated as a C corporation under the Internal Revenue Code and is subject to corporate income taxes. Accordingly, a pro forma income tax provision for corporate income taxes has been calculated as if PRA was taxable as a C corporation for all periods presented.

13

PORTFOLIO RECOVERY ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In August 2002 PRA formed a new Delaware corporation, Portfolio Recovery Associates, Inc., (“PRA Inc.”). Immediately prior to the IPO the former members of PRA exchanged their membership units of PRA for common stock of PRA Inc. and owned all of the issued and outstanding shares of PRA Inc. which owns all of the outstanding membership units of PRA, immediately prior to the IPO. Each capital or operating member unit was exchanged for one share of common stock. Prior to this exchange transaction, PRA Inc. did not conduct any business and had no assets or liabilities. The legal name of Portfolio Recovery Associates, Inc. has been retroactively applied to all periods presented in these financial statements.

In connection with the IPO, the Company dissolved PRA II, LLC immediately prior to the IPO on November 7, 2002. PRA II, LLC had no assets or liabilities.

11. Pro Forma Net Income:
The Company presented pro forma tax information assuming they have been a taxable corporation since inception and assuming tax rates equal to the rates that would have been in effect had they been required to report income tax expense in such years. The Company’s pro forma income tax expense comprised of the following components for the three and nine months ended September 30, 2001 and 2002:

		Three Months			Three Months		Nine Months			Nine Months
		Ended			Ended		Ended			Ended
		September 30,			September 30,		September 30,			September 30,
		2001			2002		2001			2002
Income Tax Reconciliation:
	Federal tax at statutory rate	$	381,984		$	1,774,659	$	1,474,886		$	4,525,233
	Non-deductible expense		1,308			4,980		5,051			14,423
	State income tax, net of federal benefit		45,323			206,748		174,998			525,910
	State tax credit, net of federal benefit		(9,159	)		—		(35,366	)		—
Total		$	419,456		$	1,986,387	$	1,619,569		$	5,065,566

Included in the pro-forma income tax expense were state tax credits actually earned by the Company in connection with our Kansas operations.

	Three Months		Three Months		Nine Months		Nine Months
	Ended		Ended		Ended		Ended
	September 30,		September 30,		September 30,		September 30,
	2001		2002		2001		2002
Basic pro forma net income	$	704,027	$	3,152,376	$	2,718,330	$	8,037,853
Weighted average shares outstanding		10,000,000		10,000,000		10,000,000		10,000,000
Basic pro forma net income per share	$	0.07	$	0.32	$	0.27	$	0.80
Effect of diluted warrants outstanding		1,484,846		1,496,385		1,449,114		1,489,580
Diluted weighted average shares outstanding		11,484,846		11,496,385		11,449,114		11,489,580
Diluted pro forma net income per share	$	0.06	$	0.27	$	0.24	$	0.70

14

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

Cautionary Statements Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:

• changes in the business practices of credit originators in terms of selling defaulted consumer receivables or outsourcing defaulted consumer receivables to third-party contingent fee collection agencies;

• changes in government regulations that affect the Company’s ability to collect sufficient amounts on its acquired or serviced receivables;

• the Company’s ability to employ and retain qualified employees, especially collection personnel;

• changes in the credit or capital markets, which affect the Company’s ability to borrow money or raise capital to purchase or service defaulted consumer receivables;

• the degree and nature of our competition; and

• the risk factors listed from time to time in the Company’s filings with the Securities and Exchange Commission.

15

Results of Operations

     The following table sets forth certain operating data in dollars and as a percentage of total revenue for the periods indicated:

			Three Months			Three Months			Nine Months			Nine Months
			Ended			Ended			Ended			Ended
			September 30,			September 30,			September 30,			September 30,
			2001			2002			2001			2002
Revenue:
	Income recognized on finance receivables			93.8	%		96.6	%		96.5	%		96.4	%
	Commissions			0.7	%		3.4	%		0.2	%		3.3	%
	Net gain on cash sales of defaulted consumer receivables			5.5	%		0.0	%		3.3	%		0.3	%
		Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
	Compensation			49.8	%		36.2	%		47.2	%		39.1	%
	Legal, accounting and outside fees and services			11.4	%		14.4	%		10.9	%		13.5	%
	Communications			5.9	%		3.5	%		5.0	%		3.7	%
	Rent and occupancy			2.3	%		1.4	%		2.2	%		1.4	%
	Other operating expenses			4.0	%		2.1	%		3.7	%		2.5	%
	Depreciation			2.1	%		1.6	%		2.1	%		1.7	%
Total operating expenses				75.5	%		59.2	%		71.1	%		61.9	%
Income from operations				24.5	%		40.8	%		28.9	%		38.1	%
Interest income				0.2	%		0.0	%		0.3	%		0.0	%
Interest expense				8.2	%		7.0	%		9.3	%		5.4	%
Net income before extraordinary loss				16.5	%		33.8	%		19.9	%		32.7	%
Extraordinary loss				2.8	%		0.0	%		1.0	%		0.0	%
Net income				13.7	%		33.8	%		18.9	%		32.7	%
Pro forma net income				8.5	%		20.7	%		11.8	%		20.0	%

(1) During the periods presented the Company was structured as a limited liability company. As a limited liability company the Company was not subject to Federal or state corporate income taxes. For comparison purposes, the Company has presented pro forma net income, which reflects income taxes assuming the Company had been a corporation since the time of its formation and assuming tax rates equal to the rates that would have been in effect had the Company been required to report tax expense in such years.

Three Months Ended September 30, 2002 Compared To Three Months Ended September 30, 2001

Revenue

     Total revenue was $15.2 million for the three months ended September 30, 2002, an increase of $6.9 million or 83.1% compared to total revenue of $8.3 million for the three months ended September 30, 2001.

Income Recognized on Finance Receivables

Income recognized on finance receivables was $14.7 million for the three months ended September 30, 2002, an increase of $7.0 million or 90.9% compared to income recognized on finance receivables of $7.7 million for the three months ended September 30, 2001. The majority of the increase was due to an increase in the Company’s cash collections on its owned defaulted consumer receivables to $20.7 million from $14.3 million, an increase of 44.8%. In the second half of 2001 and continuing into 2002, the Company has experienced an acceleration of the increase in our collector productivity resulting in an accelerating out performance in cash collections compared to projections. This out performance has led to lower amortization rates as our projected multiple of cash collections to purchase price has increased. The Company’s amortization rate on owned portfolio for the three months ended September 30, 2001 was 46.8% while for the three months ended September 30, 2002 it was 29.0%. During the three months ended September 30, 2002, the Company acquired defaulted consumer receivables portfolios with an aggregate face value amount of $342.1 million at a cost of $10.1 million. During the three months ended September 30, 2001, the Company acquired defaulted consumer receivable portfolios with an aggregate face value of $549.6 million at a cost

16

of $15.0 million (inclusive of purchases subsequently sold; please see Net gain on cash sales of defaulted consumer receivables). The Company’s relative cost of acquiring defaulted consumer receivable portfolios increased from 2.72% of face value for the three months ended September 30, 2001 to 2.95% of face value for the three months ended September 30, 2002.

Commissions

     Commissions paid to the Company as a result of our contingent fee collection activities were $521,000 for the three months ended September 30, 2002, an increase of $466,000 or 847.3% compared to commissions of $55,000 for the three months ended September 30, 2001. Commissions increased as business volume increased substantially in the Company’s contingent fee collection business as a result of increased account placements and collections.

Net gain on cash sales of defaulted consumer receivables

     Net gain on cash sales of defaulted consumer receivables were $0 for the three months ended September 30, 2002, a decrease of $459,000 compared to net gain on cash sales of defaulted consumer receivables of $459,000 for the three months ended September 30, 2001. During September 2001, the Company completed a back to back purchase-sale transaction of $4.4 million gross including a net gain on the sale of $0.4 million. The Company purchased the accounts for $4.0 million and immediately transferred them to the buying entity.

Operating Expenses

     Total operating expenses were $9.0 million for the three months ended September 30, 2002, an increase of $2.8 million or 45.2% compared to total operating expenses of $6.2 million for the three months ended September 30, 2001. Total operating expenses, including compensation expenses, were 43.5% of cash collections for the three months ended September 30, 2002 compared with 43.4% for the same period in 2001.

Compensation

     Compensation expenses were $5.5 million for the three months ended September 30, 2002, an increase of $1.4 million or 34.1% compared to compensation expenses of $4.1 million for the three months ended September 30, 2001. Compensation expenses increased as total employees grew to 568 at September 30, 2002 from 481 at September 30, 2001. Compensation expenses as a percentage of cash collections decreased to 26.6% for the three months ended September 30, 2002 from 28.7% of cash collections for the same period in 2001.

Legal, Accounting and Outside Fees and Services

     Legal, accounting and outside fees and services expenses were $2.2 million for the three months ended September 30, 2002, an increase of $1.3 million or 144.4% compared to legal, accounting and outside fees and services expenses of $0.9 million for the three months ended September 30, 2001. The increase was attributable to the increased cash collections resulting from the increased number of accounts referred to independent contingent fee attorneys. This increase is consistent with the growth the Company experienced in its portfolio of defaulted consumer receivables, and a portfolio management strategy shift implemented in mid 2002. This strategy resulted in the Company referring to the legal suit process previously unsuccessfully liquidated accounts that have an identified means of repayment but that are nearing their legal statute of limitations.

Communications

     Communications expenses were $540,000 for the three months ended September 30, 2002, an increase of $54,000 or 11.1% compared to communications expenses of $486,000 for the three months ended September 30, 2001. The increase was attributable to growth in mailings and higher telephone expenses incurred to collect on a greater number of defaulted consumer receivables owned and serviced. Mailings were responsible for 53.5% of this increase, while the remaining 46.5% is attributable to higher telephone expenses.

17

Rent and Occupancy

     Rent and occupancy expenses were $209,000 for the three months ended September 30, 2002, an increase of $18,000 or 9.4% compared to rent and occupancy expenses of $191,000 for the three months ended September 30, 2001. The increase was attributable to increased leased space related to a storage facility, an off-site administrative and mail handling site and contractual increases in annual rental rates. The new storage facility accounted for $1,800 of the increase and the administrative/mail site accounted for $5,400 of the increase. The remaining increase was attributable to contractual increases in annual rental rates.

Other Operating Expenses

     Other operating expenses were $324,000 for the three months ended September 30, 2002, a decrease of $10,000 or 3.0% compared to other operating expenses of $334,000 for the three months ended September 30, 2001. The decrease was due to changes in taxes, fees and licenses, travel and meals and miscellaneous expenses. Taxes, fees and licenses were increased by $19,000, travel and meals increased by $20,000 and miscellaneous expenses decreased by $49,000.

Depreciation

     Depreciation expenses were $243,000 for the three months ended September 30, 2002, an increase of $68,000 or 38.9% compared to depreciation expenses of $175,000 for the three months ended September 30, 2001. The increase was attributable to continued capital expenditures on equipment, software and computers related to our continued growth.

Interest Income

     Interest income was $0 for the three months ended September 30, 2002, a decrease of $15,000 compared to interest income of $15,000 for the three months ended September 30, 2001. This decrease is the result of the termination of the bank account sweep.

Interest Expense

     Interest expense was $1.1 million for the three months ended September 30, 2002, an increase of $0.4 million or 57.1% compared to interest expense of $0.7 million for the three months ended September 30, 2001. This increase is primarily the result of the termination of the interest rate swap agreement for a payment of $542,000 in September 2002.

Nine Months Ended September 30, 2002 Compared To Nine Months Ended September 30, 2001

Revenue

     Total revenue was $40.2 million for the nine months ended September 30, 2002, an increase of $17.2 million or 74.8% compared to total revenue of $23.0 million for the nine months ended September 30, 2001.

Income Recognized on Finance Receivables

Income recognized on finance receivables was $38.7 million for the nine months ended September 30, 2002, an increase of $16.6 million or 75.1% compared to income recognized on finance receivables of $22.1 million for the nine months ended September 30, 2001. The majority of the increase was due to an increase in the Company’s cash collections on its owned defaulted consumer receivables to $57.9 million from $38.0 million, an increase of 52.4%. In the second half of 2001 and continuing into 2002, the Company has experienced an acceleration of the increase in our collector productivity resulting in an accelerating out performance in cash collections compared to projections. This out performance has led to lower amortization rates as our projected multiple of cash collections to purchase price has increased. The Company’s amortization rate on owned portfolio for the nine months ended September 30, 2001 was 41.7% while for the nine months ended September 30, 2002 it was 33.1%. During the nine months ended September 30, 2002, the Company acquired defaulted consumer receivables portfolios with an aggregate face value amount of $930.1 million at a cost of $26.4 million. During the nine months ended September 30, 2001, the Company acquired defaulted consumer receivable portfolios with an aggregate face value of $1,340.2 million at a

18

cost of $27.2 million (inclusive of purchases subsequently sold; please see Net gain on cash sales of defaulted consumer receivables). The Company’s relative cost of acquiring defaulted consumer receivable portfolios increased from 2.02% of face value for the nine months ended September 30, 2001 to 2.83% of face value for the nine months ended September 30, 2002 due to a modest shift in its account buying to include more “fresh”, relatively higher priced accounts.

Commissions

     Commissions paid to the Company as a result of our contingent fee collection activities were $1.3 million for the nine months ended September 30, 2002, an increase of $1.3 million or more than twentyfold compared to commissions of $55,000 for the nine months ended September 30, 2001. This increase is a result of the commencement of the Company’s contingent fee collection operations in March 2001 and its subsequent growth during late 2001 and 2002.

Net gain on cash sales of defaulted consumer receivables

     Net gain on cash sales of defaulted consumer receivables were $100,000 for the nine months ended September 30, 2002, a decrease of $655,000 or 86.8% compared to net gain on cash sales of defaulted consumer receivables of $755,000 for the nine months ended September 30, 2001. The majority of this change is due to a back to back purchase-sale transaction of $4.4 million gross including a net gain on the sale of $0.4 million during September 2001. The Company purchased the accounts for $4.0 million and immediately transferred them to the buying entity. The remaining change is the result of eleven small sales in 2001 versus one sale in 2002.

Operating Expenses

     Total operating expenses were $24.9 million for the nine months ended September 30, 2002, an increase of $8.6 million or 52.8% compared to total operating expenses of $16.3 million for the nine months ended September 30, 2001. Total operating expenses, including compensation expenses, were 43.0% of cash collections for the nine months ended September 30, 2002 compared with 42.9% for the same period in 2001.

Compensation

     Compensation expenses were $15.7 million for the nine months ended September 30, 2002, an increase of $4.9 million or 45.4% compared to compensation expenses of $10.8 million for the nine months ended September 30, 2001. Compensation expenses increased as total employees grew to 568 at September 30, 2002 from 481 at September 30, 2001. Compensation expenses as a percentage of cash collections decreased to 27.1% for the nine months ended September 30, 2002 from 28.4% of cash collections for the same period in 2001.

Legal, Accounting and Outside Fees and Services

     Legal, accounting and outside fees and services expenses were $5.4 million for the nine months ended September 30, 2002, an increase of $2.9 million or 116.0% compared to legal, accounting and outside fees and services expenses of $2.5 million for the nine months ended September 30, 2001. The increase was attributable to the increased cash collections resulting from the increased number of accounts referred to independent contingent fee attorneys. This increase is consistent with the growth the Company experienced in its portfolio of defaulted consumer receivables, and a portfolio management strategy shift implemented in mid 2002. This strategy resulted in the Company referring to the legal suit process previously unsuccessfully liquidated accounts that have an identified means of repayment but that are nearing their legal statute of limitations.

Communications

     Communications expenses were $1.5 million for the nine months ended September 30, 2002, an increase of $0.3 million or 25.0% compared to communications expenses of $1.2 million for the nine months ended September 30, 2001. The increase was attributable to growth in mailings and higher telephone expenses incurred to collect on a greater number of defaulted consumer receivables owned and serviced. Mailings were responsible for 68.9% of this increase, while the remaining 31.1% is attributable to higher telephone expenses.

19

Rent and Occupancy

     Rent and occupancy expenses were $571,000 for the nine months ended September 30, 2002, an increase of $66,000 or 13.1% compared to rent and occupancy expenses of $505,000 for the nine months ended September 30, 2001. The increase was attributable to increased leased space related to storage facilities and the administrative/mail site and contractual increases in annual rental rates. The new storage facility accounted for $1,800 of the increase and the administrative/mail site accounted for $5,400 of the increase. The remaining increase was attributable to contractual increases in annual rental rates.

Other Operating Expenses

     Other operating expenses were $1.0 million for the nine months ended September 30, 2002, an increase of $0.2 million or 25.0% compared to other operating expenses of $0.8 million for the nine months ended September 30, 2001. The increase was due to increases in taxes, fees and licenses, travel and meals and miscellaneous expenses. Taxes, fees and licenses were responsible for $62,000 of this increase, travel and meals were responsible for $68,000 of this increase and miscellaneous expenses were responsible for the remaining $70,000 of this increase.

Depreciation

     Depreciation expenses were $676,000 for the nine months ended September 30, 2002, an increase of $190,000 or 39.1% compared to depreciation expenses of $486,000 for the nine months ended September 30, 2001. The increase was attributable to continued capital expenditures on equipment, software, and computers related to our continued growth.

Interest Income

     Interest income was $2,000 for the nine months ended September 30, 2002, a decrease of $59,000 or 96.7% compared to interest income of $61,000 for the nine months ended September 30, 2001. This decrease is the result of the termination of the bank account sweep.

Interest Expense

     Interest expense was $2.2 million for the nine months ended September 30, 2002, an increase of $0.1 million or 4.8% compared to interest expense of $2.1 million for the nine months ended September 30, 2001. This increase occurred mainly as a result of the termination of the swap agreement for a payment of $542,000.

20

Supplemental Performance Data

Owned Portfolio Performance:

The following table groups our portfolio buying activity by year, showing the purchase price, actual cash collections and estimated remaining cash collections as of September 30, 2002.

Cash Collections Per Purchase Period
Annual Analysis

$ in thousands (as of 9/30/2002)

Purchase		Purchase Price		Cash		Estimated		Total		Forecast
Period		(000’s omitted)		Collections		Remaining		Forecast		Collections to
				(000's omitted)		Collections		Collections		Purchase Price
	1996	$	3,080	$	8,495	$	302	$	8,797		285.62	%
	1997	$	7,685	$	19,605	$	1,878	$	21,483		279.56	%
	1998	$	11,122	$	25,387	$	4,329	$	29,716		267.17	%
	1999	$	18,910	$	38,454	$	14,594	$	53,048		280.53	%
	2000	$	25,051	$	41,921	$	30,895	$	72,816		290.67	%
	2001	$	33,252	$	40,693	$	59,868	$	100,561		302.42	%
	2002	$	26,559	$	8,248	$	65,953	$	74,201		279.38	%
	Total	$	125,659	$	182,803	$	177,819	$	360,622		286.99	%

When the Company acquires a new pool of finance receivables, a sixty to seventy-two month projection of cash collections is created. The following chart shows the Company’s actual cash collections in relation to the aggregate of those original cash collection projections made at time of each respective pool purchase. Results are shown through September 30, 2002

Actual Cash Collections vs. Original Projections

The chart above includes cash collections from all sources, includes sales of finance receivables.

21

Owned Portfolio Personnel Performance:

The Company measures the productivity of each collector each month, breaking results into groups of similarly tenured collectors. The following three tables display various productivity measures tracked by the Company.

Headcount by Tenure
Collector FTE at:	12/31/99		12/31/00		12/31/01		9/30/02
One year + 1		44		109		151		187
Less than one year 2		158		180		218		187
Total 2		202		289		369		374

¹   Calculated based on actual employees (collector headcount) with one year of service or more

²   Calculated using total hours paid to produce a full time equivalent “FTE”

Cash Collections by Tenure1
Average performance YTD	12/31/99		12/31/00		12/31/01		9/30/02
One year + 2	$	12,906	$	14,081	$	15,205	$	17,187
Less than one year 3		7,153		7,482		7,740		9,130

¹   Cash collection numbers include only accounts assigned to collectors. Significant cash collections do occur on “unassigned” accounts.

²   Calculated using YTD average monthly cash collections of all collectors with one year or more of tenure.

³   Calculated using YTD weighted average monthly cash collections of all collectors with less than one year of tenure.

YTD Cash Collections Per Hour Paid1
Average performance YTD	12/31/99		12/31/00		12/31/01		9/30/02
Total cash collections	$	53.41	$	64.37	$	77.20	$	97.45
Non-legal cash collections	$	47.81	$	53.31	$	66.87	$	80.24

¹   Cash collections (assigned and unassigned) divided by total hours paid (including holiday, vacation and sick time) to all collectors (including those in training).

22

Liquidity and Capital Resources

Cash collections have substantially exceeded revenue in each quarter since our formation, as shown in the following table. Our resulting strong cash flow has permitted us to acquire most new portfolios since October 2001 without any incremental borrowings. The following chart illustrates the consistent excess of our cash collections on our owned portfolios over the income recognized on finance receivables on a quarterly basis.

(1) Includes cash collections on finance receivables only. Excludes commission fees and cash proceeds from sales of defaulted consumer receivables.

(1) Includes cash collections on finance receivables only. Excludes commission fees and cash proceeds from sales of defaulted consumer receivables.

23

     The following table shows the changes in finance receivables, including the amounts paid to acquire new portfolios.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2001			2002			2001			2002
Balance at beginning of period	$	43,918,789		$	51,055,102		$	41,124,377		$	47,986,744
Acquisitions of finance receivables, net of buybacks		14,900,844			10,082,048			27,337,115			26,314,185
Cash collections applied to principal (1)		(6,550,153	)		(6,004,628	)		(15,844,710	)		(19,167,807	)
Cost of finance receivables sold, net of allowance for returns		(4,078,934	)		—			(4,426,237	)		(600	)
Balance at end of period	$	48,190,546		$	55,132,522		$	48,190,545		$	55,132,522

(1) Cash collections applied to principal consists of cash collections less income recognized on finance receivables.

The following tables categorize our owned portfolios as of September 30, 2002 into the major asset types and account types represented, respectively:

		No. of					Face Value of Defaulted					Finance Receivables, net as of
Asset Type		Accounts		%			Consumer Receivables		%			September 30, 2002		%
Visa/MasterCard/Discover			836,435		49.4	%	$	3,003,258,923		66.6	%	$	33,072,821		60.0	%
Consumer Finance			261,879		15.4	%		552,315,332		12.2	%		4,311,574		7.8	%
Private Label Credit Cards			588,059		34.7	%		928,788,938		20.6	%		17,748,126		32.2	%
Auto Deficiency			8,642		0.5	%		27,553,883		0.6	%		1		0.0	%
	Total:		1,695,015		100.0	%	$	4,511,917,076		100.0	%	$	55,132,522		100.0	%

												Finance Receivables, net as of
Account Type		No. of Accounts		%			Charged-Off Amount		%			September 30, 2002		%
Fresh			117,216		7.0	%	$	443,363,175		9.8	%	$	8,553,514		15.5	%
Primary			361,561		21.3	%		1,220,923,057		27.1	%		14,938,119		27.2	%
Secondary			727,659		42.9	%		1,653,808,716		36.7	%		26,264,039		47.6	%
Tertiary			310,646		18.3	%		637,947,647		14.1	%		3,719,354		6.7	%
Other			177,933		10.5	%		555,874,482		12.3	%		1,657,496		3.0	%
	Total:		1,695,015		100.0	%	$	4,511,917,076		100.0	%	$	55,132,522		100.0	%

     The Company’s operating activities provided cash of $4.0 million and $14.6 million for the nine months ended September 30, 2001 and 2002, respectively. In each of these periods, cash from operations was generated primarily from net income earned through cash collections, commissions received and gains on cash sales of defaulted consumer receivables for the period, which increased to $13.1 million for the nine months ended September 30, 2002 from $4.3 million for the nine months ended September 30, 2001.

     The Company’s investing activities used cash of $6.9 million and $8.0 million for the nine months ended September 30, 2001 and 2002, respectively. Cash used in investing activities is primarily driven by acquisitions of defaulted consumer receivables, net of cash collections applied to the cost of the receivables.

     The Company’s financing activities generated cash of $4.5 million and used cash of $5.4 million for the nine months ended September 30, 2001 and 2002, respectively. The cash generated in 2001 was the result of borrowing against existing lines of credit. The Company made no borrowings during the nine months ended September 30, 2002 against its revolving line of credit. Cash used in financing activities is primarily driven by distributions of capital and payments on long term debt and capital lease obligations.

     Cash paid for interest expense was $2.3 million and $2.1 million for the nine months ended September 30, 2001 and 2002, respectively. The majority of interest expenses were paid for lines of credit used to finance acquisitions of

24

defaulted consumer receivable portfolios and the termination of the swap agreement in the third quarter.

     PRA III, LLC, the Company’s wholly owned subsidiary, historically maintained a $40.0 million revolving line of credit with Westside Funding Corporation (“Westside”) pursuant to an agreement entered into on September 18, 2001. PRA, as well as PRA Receivables Management LLC (d/b/a Anchor Receivables Management), PRA II, LLC and PRA Holding I, LLC (all of which are wholly-owned subsidiaries of the Company) are guarantors to this agreement. The credit facility bears interest at a spread over LIBOR and extends through September 15, 2005. The agreement provides for:

• restrictions on monthly borrowings in excess of $4 million per month and quarterly borrowings in excess of $10 million;

• a maximum leverage ratio of not greater than 4.0 to 1.0 and net income per year of at least $0.01, calculated on a consolidated basis;

• a restriction on distributions in excess of 75% of the Company’s net income for any year;

• compliance with certain special purpose vehicle and corporate separateness covenants; and

• restrictions on change of control.

     Upon completion of the IPO, the Company paid off the outstanding amount under this facility of $29.0 million, with proceeds from this offering. The Company has reached an agreement in principle with its lender to modify the terms of the loan agreement in keeping with the Company’s reduced borrowing needs as a result of the IPO. Modifications include a reduction in the facility size from $40 million to $25 million, a $75,000 modification fee, a reduction in the borrowing spread, a reduction in certain monthly fees, the addition of the Company as a guarantor, the deletion of PRA II, LLC as a guarantor, and an increase in the facility’s non-use fee when the amount outstanding under the facility is less than $10 million.

     In addition, PRA AG Funding, LLC, the Company’s wholly owned subsidiary, maintains a $2.5 million revolving line of credit, pursuant to an agreement entered into with RBC Centura Bank on June 30, 2002. The credit facility bears interest at a spread over LIBOR and extends through July 2003. The agreement provides:

• that the Company maintain a current ratio of 1.6 to 1.0 (the current ratio being defined to include finance receivables as a current asset and to include the credit facility with Westside as a current liability);

• that the Company maintain a debt to tangible net worth ratio of not more than 1.5 to 1.0;

• for a minimum balance sheet cash position at month end of $2 million; and

• a restriction on distributions by the Company to 75% of net income.

     This $2.5 million facility had no amounts outstanding at September 30, 2002.

     As of September 30, 2002 there are three additional loans outstanding. On July 20, 2000, PRA Holding I, LLC, the Company’s wholly owned subsidiary, entered into a credit facility with Bank of America, N.A., for a $550,000 loan, for the purpose of purchasing a building in Hutchinson, Kansas. The loan bears interest at a variable rate based on LIBOR and consists of monthly principal payments for 60 months and a final installment of unpaid principal and accrued interest payable on July 21, 2005. On February 9, 2001, the Company entered into a commercial loan agreement with Bank of America, N.A. in the amount of $107,000 in order to purchase equipment for its Norfolk, Virginia location. This loan bears interest at a fixed rate of 7.9% and matures on February 1, 2006. On February 20, 2002, PRA Holding I, LLC entered into an additional arrangement with Bank of America, N.A. for a $500,000 commercial loan in order to finance construction of a parking lot at our Norfolk, Virginia location. This loan bears interest at a fixed rate of 6.47% and matures on September 1, 2007.

25

Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS Nos. 141 and 142 changed the accounting for business combinations and goodwill in two significant ways. First, SFAS No. 141 requires that the purchase method of accounting be used in all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. Second, SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment only approach. As we had no recorded goodwill, these pronouncements had no impact on us. Any future acquisitions will be accounted for in accordance with the new standards.

     In June 2001, the FSAB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS 143 requires that obligations associated with the retirement of tangible long-lived assets be recorded as a liability when those obligations are incurred, with the amount of liability initially measured at fair value. SFAS No. 143 will be effective for fiscal years beginning after June 15, 2002, though early adoption is encouraged. The application of this statement is not expected to have a material impact on our financial statements.

In July 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of”. SFAS No. 144 applies to all long-lived assets including discontinued operations, and amends Accounting Principles Board Opinion No. 30, “Reporting the Effect of Disposal of a Segment of a Business, Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book or fair value, less cost to sell. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and its provisions are expected to be applied prospectively. The application of this statement is not expected to have a material impact on our financial statements.

In May 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002.” SFAS 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” and an amendment of that statement, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and eliminates extraordinary gain and loss treatment for the early extinguishment of debt. This statement also rescinds FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers” and amends FASB Statement No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for fiscal years beginning after May 15, 2002. We will adopt SFAS 145 for the year ending December 31, 2002. The application of this statement is not expected to have a material impact on our financial statements other than the elimination of the extraordinary loss treatment for the debt extinguishment in 2001.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The application of this statement is not expected to have a material impact on our financial statements.

26

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

The Company’s exposure to market risk relates to interest rate risk with its variable rate credit line. The Company terminated its only derivative financial instrument to manage or reduce market risk in September 2002. As of September 30, 2002, the Company had variable rate debt outstanding of $25.0 million on its revolving credit line. The Company also had variable rate debt outstanding on its long-term debt collateralized by the Kansas real estate. A 10% change in future interest rates on the variable rate credit line would not lead to a material decrease in future earnings assuming all other factors remained constant.

Item 4. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

     Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in timely alerting the Company’s management to material information relating to the Company required to be included in the Company’s Exchange Act reports.

     There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.

27

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

Upon completion of the IPO, the Company received proceeds of $41.95 million (net of underwriting discounts, but before offering expenses) on November 14, 2002. The Company immediately used the proceeds to pay off the outstanding amount of the revolving line of credit with West LB. The amount of the payoff was $29.0 million. This amount included the outstanding balance at September 30, 2002 and an additional draw against the line of credit in October 2002. In addition, the Company utilized the proceeds to offset expenses incurred in direct connection of the IPO. The majority of these expenses, which accounted for 94.4%, were legal fees, accounting fees, printing fees, D&O insurance premium, and NASDAQ filing fees. The total of these expenses incurred as of December 12, 2002 is $1,527,008. Also, the Company used $1,872,115 to facilitate portfolio acquisitions during November 2002.

Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits.

10.16	Office Lease, dated November 13, 2002, by and between NetCenter Partners, LLC and Portfolio Recovery Associates, LLC
99.1	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)	Reports on Form 8-K.
	None.

28

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PORTFOLIO RECOVERY ASSOCIATES, INC. (Registrant)
Date: December 16, 2002	By: /s/ Steven D. Fredrickson Steven D. Fredrickson Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)
Date: December 16, 2002	By: /s/ Kevin P. Stevenson Kevin P. Stevenson Chief Financial Officer, Senior Vice President, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)

29

CERTIFICATIONS

I, Steven D. Fredrickson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of PORTFOLIO RECOVERY ASSOCIATES, INC.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 16, 2002 By: /s/ Steven D. Fredrickson
Steven D. Fredrickson
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)

30

I, Kevin P. Stevenson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of PORTFOLIO RECOVERY ASSOCIATES, INC.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 16, 2002 By: /s/ Kevin P. Stevenson
Kevin P. Stevenson
Chief Financial Officer, Senior Vice President,
Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer)

31 EX-10.16 3 w66934exv10w16.txt OFFICE LEASE EXHIBIT 10.16 NETCENTER FULL SERVICE OFFICE LEASE THIS FULL SERVICE OFFICE LEASE (this "Lease") is made this 13th day of November, 2002, between NETCENTER PARTNERS, LLC, a Virginia limited liability company ("Landlord"), and PORTFOLIO RECOVERY ASSOCIATES, LLC, a Delaware limited liability company ("Tenant"). W I T N E S S E T H 1. Definitions. The following definitions shall apply to the indicated terms, whenever used in this Lease. Additional defined terms may be found in the body of this Lease. (a) Landlord: NETCENTER PARTNERS, LLC 1225 19th Street, NW Suite 850 Washington, DC 20036-2453 (b) Tenant: PORTFOLIO RECOVERY ASSOCIATES, LLC 120 Corporate Boulevard Suite 100 Norfolk, VA 23502 (c) Agent: Divaris Real Estate, Inc. One Columbus Center, Suite 700 Virginia Beach, Virginia 23462 (d) Leased Premises: Suite 285 deemed to be approximately 23,,116.885 rentable square feet (rentable measurement includes a ten percent (10%) core factor), measured in accordance with the Building Owners and Managers Association International's Standard Method of measuring Floor Area in Office Buildings (ANSI.Z65.1), in a building commonly known as NETCENTER (the "Building"), located at 5200 W. Mercury Boulevard, Hampton, Virginia 23605, as more specifically set forth on Exhibit A - Floor Plan. (e) Permitted Use: Office Space / Collection Call Center (f) Commencement February 1, 2003, or ten (10) days after Date: receipt of written notice of substantial completion from Landlord to Tenant, whichever is later. Occupancy by Tenant is anticipated to be approximately sixty (60) days after issuance of a building permit by the City of Hampton. Landlord shall use its best reasonable efforts to deliver the Leased Premises as soon as reasonably possible. (g) Term: Seven (7) years, four (4) months (h) Renewal See Option Rider. All renewal periods shall Options: be included in the definition of the Term. Landlord's Initials:_________ Tenant's Initials:_________ (i) Minimum Rent:

- --------------------------------------------------------------------------------------- ANNUAL MONTHLY PSF YEAR - --------------------------------------------------------------------------------------- 1 First two (2) months of Year 1 0 0 0 Next eight (8) months of Year 1 $111,731.61 $13,996.45 $ 7.25 Last two (2) months of Year 1 $ 55,865.81 $27,932.90 $14.50 2 $346,984.44 $28,915.37 $15.01 3 $359,005.22 $29,917.10 $15.53 4 $371,719.51 $30,976.63 $16.08 5 $384,664.97 $32,055.41 $16.64 6 $398,072.76 $33,172.73 $17.22 7 $411,942.89 $34,,328.57 $17.82 8 First four (4) months of Year 8 $142,168.84 $35,542.21 $18.45 - ---------------------------------------------------------------------------------------

(j) Rent Payment Address: NetCenter Partners, LLC Post Office Box 6048 Southeastern, PA 19398-6048 (k) Operating Expenses: Lease is calculated on a Full Service basis with no operating expenses passed through to Tenant. Notwithstanding, Tenant shall reimburse Landlord monthly for any electrical usage that exceeds $0.11 per rentable square foot per month. (l) Security $56,131.92 (see Section 8) Deposit: (m) Notices: To Landlord: NetCenter Partners, LLC 1225 19th Street, NW Suite 850 Washington, DC 20036-2453 ATTN: R. Jeffery Arnold Copy to: Divaris Real Estate, Inc. One Columbus Center Suite 700 Virginia Beach, Virginia 23462 ATTN: Jonathan Guion, SIOR To Tenant: Portfolio Recovery Associates, LLC 120 Corporate Boulevard Suite 100 Norfolk, VA 23502 Landlord's Initials:_________ Tenant's Initials:_________ (n) Attachments: Option Rider Exhibit A - Floor Plan Exhibit A-1 - Right of First Refusal Space Floor Plan Exhibit B - Tenant Improvements Exhibit B-1 - Rules and Regulations for Contractors Exhibit C - Rules and Regulations Exhibit D - Building Standard Work Letter Exhibit E - Non-disturbance and Attornment Agreement Exhibit F - Janitorial and Security Specifications Exhibit G - Watch Guard Specifications 2. Description of Leased Premises. Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Premises described in Section 1. The Leased Premises are delineated on the floor plan attached hereto and incorporated herein as Exhibit A. Exhibit A sets forth the general outline of the Leased Premises and shall not be deemed a warranty on the part of Landlord that the Leased Premises are or will be exactly as indicated on such diagram. Tenant's occupancy of the Leased Premises shall include the use in common with others entitled thereto of such parking areas, service roads, sidewalks, equipment facilities, service areas, hallways, doors, stairwells, and the like (the "Common Areas") as Landlord may, from time to time, make available to Tenant for use in common with others, subject, however, to the terms and conditions of this Lease and to all Rules and Regulations for the use thereof as may from time to time be prescribed by Landlord. Landlord may increase, reduce, or change the number, dimensions, and locations of roadways, walks, buildings, and parking areas as Landlord from time to time deems proper. However, any such reduction that may occur to the shared core area of the Building shall not diminish the shared core area of the Building to less than ten percent (10%) of the gross building square footage, without a pro rata reduction in the Minimum Rent, nor shall any such reduction diminish the parking spaces granted to Tenant, as set forth in Section 11 of this Lease. 3. Use of Leased Premises. The Leased Premises shall be used solely for the Permitted Use indicated in Section 1, and for no other purpose. Notwithstanding, Tenant, or any of its approved subtenants and/or assignees, covenants that it will not, at any time during the Term, operate in the Leased Premises (either directly or indirectly) as a provider of telecommunications, cellular or long distance services that markets and services its customers through a call center environment. 4. Length and Commencement of Term. (a) The term of this Lease shall commence on the Commencement Date, and continue for the Term indicated in Section 1 following the Commencement Date. Landlord and Tenant shall execute and deliver a written statement in recordable form prepared by Landlord specifying the Minimum Rent due at commencement and Lease expiration date, if same have not been fixed by this Lease. (b) If Landlord, due to delay in construction or for any other reason whatsoever, does not deliver possession of the Leased Premises to Tenant on or before February 1, 2003, this Lease shall not be void or voidable; however, if a building permit is issued by the City of Hampton by December 15, 2002, and delivery of possession of the Leased Premises is delayed beyond MARCH 30, 2003 due to delay in construction or for any reason other than a delay caused by Tenant, Tenant may, at its option, void the lease in the manner prescribed hereafter, after giving written notice to Landlord indicate its intent to void this Lease. For each day after December 15, 2002 that the building permit has not been issued, the cancellation date shall be extended day for day. Upon receipt of Tenant's written notice of intent to terminate, Landlord shall have an additional thirty (30) days to deliver possession of the Leased Premises, after which period the Lease shall automatically become void if the Leased Premises are not delivered to Tenant. In such an event, cancellation of the Lease by Tenant in this manner shall not be considered an event of default and Tenant will not be liable for any payment of any amounts whatsoever and shall be due an immediate refund of any security deposits paid. 5. Rent. Tenant shall pay, as rent for the Leased Premises, the Minimum Rent indicated in Section 1, paid in advance in monthly installments. If the Commencement Date is not the first day of the month, rent for that month shall be Landlord's Initials:_________ Tenant's Initials:_________ prorated. If any rent or other sum is not received by Landlord by the fifth day of the month, Tenant shall pay a late charge of One Thousand Dollars ($1,000.00). Such penalty, however, shall not be imposed for the first late payment received by Landlord. If any payment under this Lease is made by check and such check is returned by the pay or for any reason, Tenant shall pay a returned check charge of One Hundred Dollars ($100.00). In addition, any rent or other sum not received by Landlord when due shall bear interest from the due date to the payment date at the prime rate published from time to time by the Wall Street Journal, plus three percent (3%), but in no event shall it be less than twelve percent (12%) per annum. If such rate exceeds the maximum rate permitted by law with respect to Tenant, Tenant shall pay interest at the highest lawful rate applicable to Tenant. 6. Payments. All rental and other payments shall be made to Landlord at the Rent Payment Address, as indicated in Section 1, until Landlord otherwise directs in writing. All charges, fees, and other amounts due, other than Minimum Rent, shall be deemed Additional Rent. Unless otherwise provided in this Lease or in writing, all payments of Minimum Rent and Additional Rent shall be payable monthly in advance on or before the first day of each month during the Term, without prior demand and without offset, reduction, defense, or counterclaim. All payments shall be made prior to the close of business (Eastern Standard Time) on the date specified for such payment and in immediately available United States funds. 7. Operating Costs and Services. (a) Landlord covenants that it shall pay, when due, all real estate taxes and assessments, building insurance and all operating expenses, including payment for ordinary janitorial service to the Leased Premises (collectively, the "Expenses") for the Building and Common Areas. (b) Regarding the Common Areas associated with the Building, Landlord shall, during normal operating business hours, furnish adequate lighting, lavatory supplies, hot and cold water for lavatory and drinking purposes, janitorial and cleaning, heating and air-conditioning in the interior areas during the appropriate seasons of the year, as well as snow, ice and trash removal, parking lot sweeping, landscape maintenance, and nighttime lighting throughout the exterior areas of the Building property. Any security measures that Landlord may provide are for the protection of the Building only and shall not be relied upon by Tenant to protect Tenant or its employees, or Tenant's or its employee's property. Landlord shall continue to provide watch guard service in and around the Building at the same level of coverage as provided as of the execution of this Lease, as set forth in Exhibit G - Watch Guard Services. The normal operating business hours for the Building are defined as 8:00 AM to 6:00 PM, Monday through Friday, and 8:00 AM to 1:00 PM on Saturdays, exclusive of federally recognized holidays. Notwithstanding, Tenant and its employees shall have access to the Building and to the Leased Premises 24 hours per day, 365 days per year. (c) Regarding the Leased Premises, Landlord shall furnish (i) electricity sufficient for lighting and typical office equipment; (ii) fluorescent tube replacements; (iii) janitorial and cleaning services five nights per week in accordance with prevailing industry practices, as set forth in Exhibit F - Janitorial Services; and (iv) electric heating and air conditioning, as needed. All such services shall be provided without cost to Tenant except for the cost of electricity consumed in excess of $.11 per rentable square foot per month. Any such excess shall be paid by Tenant as Additional Rent to Landlord within ten (10) days after receipt of Landlord's invoices. If Tenant is furnished additional services, or if Tenant's use of the Leased Premises causes additional expense to Landlord, Tenant shall pay any associated additional expense. If Tenant wishes to install electrical equipment such as electrical heating or refrigeration equipment, electronic data processing machines, or equipment using current which exceeds that usually furnished for use in office space, Tenant shall obtain the prior written consent of Landlord, which consent shall not be unreasonably withheld, and shall pay as Additional Rent the additional electricity cost involved. If any required services are suspended or curtailed due to accident, emergency, mechanical breakdown, or any other cause beyond Landlord's reasonable control, Landlord shall restore the services with reasonable dispatch, but Landlord shall not have any responsibility or liability for the curtailment or suspension of services and there shall be no abatement of rent or other effect on Tenant's obligations under this Lease. Landlord's Initials:_________ Tenant's Initials:_________ 8. Security Deposit. Tenant will deposit with Landlord or Agent, simultaneously with this Lease, the Security Deposit indicated in Section 1, as security for the full performance by Tenant of all of its obligations under this Lease. The Security Deposit shall be held by Landlord or Agent in escrow. Any interest accruing to the Security Deposit shall accrue to Tenant. If Tenant fails to pay any items of rent or other sum when due, or if Landlord elects to perform any obligation of Tenant, or if Tenant otherwise defaults, Landlord shall have the right, at its sole option and without prejudice to any other remedy of Landlord, to apply all or such part of the Security Deposit as may be necessary to either pay such amount due, compensate Landlord for its performance of Tenant's obligation, or reimburse Landlord for any loss, damage, or expense Landlord may have sustained as a result of Tenant's default. If Landlord so applies all or part of the Security Deposit, Tenant shall immediately upon demand restore the Security Deposit to its original amount. The Security Deposit and accrued interest thereon shall be returned to Tenant in accordance with the following schedule: Twenty percent (20%) after twenty-four months, provided that Tenant maintains an uninterrupted record of full and timely Minimum Rent payments and has not been in default under this Lease or delinquent in any payment of Rents, Additional Rents or other sum of money due; an additional twenty percent (20%) after 36 months, provided that Tenant is not then, and has not previously been, delinquent in any payment of Rents Additional Rents or other sum of money due; an additional twenty percent (20%) after 48 months, provided that Tenant is not then, and has not previously been, delinquent in any payment of Rents Additional Rents or other sum of money due; an additional twenty percent (20%) after 60 months, provided that Tenant is not then, and has not previously been, delinquent in any payment of Rents Additional Rents or other sum of money due, and within sixty (60) days after the expiration or termination of the Term, including any extensions and or renewals, and upon the surrender of the Leased Premises in good and clean condition and accordance with the provisions of this Lease, Landlord shall return the balance of the Security Deposit to Tenant or to the then holder of Tenant's interest under this Lease, less an amount, if any, estimated by Landlord as necessary to satisfy any unpaid or unperformed obligations of Tenant. Delivery of such balance shall discharge Landlord and Agent from any liability with respect to the Security Deposit. Landlord or Agent shall further have the right to deliver the Security Deposit to any transferee of Landlord's interest in this Lease, at which time Landlord and Agent shall be discharged from any further liability with respect to the Security Deposit. Landlord or Agent shall further have the right to deliver the Security Deposit to any transferee of Landlord's interest in this Lease, at which time Landlord and Agent shall be discharged from any further liability with respect to the Security Deposit. As required under Landlord's mortgage documents, Tenant hereby agrees not to look to Landlord's lender, as lender, lender in possession, or successor in title to the property, for accountability, for any security deposit required by the Landlord hereunder, unless said sums have actually been received by said lender as security for the Tenants performance of this Lease. 9. Trade Fixtures. Tenant shall have the right to install its trade fixtures in the Leased Premises, provided such installation shall not interfere with either the construction or operation of the Building or the completion of any improvements to the Leased Premises which Landlord may have specifically agreed in this Lease to perform, and such installation shall be at the sole risk and expense of Tenant. All trade fixtures installed in the Leased Premises by Tenant shall remain the property of, and shall be removable by, Tenant at the expiration of the Term, provided Tenant is not in default under this Lease, and Tenant shall promptly repair, or reimburse Landlord for the cost of repairing, all damages to the Leased Premises caused by the removal of those fixtures. Tenant agrees that all additions and improvements and attached equipment installed in or on the Premises by Tenant, including but not being limited to, electric wiring, electric fixtures, floor coverings, heating and air-conditioning machinery and equipment, shall immediately become the property of Landlord and shall not be removed by Tenant at the termination of this Lease, unless requested so to do by Landlord, in which event Tenant agrees to do so and to repair promptly any damage caused by such removal. Landlord acknowledges that any generator, telephone equipment, computer equipment, television cameras, and plasma screens that may be installed by Tenant shall be deemed to be trade fixtures. 10. Control of Common Areas and Facilities by Landlord. The Common Areas shall at all times be subject to the exclusive control and management of Landlord, and Landlord shall have the right, from time to time, to establish, modify, and enforce reasonable rules and regulations with respect to the Common Areas. Without limiting the foregoing, Landlord shall have the right to construct, maintain, and operate lighting facilities on all Common Areas; to police the same; to change, in Landlord's sole discretion, the area, level, location, quantity, and arrangement, from time to time, of the Common Areas; to Landlord's Initials:_________ Tenant's Initials:_________ close or discontinue common use of all or any portion of the Common Areas to such extent as may, in the opinion of Landlord or Landlord's counsel, be legally sufficient, necessary, or proper to prevent a dedication or the accrual of any rights to any person or the public; and to do and perform such other acts in and to the Common Areas as Landlord, in its sole discretion, determines to be necessary to improve the convenience and use thereof by tenants or their officers, agents, employees, and customers, or to improve the profitability of the Building. Landlord will operate and maintain the Common Areas in such manner as Landlord, in its sole discretion, shall determine from time to time. Without limiting the scope of such discretion, Landlord shall have the full right and authority to employ all personnel and to make rules and regulations pertaining to the proper operation and maintenance of the Common Areas and facilities. 11. Use of Parking Areas. Landlord grants to Tenant for Tenant's non-exclusive use, a maximum number of parking spaces equivalent to eight (8) spaces per one thousand (1,000) square foot of rentable area. Such spaces will be unreserved and unassigned and open to all Building tenants, employees and visitors. All automobile parking areas, driveways, entrances, and exits in or near the Building, and other facilities furnished by Landlord in or near the Building, shall at all times be subject to Landlord's exclusive control and management, and Landlord shall have the right from time to time to establish, modify, and enforce reasonable rules and regulations with respect to all such facilities and areas. If Tenant or Tenant's employees use such parking areas, driveways, streets, or vacant land in violation of any such rules and regulations, Landlord may order any violating vehicles to be towed from such areas at Tenant's sole cost and expense, plus 10% for Landlord's overhead expenses, which shall be payable to Landlord on demand. 12. Maintenance by Landlord. Subject to the following section, Landlord shall, within a reasonable time after having received written notice from Tenant of such a need, make such repairs to the Building as may be necessary to keep the Building in good condition and repair. Landlord will not be responsible for any damage resulting from any leak or defect in the roof, sidewalls, gutters, or downspouts unless such damage is due to Landlord's failure to repair such defect within a reasonable time after Landlord has received notice from Tenant of the need to repair such defect. Landlord shall maintain in good condition and repair, and adequately light, the parking areas of the Building. In the event that Landlord does not initiate and then complete any such repairs that have a direct impact on Tenant in a reasonably timely manner, then Tenant shall have the right to effect such repairs and then invoice Landlord for direct costs incurred, provided that the costs are reasonable and appropriate. In such circumstances, Tenant may not offset Rent payments. 13. Maintenance by Tenant. Tenant shall, at its expense, make such repairs to the Leased Premises as are caused by the negligence or willful act of Tenant or any of its agents, employees, contractors, licensees, or invitees. 14. Sundry Covenants of Tenant. Tenant shall: (a) comply with all federal, state, and municipal laws, ordinances, and regulations relating to the Leased Premises and its Permitted Use, including, without limitation, all environmental laws, rules and regulations (collectively the "Environmental Laws") and all laws, rules, and regulations in connection with the Americans with Disabilities Act of 1990, as amended (the "ADA"); (b) notify Landlord immediately upon receipt of all notices or other communications by governmental authorities regarding possible or actual noncompliance with laws, ordinances, or regulations; (c) not use or permit to be used any advertising medium or device, such as radio, or public address system, without Landlord's prior written consent; (d) not use or permit to be used the Leased Premises for any illegal or immoral purpose; and (e) keep the Leased Premises free from insects, pests, and vermin of all kinds, and for that purpose Tenant shall use, at Tenant's cost, such pest extermination contractor as Landlord may direct and at such internals as Landlord may require. The Leased Premises shall not be used for the treatment, storage, use, or disposal of toxic or hazardous wastes or substances, or any other substance, exposure to which is prohibited, limited, or regulated by a governmental or quasi-governmental authority or which, even if not so regulated, could or does pose a hazard to the health and/or safety of the occupants of the Building or surrounding property. Tenant shall indemnify and hold Landlord harmless from and against any expense or liability (including attorney's fees) arising under the Environmental Laws resulting from Tenant's use of the Leased Premises or any acts and/or omissions of Tenant, its agents, employees, invitees, or independence contractors. 15. Improvements. (Either (a) or (b) must be checked prior to execution.) Landlord's Initials:_________ Tenant's Initials:_________ _______ (a) Tenant is accepting the Leased Premises "as is," except as specified in Exhibit B - "Tenant Improvements," and Tenant shall pay the cost of any improvements or alterations desired by Tenant. Any such improvements or alterations to the Leased Premises shall be performed only after Tenant has obtained the prior written consent of Landlord, which consent may be withheld for any or no reason. Tenant has inspected the Leased Premises and is satisfied with its physical condition. ___ X__ (b) Landlord shall provide the build-out of the Leased Premises in accordance with Exhibit B - Tenant Improvements attached hereto. Landlord will invite RGI General Contractors, in addition to those selected by Landlord, to submit bids to Landlord for the build out of the Leased Premises. Landlord will allow Tenant to participate in the general contractor selection process; however, Landlord shall make the final selection of the general contractor based upon reasonable selection criteria, including price, qualifications and the ability to deliver the Leased Premises on time. Any improvements or alterations to the Leased Premises in addition to those specified on Exhibit B - Tenant Improvements shall be performed at Tenant's expense, and only after Tenant has obtained the prior written consent of Landlord, which consent may be withheld for any or no reason. Notwithstanding, Tenant shall have the right to perform cosmetic, non-structural, non-electrical, non-mechanical, non-plumbing improvements in the Leased Premises without Landlord's approval, provided that any single cosmetic improvement does not exceed $1,000 in cost, or require a building permit. 16. Compliance with Americans with Disabilities Act of 1990. If the ADA requires that action be taken with respect to the Leased Premises (not including the Common Areas), including without limitation removing barriers and altering the Leased Premises in accordance with the ADA Accessibility Guidelines, such action shall be taken by Tenant; provided, however, that if such action was required to be taken during Landlord's build-out (if applicable) of the Leased Premises, Landlord shall take such action. Tenant shall notify Landlord immediately upon receipt of an oral or written complaint or notice by an employee, customer, client, invitee, licensee, or governmental authority regarding the ADA. 17. Assignment and Subletting. Without Landlord's prior written consent, Tenant shall not (either voluntarily, involuntarily, or by operation of law) assign, transfer, mortgage, pledge, hypothecate, or encumber this Lease or any interest under this Lease; nor sublet or grant concessions of or to the Leased Premises, in whole or in part; nor allow any person (other than Tenant, its employees, agents, servants, and invitees) to occupy or use all or part of the Leased Premises. If Landlord consents to any such assignment, sublease, etc., Tenant shall pay an assignment fee of $500.00 to reimburse Landlord for the time, effort, and expense incurred in processing such assignment, sublease, etc. Regardless of any such consent, no assignment or subletting shall release Tenant of its obligations or alter the primary liability of Tenant to pay rent and perform all its other obligations under this Lease. Landlord's consent to one assignment, subletting, occupation, or use by any other person shall not be deemed consent to any subsequent assignment, subletting, occupation, or use by another person. Notwithstanding anything to the contrary set forth in this Section 17, Tenant shall have the right to sublease or assign this Lease to an affiliated entity in which Tenant has controlling ownership without Landlord's prior consent. Landlord's approval of any subleases or assignments to unrelated entities shall not be unreasonably withheld, conditioned or delayed, provided such sublessee or assignee has equal or better financial strength in comparison to Tenant. 18. Condemnation. If the whole or any part of the Leased Premises shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction, or remodeling of any part of the Leased Premises, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord (and if more than ten percent (10%) of the rentable area of the Leased Premises is taken, or if access to the Leased Premises or any common restrooms serving the same is materially impaired, Tenant) shall have the option to terminate this Lease upon sixty (60) days' notice, provided such notice is given no later than 180 days after the date of such taking, condemnation, configuration, vacation, deed, or other instrument. Landlord shall be entitled to receive the entire award or payment in connection therewith, and Tenant waives any right it may have to any such award or payment. All rent shall be apportioned as of the date of such termination or the date of such taking, whichever shall first occur. If any part of the Leased Premises shall be taken, and this Lease shall not be so terminated, the rent shall be proportionately abated. Landlord's Initials:_________ Tenant's Initials:_________ 19. Damage by Fire or Other Casualty. If the Leased Premises is damaged by fire or other casualty during the Term, but are not rendered untenable in whole or in part, Landlord shall promptly at its expense cause such damage to the Leased Premises to be repaired, and rent shall not be abated. If the Leased Premises is damaged by fire or other casualty during the Term and is rendered partially untenable, Landlord shall promptly at its own expense cause the damage to the Leased Premises to be repaired, and rent shall be abated for the period of untenantability in proportion to the portion of the Leased Premises rendered untenable. If the Leased Premises is damaged by fire or other casualty during the Term and is rendered untenable Landlord may, at its sole option, either (i) restore the Leased Premises with reasonable dispatch to substantially the same condition they were in prior to such damage, insofar as the proceeds from Landlord's insurance permit, or (ii) terminate this Lease. If Landlord elects to restore the Leased Premises, but is unable to deliver possession of the restored Leased Premises to Tenant within sixty (60) days of the casualty, Tenant may deliver notice to the Landlord of its intent to void the Lease. Upon receipt of Tenant's notice of intent to terminate, Landlord shall have an additional fifteen (15) days to deliver possession of the Leased Premises, after which period the Lease shall automatically become void. In such an event, cancellation of the Lease by Tenant in this manner shall not be considered an event of default and Tenant will not be liable for any payment of any amounts whatsoever and shall be due an immediate refund of any security deposits paid. If Landlord elects to restore the Leased Premises, Landlord shall have no liability to restore any improvements as may have been made to the Leased Premises,, whether before or after the date of this Lease, nor to restore any of Tenant's fixtures, decorations, equipment, furniture, or inventory. Landlord's sole responsibility, if any, shall be to deliver to Tenant a shell space with roof, floor, exterior walls, windows, and doors. If Landlord elects to terminate this Lease, all rent payable shall be abated as of the date of such damage and Tenant shall remove all of its property from the Leased Premises within thirty (30) days after the notice of termination is given, provided Tenant is not in default at the time. 20. Insurance. (a) Tenant shall, at all times during the Term and at its own cost and expense, carry: (i) comprehensive general liability insurance on the Leased Premises (including Common Areas adjoining the Leased Premises) with limits of not less than $2,000,000 for injury or death to one person, $5,000,000 for injury or death to more than one person, and $500,000 for property damage; (ii) "all-risk" casualty insurance, written at replacement cost value and with replacement cost endorsement, covering all Tenant's personal property in the Leased Premises (including, without limitation, inventory, trade fixtures, floor coverings, furniture, and other property removable by Tenant under the provisions of this Lease) and all leasehold improvements installed in the Leased Premises by or on behalf of Tenant; and (iii) if and to the extent required by law, workmen's compensation or similar insurance. The foregoing policies shall be primary policies not contributing with and not in excess of coverage which Landlord may carry. (b) Landlord shall maintain, upon such terms as Landlord deems appropriate, direct physical loss or damage insurance on the shell of the Building, Common Areas and existing tenant improvements, and a combined single limit bodily injury and property damage liability insurance policy. If Tenant changes its use of the Leased Premises or introduces any hazardous materials or equipment into the Leased Premises which cause any increase in Landlord's insurance premiums, Tenant shall pay the increase as Additional Rent. (c) All such insurance policies shall name Landlord as a named insured and shall be written by companies acceptable to Landlord and in form acceptable to Landlord. Each such policy shall also contain a provision prohibiting cancellation without thirty (30) days' prior written notice to Landlord or its designee. Certificates of such insurance policies shall be delivered to Landlord promptly after the issuance of the respective policies, and annually thereafter. If Tenant fails to provide or maintain any such insurance, Landlord may (but shall not be obligated to) do so and collect the cost thereof as Additional Rent. 21. Indemnification of Landlord. Except in situations involving Landlord's, its agents' or invitees' gross negligence or their failure to perform their responsibilities under this Lease, Tenant shall indemnify and hold Landlord harmless from liability for damages to person or property (including Tenant's employees, customers, and other invitees) in or upon the Leased Premises, including vestibules, entryways, and walkways adjoining the Leased Premises, and the loading platform area, if any, allocated to the use of Tenant. Tenant shall also indemnify and hold Landlord harmless from such liability for damages in other parts of the Building if caused by Tenant's negligence, affirmative act, or breach of its obligations under this Lease. Landlord's Initials:_________ Tenant's Initials:_________ All property kept, stored, or maintained in the Premises shall be kept, stored, or maintained at Tenant's sole risk. Tenant waives all claims against and releases Landlord, and Landlord's employees and agents, from liability for damages or injury suffered by Tenant or any person claiming through Tenant as a result of any accident or other occurrence in or upon the Leased Premises or any other part of the Building or Common Areas, unless the damage or injury was caused by Landlord, or by Landlord's agents' or invitees' gross negligence, willful misconduct or failure to perform their responsibilities under this Lease. 22. Waiver of Subrogation. Tenant waives all claims against Landlord for any damage or loss Tenant may suffer which is covered by an insurance policy carried by Tenant (or which Tenant is required to carry under this Lease); and any insurance policy carried by Tenant covering the Leased Premises, its contents, or any part thereof, shall contain an express waiver of any right of subrogation against Landlord by the issuer of the policy. 23. DEFAULT 23.1 "Event of Default" Defined. Any one or more of the following events shall constitute an "Event of Default": (a) The sale of Tenant's interest in the Premises under attachment, execution or similar legal process, or if Tenant is adjudicated as bankrupt or insolvent under any state bankruptcy or insolvency law or an order for relief is entered against Tenant under the Federal Bankruptcy Code and such adjudication or order is not vacated within ten (10) days. (b) The commencement of a case under any chapter of the Federal Bankruptcy Code by or against Tenant or any guarantor of Tenant's obligations hereunder, or the filing of a voluntary or involuntary petition proposing the adjudication of Tenant or any such guarantor as bankrupt or insolvent, or the reorganization of Tenant or any such guarantor, or an arrangement by Tenant or any such guarantor with its creditors, unless the petition is filed or case commenced by a party other than Tenant or any such guarantor and is withdrawn or dismissed within thirty (30) days after the date of its filing. (c) The admission in writing by Tenant or any such guarantor of its inability to pay its debts when due; (d) The appointment of a receiver or trustee for the business or property of Tenant or any such guarantor, unless such appointment shall be vacated within ten (10) days of its entry. (e) The making by Tenant or any such guarantor of an assignment for the benefit of its creditors, or if in any other manner Tenant's interest in this Lease shall pass to another by operation of law. (f) The failure of Tenant to pay any Minimum Rent, Additional Rent or other sum of money when due. (g) Default by Tenant, after receipt of written notice from Landlord, in the performance or observance of any covenant or agreement of this Lease (other than a default involving the payment of money), which default is not cured within ten (10) days after the giving of notice thereof by Landlord, unless such default is of such nature that it cannot be cured within such ten (10) day period, in which case no Event of Default shall occur so long as Tenant shall commence the curing of the default within such ten (10) days period and shall thereafter diligently prosecute the curing of same; provided, however, if Tenant shall default in the performance of any such covenant or agreement of this Lease two (2) or more times in any twelve (12) month period, then notwithstanding that each of such defaults shall have been cured by Tenant, any further similar default shall be deemed an Event of Default without the ability for cure. (h) The vacation or abandonment of the Premises by Tenant at any time following delivery of possession of the Premises to Tenant. Landlord's Initials:_________ Tenant's Initials:_________ (i) The occurrence of any other event described as constituting an "Event of Default" elsewhere in this Lease. 23.2 Remedies. Upon the occurrence of an Event of Default, [except for Items 23.1(a), 23.1(b), 23.1(c), 23.1(d), 23.1(e), and/or 23.1(g)], Landlord, upon 10 days notice to Tenant (except where otherwise expressly provided for below or by applicable law) may do any one or more of the following: (a) With or without judicial process, enter the Premises and take possession of any and all goods, inventory, equipment, fixtures and all other personal property (excluding portfolio and individual financial files) of Tenant, which is or may be put into the Premises during the Term, whether exempt or not from sale under execution or attachment (it being agreed that said property shall at all times be bound with a lien in favor of Landlord and shall be chargeable for all Rental and for the fulfillment of the other covenants and agreements herein contained), and Landlord may sell all or any part thereof at public or private sale. Tenant agrees that ten (10) days prior written notice of any public or private sale shall constitute reasonable notice. The proceeds of any such sale shall be applied, first, to the payment of all costs and expenses of conducting the sale or caring for or storing said property (including reasonable attorneys' fees); second, toward the payment of any indebtedness, including (without limitation) indebtedness for Rental, which may be or may become due from Tenant to Landlord; and third, to pay Tenant, on demand, any surplus remaining after all indebtedness of Tenant to Landlord has been fully paid; (b) Perform, on behalf and at the expense of Tenant, any obligation of Tenant under this Lease which Tenant has failed to perform and of which Landlord shall have given Tenant notice, the cost of which performance by Landlord, together with interest thereon at the Default Rate from the date of such expenditure, shall be deemed Additional Rental and shall be payable by Tenant to Landlord upon demand. Notwithstanding the provisions of this clause (b) and regardless of whether an Event of Default shall have occurred, Landlord may exercise the remedy described in this clause (b) without any notice to Tenant if Landlord, in its good faith judgment, believes it would be materially injured by failure to take rapid action or if the unperformed obligation of Tenant constitutes an emergency; (c) Elect to terminate this Lease and the tenancy created hereby by giving ten (10) days prior written notice of such election to Tenant, and reenter the Premises, without the necessity of legal proceedings, and remove Tenant and all other persons and property from the Premises, and may store such property in a public warehouse or elsewhere at the cost of and for the account of Tenant without resort to legal process and without Landlord being deemed guilty of trespass or becoming liable for any loss or damage occasioned thereby; or (d) Exercise any other legal or equitable right or remedy which it may have. Any costs and expenses incurred by Landlord (including, without limitation, reasonable attorneys' fees) in enforcing any of its rights or remedies under this Lease shall be deemed to be Additional Rental and shall be repaid to Landlord by Tenant upon demand. 23.3 Damages. If this Lease is terminated by Landlord pursuant to Section 23.2, Tenant nevertheless shall remain liable for (a) any Rental and damages which may be due or sustained prior to such termination, all reasonable costs, fees and expenses including, but not limited to, reasonable attorneys' fees, costs and expenses incurred by Landlord in pursuit of its remedies hereunder, or in renting the Premises to others from time to time (all such Rental, damages, costs, fees and expenses being referred to herein as "Termination Damages"), and (b) additional damages (the "Liquidated Damages"), which, at the election of Landlord, shall be either: Landlord's Initials:_________ Tenant's Initials:_________ (i) an amount equal to the Rental which, but for termination of this Lease, would have become due during the remainder of the Term, less the amount of Rental, if any, which Landlord shall receive during such period from others to whom the Premises may be rented (other than any Additional Rental received by Landlord as a result of any failure of such other person to perform any of its obligations to Landlord), in which case such Liquidated Damages shall be computed and payable in monthly installments, in advance, on the first day of each calendar month following termination of the Lease and continuing until the date on which the Term would have expired but for such termination, and any suit or action brought to collect any such Liquidated Damages for any month shall not in any manner prejudice the right of Landlord to collect any Liquidated Damages for any subsequent month by a similar proceeding; or (ii) an amount equal to the present worth (as of the date of such termination) of Rental which, but for termination of this Lease, would have become due during the remainder of the Term, less the fair rental value of the Premises, as determined by an independent real estate appraiser named by Landlord, in which case such Liquidated Damages shall be payable to Landlord in one lump sum on demand and shall bear interest at the Default Rate until paid. For purposes of this clause (ii), "present worth" shall be computed by discounting such amount to present worth at a discount rate equal to one percentage point above the discount rate then in effect at the Federal Reserve Bank nearest to the location of the Building. Termination Damages shall be due and payable immediately upon demand by Landlord following any termination of this Lease pursuant to Section 23.2. Liquidated Damages shall be due and payable at the times set forth herein. If this Lease is terminated pursuant to Section 23.2, Landlord may relet the Premises or any part thereof, alone or together with other premises, for such term or terms (which may be greater or less than the period which otherwise would have constituted the balance of the Term) and on such terms and conditions (which may include concessions or free rent and alterations of the Premises) as Landlord, in its sole discretion, may determine, but Landlord shall not be liable for, nor shall Tenant's obligations hereunder be diminished by reason of, any failure by Landlord to relet the Premises or any failure by Landlord to collect any rent due upon such reletting. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain, in proceedings for the termination of this Lease by reason of bankruptcy or insolvency, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. The failure or refusal of Landlord to relet the Premises or any part or parts thereof shall not release or affect Tenant's liability for damages. 24. Waiver by Landlord. Landlord's failure to insist upon strict performance by Tenant of any obligation under this Lease, irrespective of the length of time for which such failure continues, shall not be construed as a waiver or relinquishment of Landlord's right to demand strict compliance in the future. The receipt and acceptance by Landlord or Agent of rent with knowledge of the breach of any obligation hereof shall not be deemed a waiver of such breach, and no waiver by Landlord of any provision of this Lease shall be deemed to have been agreed upon unless expressed in a writing signed by the parties. 25. Liens. Tenant shall pay all sums of money due for labor, services, materials, supplies, and equipment furnished at Tenant's request with respect to the Leased Premises or any other part of the Building. If a mechanic's, materialman's, or other lien (or notice of intent to file such a lien) is filed or recorded against the Leased Premises, the Building, or Landlord's interest in either, based upon labor, services, materials, supplies, equipment, or the like ordered, or alleged to have been ordered by Tenant, Tenant shall cause such lien to be discharged of record within ten (10) days after Tenant first has knowledge of such lien. If such lien is not discharged within the ten (10) day period, Landlord may (but shall not be obligated to) cause such discharge by (i) payment to the lienor, (ii) deposit of substitute security with a court having jurisdiction, (iii) bonding, or (iv) such other means chosen by Landlord; and the entire cost of the discharge shall be paid to Landlord by Tenant upon demand. Tenant shall, upon request, furnish Landlord with contractors' affidavits, full and final waivers of right to lien, and receipted bills covering all labor and materials expended and used in or about the Leased Premises by or at the request of Tenant. Landlord's Initials:_________ Tenant's Initials:_________ 26. Signage. Tenant shall not place or display (or cause to be placed or displayed) on any exterior door, wall, or window of the Leased Premises any sign, advertising matter, or other thing of any kind, and shall not place or display any decoration, lettering, or advertising matter on the glass of any window or door of the Leased Premises, without Landlord's prior written approval, Tenant shall maintain such sign, decoration, lettering, advertising matter, or other thing, as may be approved by Landlord, in good condition and repair at all times. Tenant, at Tenant's expense, shall be permitted to place exterior signage on the Mercury Boulevard monumental sign, subject to code restrictions and design approval. Additionally, Tenant, at Tenant's expense, shall be permitted to place its name on exterior in-ground, multi-tenant identification signs, using consistent lettering, that Landlord may, from time to time, erect outside the Building entrances, as well as such additional interior and exterior signage as may be approved by Landlord. Tenant shall be obligated to use the building standard suite entry signage as defined in Exhibit D. 27. Exhibits, Addenda, Rules, and Regulations. All Exhibits, Addenda and Rules and Regulations appended to this Lease are hereby incorporated into this Lease, and Tenant shall comply with and observe the same. Tenant's failure to comply with and observe the same shall constitute a breach of this Lease. Landlord reserves the right to amend, supplement, or add to the Rules and Regulations from time to time, provided that Landlord gives Tenant written notice of all such changes and that such changes are applicable to other office tenants, except Verizon, in the Building. 28. Surrender of Premises. On expiration or sooner termination of the Term, Tenant shall surrender to Landlord the Leased Premises and all Tenant's improvements and alterations, broom clean, in good order, condition, and repair, except for ordinary wear and tear or condemnation or destruction of the Leased Premises, and except for trade fixtures that Tenant has removed. Tenant shall also deliver to Landlord all keys to the Leased Premises and the combination to any safe, remove all its personal property, and make all repairs and reimbursements required pursuant to this Lease; provided, however, Tenant may not remove its personal property from the Leased Premises without Landlord's prior written consent, if Tenant is in breach or default hereunder. Landlord may elect to retain or dispose of in any manner any unapproved alterations or Tenant's personal property that Tenant does not remove from the Premises on expiration or termination of the Term. Title to any such unapproved alterations or Tenant's personal property that Landlord elects to retain or dispose of after expiration of the Term shall vest in Landlord. Tenant waives all claims against Landlord for any damage to Tenant resulting from Landlord's retention or disposition of any such unapproved alterations or personal property. Tenant shall be liable to Landlord for Landlord's costs of storing, removing, and disposing of any unapproved alterations or Tenant's personal property which Landlord does not elect to acquire. 29. Holdover. Tenant shall indemnify and hold Landlord harmless from and against all costs, claims, loss, or liability resulting from delay by Tenant in surrendering the Leased Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. The parties recognize and agree that the damage to Landlord resulting therefrom may be substantial, could exceed the amount of the Minimum Rent payable under this Lease, and could be impossible to measure accurately. Tenant therefore agrees that if Landlord suffers such damages due to Tenant's failure to deliver possession of the Leased Premises within twenty-four (24) hours after the date of the expiration or termination of the Term, then Tenant shall pay, for each month and for each portion of any month during which Tenant holds over in the Leased Premises after the expiration or termination of the Term, 1.5 times the aggregate of that portion of the Minimum Rent which was payable under this Lease during the last month of the Term; however, Tenant may with the consent of the Landlord, holdover in the Leased Premises for a term not to exceed ninety (90) days at 1.035 times the aggregate of that portion of the Minimum Rent which was payable under this Lease during the last month of the Term. If, at the expiration of the ninety (90) day Landlord agreed holdover period, Tenant has not vacated the Leased Premises and delivered possession to Landlord, or executed a new lease with Landlord, Tenant shall pay 1.5 times the aggregate of that portion of the Minimum Rent which was payable under the Lease during the last month of the Term. Nothing contained in this Lease shall be deemed to permit Tenant to retain possession of the Leased Premises after the expiration of the Term. The provisions of this Section shall survive the expiration or termination of the Term. Landlord's Initials:_________ Tenant's Initials:_________ 30. Subordination and Attornment. This Lease is and shall be subject and subordinate to any mortgage, deed of trust, underlying leasehold estate, or other arrangement or right to possession that may now or hereafter be placed upon or affect the Leased Premises or the Land of which the Leased Premises is a part, or against any building hereafter placed upon the land of which the Leased Premises is a part, to all advances to be made thereunder, to the interest and principal payable thereon, and to all renewals, replacements, modifications, consolidations, and extensions thereof. Upon Landlord's request Tenant shall execute and deliver such documents, in such terms as Landlord reasonably requests, to evidence the same. Upon request of any such mortgagee, Tenant shall attorn to and acknowledge the foreclosure purchaser or purchasers as Landlord hereunder. The form of the current lender's non-disturbance and attornment agreement is attached as Exhibit E. 31. Estoppel Certificates. Upon Landlord's request, Tenant shall execute, acknowledge, and deliver to Landlord a written statement, addressed to such person as Landlord may request, (a) certifying that this Lease is in full force and effect and unmodified (or if modified, specifying the modifications), and that Landlord is not in default under this Lease (or if a default is alleged, specifying the default), (b) stating the date to which rent and any other charges have been paid by Tenant and the address to which notices to Tenant should be sent, and (c) certifying or stating such other matters as may be required by Landlord. If Landlord has not received a response within 10 days of any such request, such certificate shall be deemed acceptable to Tenant, whereupon Landlord shall be appointed as Tenant's attorney-in-fact to execute and deliver such certificate. 32. Future Refinancing. If all or part of the Building can be refinanced or further financed only upon the basis of modifications of this Lease, Tenant shall cooperate with Landlord in making such reasonable Lease modifications as may be required; provided, however, Tenant shall not be required to make any modifications that impair Tenant's use of the Leased Premises or relate to, or increase Tenant's costs, liability, risk, amount of Minimum or Excess Rent, the use of the Leased Premises, the duration of the Term, or the improvements, if any, to be made by Landlord to the Leased Premises. 33. Right of Entry. Tenant shall allow Landlord or its representatives to enter the Leased Premises at any reasonable hour to inspect the same, to make any repairs or renovations deemed necessary or desirable, or to show the Leased Premises to prospective tenants, purchasers, or lenders. 34. Force Majeure. Whenever Tenant or Landlord is required by the terms of this Lease or by law to perform any contract, act, work, labor or services, or to discharge any lien against the Leased Premises, or to perform and comply with any laws, rules, orders, ordinances, or regulations, but is unable to perform such act(s), then Tenant or Landlord, as appropriate, shall not be deemed to be in default and the other party shall not enforce or exercise any of its rights under this Lease, if and so long as nonperformance or default is directly caused by strikes, non-availability of materials, war or national defense preemptions, governmental restrictions, acts of God, acts of the other party, or other similar causes beyond the reasonable control of the non-performing party. Tenant and Landlord shall in any event pay any sum of money required to discharge any lien incurred by them if at any time the Leased Premises, or any part thereof, is in danger of being foreclosed, forfeited, or lost by reason of such lien. 35. Limitation of Landlord's Liability. To the extent covered by Landlord's insurance, Landlord shall be responsible or liable for latent defects, deterioration, or change in the condition of the Building, the Common Areas, or the Leased Premises, and for any damage resulting therefrom, whether to person or property, or for loss to any property of Tenant as a result of theft or misplacement, or for inconvenience, business interruption, or loss of business of Tenant for any reason, provided, however, if Landlord fails to keep in place any insurance required under this Lease, Landlord shall be fully liable for, and shall indemnify Tenant against, all such claims. To the extent covered by Tenant's insurance, Tenant shall indemnify and hold Landlord harmless from and against any and all claims arising out of Tenant's use or occupancy of, or from any other activity permitted or suffered by Tenant in or about the Leased Premises, the Building, or the Common Areas; provided, however, if Tenant fails to keep in place any insurance required under this Lease, Tenant shall be fully liable for, and shall indemnify Landlord against, all such claims. Regardless of any other provision in this Lease, if Landlord defaults in the performance of any of its obligations, Tenant agrees to look solely to Landlord's insurance and Landlord's interest in the Building or to the undistributed proceeds of any sale of the Building for the satisfaction of any judgment obtained by Tenant as a result of any default, and Tenant shall not otherwise seek any personal money judgment against Landlord or any of its officers, directors, Landlord's Initials:_________ Tenant's Initials:_________ stockholders, or partners. The foregoing shall not be deemed to limit Tenant's right, if any, to obtain equitable remedies such as injunctive relief or specific performance. 36. Notices. Any notice, demand, consent, request, or other communication required or permitted under this Lease shall be in writing and shall be given by hand delivery or sent by the United States mail by certified mail, return receipt requested, postage prepaid, and addressed as indicated in Section 1. Notice shall be deemed given when hand delivered or two days after deposit with the United States Postal Service. The parties may change their respective addresses by written notice to all other parties. 37. Quiet Enjoyment. Landlord covenants that Tenant, on paying all rents and performing all the obligations set forth in this Lease, shall have and enjoy quiet and peaceable possession of the Leased Premises during the Term. 38. Entire Agreement. This Lease contains the entire agreement between the parties with respect to the leasing of the Leased Premises and supersedes, merges and replaces all prior written or oral agreements, negotiations, offers, representations, and warranties with respect to the leasing of the Leased Premises. This agreement cannot be altered, waived, or modified in any way, including the provisions of this Section, except in a writing signed by the parties. No course of dealing between the parties, no usage of trade, and no parol or outside evidence of any nature shall be used to modify, interpret, or supplement any provision of this Lease. 39. Survival. The representations, warranties, and agreements of the parties contained in this Lease and in all other documents delivered in connection with this Lease shall survive the expiration or sooner termination of this Lease. 40. Severability. If any provision of this Lease is unenforceable, the remainder of this Lease shall continue in effect and be construed as if the unenforceable provision had not been contained in this Lease. Each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 41. Successors and Assigns. This Lease shall be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors, and assigns; provided, however, that this Section shall not be construed to permit the assignment of this Lease except as expressly provided. 42. Third Party Beneficiaries. The provisions of this Lease are intended to benefit only the parties to this Lease. No person not a party to this Lease shall be deemed a third party beneficiary of this Lease, nor shall any such person be authorized or empowered to enforce the provisions of this Lease, except to the extent such a person becomes a permitted assignee of one of the parties. 43. Venue. Regardless of what venue would otherwise be permissive or required, the parties stipulate that all actions arising under or affecting this Lease shall be brought in the Circuit or General District Courts of the City of Hampton, Virginia, the parties agreeing that such forum is mutually convenient and bears a reasonable relationship to this Lease. 44. Consent to Jurisdiction and Service of Process. The parties irrevocably submit to the jurisdiction of the state courts of the Commonwealth of Virginia and to the jurisdiction of the United States District Court for the Eastern District of Virginia, for the purpose of any suit, action, or other proceeding arising under or affecting this Lease. 45. Counting Days. In computing the number of days for purposes of this Lease, all days shall be counted including weekends and holidays; provided, however, that if the last day for taking any action under this Lease shall fall on a Saturday, Sunday, or banking holiday, the time for taking such action shall be extended to the next regular business day. 46. Number and Gender. When used in this Lease, the singular includes the plural, the plural includes the singular, and the use of any gender includes any other gender, as circumstances may require. The term "person" includes both natural persons and entities. Landlord's Initials:_________ Tenant's Initials:_________ 47. Headings. The headings contained in this Lease are for the convenience of the parties only, and are not a part of the substantive agreement of the parties nor shall they affect the meaning or interpretation of any provision of this Lease in any way. 48. Counterparts. This Lease may be executed in multiple counterparts. When at least one copy of this Lease has been executed by each party to this Lease, this Lease shall be in full force and effect, and all of such counterparts shall be read together as a single agreement. 49. Recording. Upon request of either Tenant of Landlord, the parties shall execute a short form of this Lease on a written document witnessed and acknowledged in form capable of being recorded in the public records, which short form Lease shall be recorded at the sole cost and expense of the party requesting the same in the Clerk's Office of the Circuit Court of the city wherein the Leased Premises are located. 50. Reimbursement for Credit Report. Intentionally omitted 51. Agent's Commission. (a) In consideration of Agent's services in procuring this Lease, Landlord shall pay Agent a leasing commission per separate agreement. Landlord and Tenant represent to each other that they have not dealt with any broker in connection with this Lease, other than Agent and CB Richard Ellis, and that no broker or other person is entitled to any commission or fee by reason of the negotiation and execution of this Lease. (b) Upon execution of this Lease by both parties, Lessor shall pay to CB Richard Ellis of Virginia, Inc., licensed real estate broker, the sum of four percent (4%) of the aggregate total lease value, one half within thirty (30) days after lease execution and one half within thirty (30) days after occupancy for brokerage services rendered by said broker to Lessor in this transaction. 52. Agent Disclosure. The parties acknowledge that Divaris Real Estate, Inc. is a licensed real estate brokerage firm and is acting in the capacity as broker for the Building. 53. Trial by Jury. Landlord and Tenant each waives any right to trial by jury of any issue(s) in a summary proceeding or any other suit, action, proceeding or counterclaim at any time brought or instituted by or against the other with respect to or involving the Leased Premises or any matter arising under or connected with this Lease and the relationship of Landlord and Tenant created by this Lease. 54. Right of First Refusal. Landlord grants to Tenant the right of first refusal on the contiguous first floor space directly below the proposed Premises, commonly known as Suites 173 - 185, and more specifically delineated in Exhibit BA-1. The right of first refusal will apply to any functional part of this area that Tenant chooses to lease. In the event that Landlord proposes, or in good faith intends to propose to lease, some or the entire first right of refusal space, Landlord shall provide written notice of the significant terms and conditions of such proposal. Tenant shall have the first right to lease the proposed space under the same terms and conditions by providing affirmative written notice to Landlord within ten (10) days of receipt of Landlord's notice. Tenant's affirmative response shall be binding upon Tenant. Failure by Tenant to notify Landlord of its intentions within ten (10) days shall be deemed a waiver of Tenant's right to lease such space. IN WITNESS WHEREOF each corporate party hereto has caused this Lease to be executed in its name and behalf by its duly authorized officer or agent; each individual party hereto has hereunto set his hand, and each partnership party hereto has caused this Lease to be executed in its name and behalf by the required number of its Members. LANDLORD: NetCenter Partners, LLC Landlord's Initials:_________ Tenant's Initials:_________ By: /S/ R. Jeffery Arnold ----------------------------- Name: R. Jeffery Arnold Title: Managing Member Date: ----------------------------- TENANT: Portfolio Recovery Associates, LLC By: /S/ Steven D. Fredrickson ----------------------------- Name: Steven D. Fredrickson Title: President, CEO Date: November 14, 2002 COMMONWEALTH OF VIRGINIA CITY OF ______________________, to-wit: The foregoing instrument was acknowledged before me this ____ day of _________, 2002 by ______________________________ of ____________________________. --------------------------------- Notary Public My Commission expires: _________________________ * * * COMMONWEALTH OF VIRGINIA CITY OF ______________________, to-wit: The foregoing instrument was acknowledged before me this ____ day of _________, 2002 by ______________________________ of ____________________________. --------------------------------- Notary Public My Commission expires: _________________________ * * * Landlord's Initials:_________ Tenant's Initials:_________ OPTION RIDER Landlord grants to Tenant an option to renew this Lease, upon the following terms and conditions: Provided Tenant is not in default of any of the terms and conditions of the Lease and Tenant is not, at the time the Option may be renewed and at the time the Option is renewed, delinquent in any payment of Rents, Additional Rents or other sum of money due, Landlord grants to Tenant two (2) consecutive options of five (5) years each to renew Lease. Tenant must give Landlord a minimum of one hundred-eighty (180) days advance written notice of Tenant's exercise of each option prior to the expiration of the current Term or extended Term, as applicable. The Minimum Rent shall be adjusted to the then market rate for equivalent facilities in the Building and for relevant and comparable facilities in the general marketplace. Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT A [FLOOR PLAN] Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT A-1 [RIGHT OF FIRST REFUSAL SPACE FLOOR PLAN] Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT B TENANT IMPROVEMENTS Tenant accepts the Premises in "as is" condition except for the following: 1. Landlord shall, at its expense, construct the shell improvements above the finished ceiling (and including the finished ceiling) within the Leased Premises in accordance with the attached Landlord Standard Work Letter (Exhibit D), except that HVAC shall be installed at one (1) ton per 350 square feet of usable square feet. 2. Landlord agrees to complete the Tenant's interior build-out, first, to the specifications provided as part of the approved construction drawings and, secondly, to the Landlord's standard building specifications. Landlord will construct Tenant's improvements up to an allowance of $16 per rentable square foot below the finished ceiling. Any costs over the allowance will be the Tenant's sole financial responsibility. Tenant will reimburse Landlord for all costs in excess of $16 per rentable square foot within ten (10) days after receipt of Landlord's invoice and supporting detail. 3. Interior architectural design for the Premises (above and below the ceiling) will be provided by Morrisette Architecture at an allowance by Landlord of $0.60 per square foot for space plans and approved final construction drawings. Payment of the aforementioned $0.60 per usable square foot will be the Landlord's financial responsibility; any additional costs above $0.60 per usable square foot associated with space planning or construction drawings shall be Tenant's financial responsibility. 4. Landlord, at its cost, will provide electronic security card access to the Building at the northeast exterior entrance on the second level. All other Building access doors will be manually locked after normal operating business hours for the Building. In addition, interior card access portals separating the retail area of the Building from the office area of the Building will be installed at Landlord's expense. 5. In the event that Tenant elects to specify non building standard upgraded lighting, Landlord shall install, at Tenant's expense, such Tenant desired ceiling light fixtures and provide a credit of $60 per building light fixture that would have otherwise been installed. If Tenant desires lighting in excess of one (1) fixture per one-hundred (100) rentable square feet, Landlord shall install such additional lighting at Tenant's expense. 6. In the event that Tenant elects to specify non building standard ceiling height (greater or less than ten (10) feet), Tenant shall be responsible for all additional cost implications, including, but not limited to, sprinkler head installation, mechanical equipment, extra sheetrock, etc. 7. Landlord will allow Tenant, at its expense, to construct an exterior generator pad to the rear of the Leased Premises, as shown on Exhibit A, subject to Landlord's approval regarding specific location and design. Tenant may, at its expense, install a generator on the generator pad, provided that said generator is properly ventilated and enclosed. Tenant shall be responsible for maintaining and servicing its generator. 8. Landlord will allow Tenant to create an outside seating area near the proposed exterior generator pad in the location shown on Exhibit A. Landlord, at its expense, will remove the existing exterior brick wall and Tenant will be financially responsible for any and all improvements associated with its outside seating area. The design and layout of Tenant's outside seating area shall be subject to code as well as approval by Landlord. Tenant shall, at its expense, be responsible for policing, cleaning and maintaining the outside seating area upon completion. Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT B-1 RULES AND PROCEDURES FOR CONTRACTORS The following rules and procedures have been promulgated by NetCenter Partners, LLC ("Landlord") to ensure that any modifications or improvements within NetCenter (the "Building") and/or to the Building or the Building systems and equipment (and/or to any leased premises within the Building) are completed in compliance with established standards while maintaining a level of safety consistent with industry standards. The review of tenant plans and/or specifications by Landlord and its insurers, consultants or other representatives, does not imply that any plans so reviewed comply with applicable laws, ordinances, codes, standards or regulations. Nor does Landlord's review or approvals imply that any work is to be performed at Landlord's expense. Landlord reserves the explicit right to eject from the Building any person or contractor who does not comply with these rules after one day's notice. I. GENERAL A. No work will be performed within the Building until the Landlord has received a full set of architectural drawings and specifications and has given written approval. B. All modifications performed within the Building must comply with applicable federal, state and local codes and ordinances. C. Prior to the commencement of any work, a building permit must be obtained and displayed and a certificate of insurance from the Contractor must be furnished to the Landlord naming the following entities as additional insureds: - NetCenter Partners, LLC - Divaris Property Management Corp. - Concord Partners, LLC - RAIT Partnership, L.P. - Sovereign Bank D. The Contractor must notify the Landlord of all work scheduled and provide the Landlord with a list of personnel working in the Building. E. The Contractor must furnish the Landlord with a list of all subcontractors to be engaged as well as emergency phone and/or pager numbers prior to commencing the work. F. The Contractor must provide an on-site project superintendent while construction work is in process. G. All workers must be dressed appropriately when working in the Building. Shirts must be worn at all times. No shorts are permitted. H. All carts must be furnished with pneumatic tires and rubber bumpers. I. Smoking is not allowed in any occupied part of the Building. Landlord's Initials:_________ Tenant's Initials:_________ J. The use of loud music is prohibited. K. Any work that requires access to another tenant's space must first be coordinated through the Landlord's representative. Any additional costs of security or building engineering services required due to Contractor's work [or during the performance of the Contractor's work] shall be charged to the Contractor. L. Dumping of construction debris into Building drains, mop sinks, trash dumpsters, etc. is strictly prohibited. If this activity does occur, the Contractor shall be charged 200% of Landlord's cost of clearing any drain, sink or dumpster where evidence of this activity is found. M. Common building restrooms will be designated for use by the Contractor. The Contractor shall be responsible for any damage to such restrooms and for cleaning and stocking during construction. N. The Contractor shall repair all existing common area finishes disturbed by the work or damaged by the Contractor's or subcontractor's personnel. O. The work performed by the Contractor or its subcontractors may be performed only during hours and days pre-approved by the Landlord's representative. The Landlord's representative must pre-approve any work that entails excessive noise, vibration or noxious odors. P. Prior to core drilling or cutting, all slabs must be x-rayed and Landlord's structural engineer must review x-rays before the Contractor may commence work. If obstructions are detected, the core drill locations or cutting must be moved as necessary. Q. Any roof related work must be performed by the base Building roofing contractor in order to ensure that the roof warranties are not jeopardized or voided. R. The Contractor shall immediately report all accidents to the Landlord in writing after first notifying Landlord's representative by telephone or in person. S. The Contractor shall obtain lien waivers from all subcontractors and suppliers of materials relating to the work performed. In the event that any mechanics liens are filed against the Building, the Contractor shall, within five (5) days, pay off, or escrow sufficient funds against or bond around the filed lien(s). II. INSURANCE A. Prior to the commencement of any construction work in the Building, or in any leased premises, Contractor is required to submit a Certificate of Insurance, in limits acceptable to the Landlord, naming the following entities as additional insureds: NetCenter Partners, LLC 1225 19th Street, NW, Suite 850 Washington, DC 20036 and Divaris Property Management Corp. One Columbus Center, Suite 700 Virginia Beach, VA 23462 and RAIT Partnership, L.P. 1818 Market Street, 28th Floor Philadelphia, PA 19103 Landlord's Initials:_________ Tenant's Initials:_________ and Sovereign Bank 2000 Market Street, Suite 1420 Philadelphia, PA 19103 The Landlord reserves the right to inspect the Contractor's requirements for Certificates of Insurance for each of the subcontractors. B. Minimum Limits of Insurance The Contractor shall maintain limits no less than: 1. Commercial general liability: $1,000,000 combined single limit per occurrence for death, bodily injury and property damage. Minimum $2,000,000 aggregate. (The general aggregate limit shall apply separately to this project/location or the general aggregate shall be twice the required limit.) 2. Automobile liability: $1,000,000 per person/$2,000,000 per accident for death, bodily injury and property damage. 3. Workers compensation and employers liability: Workers compensation limits as required by the labor code of the jurisdiction in which the Building is located and employers liability limits of $1,000,000 per accident. 4. Umbrella Liability: $5,000,000 per occurrence and $5,000,000 aggregate. (The aggregate limit shall apply separately to this project/location). C. Coverages 1. General Liability and Automobile Liability Coverage (a) The Landlord, the managing agent of the Building, the holder of any mortgage, and their respective officers and employees are to be covered as additional insureds as respects: liability arising out of activities performed by or on behalf of the Contractor; projects and completed operations of the Contractor; premises owned, leased, or used by the Contractor; or automobiles owned, leased, hired, or borrowed by the Contractor. The coverage shall contain no special limitations on the scope afforded. The Contractor's insurance shall apply separately to each insured against whom claim is made or suit is brought except with respect to the limits of the insurer's liability. 2. Workers Compensation and Employers Liability Coverage The insurer shall agree to waive all rights of subrogation against the Landlord, its officers, officials, and employees for losses arising from work performed by the Contractor for the Landlord. 3. All Coverages Each insurance policy required by this clause shall be endorsed to state that coverage shall not be suspended, voided, canceled by either party, reduced in coverage or in limits except after 30 days prior written notice by certified mail, return receipt requested, has been given to the Landlord. III. LIFE SAFETY, FIRE AND SPRINKLER SYSTEMS Landlord's Initials:_________ Tenant's Initials:_________ A. All work to the Building's sprinklers or life safety systems must be arranged in advance through the Building Manager, who may be reached at (757) 497-2113 or (757) 838-9500. B. The Building Manager must be contacted prior to any welding so that the fire alarm systems can be properly monitored or turned off. C. Contractor will not disconnect, tamper with, delete, obstruct, relocate, or expand any life safety equipment, except as indicated on drawings approved by the Building Manager. D. Any unit or device temporarily incapacitated will be red-tagged "Out of Service" and the Building Manager will be alerted prior to the temporary outage. E. All Tenant installed fire alarm initiation and notification devices that connect with the base building fire alarm system shall match the base building system and be approved by the Building Manager. F. All sprinkler systems and equipment are to be designed and installed in accordance with the current standards of the National Fire Protection Association. G. All corrective work to the fire alarm system due to the Contractor's work shall be charged to the Contractor. IV. DELIVERIES, LOADING DOCK AND PARKING A. Entrance and exit to the Building by workmen or by delivery persons shall be at times and locations pre-determined by the on-site Building Manager. B. All employees of Contractor or any subcontractor must notify the on-site Building Manager each day of the commencement of work. C. Any large material deliveries, activities affecting other tenants of the Building, staying in the parking lot or access to electrical or telephone closets must be coordinated through the on-site Building Manager at (757) 838-9500. D. Parking in the Building parking lot by workmen must be in areas pre-approved by the Building Manager. E. Deliveries which entail the rolling of materials across finished floor surfaces require that the flooring be protected by masonite during the delivery. V. ELEVATOR A The passenger elevator(s) and escalator(s) may not be used by workmen or delivery persons for any purpose. B. The freight elevators may be used by workmen or delivery persons with prior notice to and approval by the Building Manager. C. Any costs to repair damage to the elevators or escalators including dust or dirt in machine rooms or costs for service calls resulting from the Contractor's operations will be charged to the Contractor. Landlord's Initials:_________ Tenant's Initials:_________ VI. BUILDING OPERATING HOURS A. The Building is staffed from 9:00 a.m. to 6:00 p.m., Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays. Any construction work occurring beyond these hours must be approved at least 24 hours in advance with the Building Manager. B. No construction activity will be permitted outside of the stated hours without the permission of the Building Manager. Landlord's Initials:_________ Tenant's Initials:_________ VII. OTHER BUILDING TENANTS, COMMON AREAS AND HOUSEKEEPING A. If work is necessary in an occupied or unoccupied adjacent tenant space, the Contractor will be fully responsible to protect existing finishes, furniture, etc. B. Any damage done in adjacent spaces or in common areas will be the sole responsibility of the Contractor. C. All cleanup and trash removal from the Building are the sole responsibility of the Contractor. VIII. PERMITS, DRAWINGS AND CODES A. Approved Drawings: Contractor will supply the Building Manager with one copy of all approved drawings for review prior to commencement of any alteration (including architectural, structural, mechanical, electrical, plumbing and lighting). Any work to be performed that impacts the sprinkler systems shall require submission of sprinkler drawings showing locations of all existing sprinkler heads as well a proposed location of new heads along with approved hydraulic calculations to be approved by the local Fire Marshall prior to commence of work. B. As-Built Drawings: At the completion of the work, the Contractor shall furnish the Landlord with one (1) set of reproducible drawings and two (2) sets of blue-line prints showing the final as-built construction work performed. C. Building Permits and Codes: Applicable alterations shall be approved by the appropriate government agencies and permits shall be obtained by the Contractor. A copy of all such permits shall be supplied to the Building Manager. IX. UTILITIES A. Utilities (i.e. electric, gas, water, telephone/cable) must not be cut off or interrupted without 48 hours prior notice and written permission given by the Building Manager and affected tenants. X. SECURITY A. The Contractor will be responsible for controlling any keys or access cards furnished by Landlord and will return them to the Landlord. B. The Contractor will be responsible for locking any secure area made available to the Contractor whenever that area is unattended. C. The Contractor's on-site personnel may be required to wear acceptable forms of identification badges. XI. CLEANING A. Contractor will remove all trash and debris as often as necessary to maintain cleanliness in the Building. The Building trash compactors or containers are not to be used for construction debris. B. Walk-off mats or other protection must be provided at door entrances where work is being performed. Landlord's Initials:_________ Tenant's Initials:_________ C. Carpeting must be protected by plastic runners or hardboard as necessary to maintain cleanliness and to protect carpets from damage. D. Tile, granite and wood floors shall be protected from damage as necessary. E. Contractor will furnish a vacuum(s) with a supply of clean bags and an operator to facilitate ongoing clean-up. F. Trash removal will be scheduled by the Contractor and coordinated with the Building Manager. G. Contractors must remove all food cartons and related debris from the work area on a daily basis. H. Driveway and street cleaning by the Contractor will be required when the Contractor's work has created mud or debris. XII. MECHANICAL AND ELECTRICAL WORK A. Before any new electrical or mechanical equipment is installed in the Building, Contractor must submit a copy of the manufacturer's data sheets along with complete shop drawings and submittals to the Landlord for approval. B. Any installation or modification to Building HVAC or electrical system must be first submitted for review by the Landlord. This includes Building systems as well as supplemental units and/or exhaust systems. C. The mechanical and electrical plans must be prepared by a licensed engineer and must show size and location of all supply and return grilles. The Landlord's MEP engineer will review all MEP drawings. D. Contractors modifying ductwork, air grilles, VAV boxes, etc. must balance the air and water systems as necessary. All air balancing must be done in the presence of the Landlord. Two copies of all balance reports shall be submitted to the Landlord for review and approval. E. Exhaust fans must not be installed which discharge into a return ceiling plenum. Such fans will be ducted to the outside via exhaust shafts or other routes as approved by the Landlord. F. All telecommunications and electrical systems wiring which are not to be reused including conduit, BX cable, electric, telephone or data wiring, shall be removed from the ceiling back to the originating terminal block or panel. G. The installation of Tenant equipment (except emergency lighting per code) on the base building emergency power supply systems is not permitted. H. All circuit breaker panels must be clearly and accurately identified with typed labels. I. Tenant installed equipment that supplements existing base building equipment such as VAV boxes, fire alarm devices, control work; etc. shall be identical to the existing base building equipment to facilitate warranty and maintenance operations. J. All concealed equipment shall be located with necessary accessibility for maintenance and repair. Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT C RULES AND REGULATIONS 1. OBSTRUCTION OF PASSAGEWAYS. The sidewalks, entrances, passages, courts, corridors, and other public parts of the Building shall not be obstructed or encumbered by Tenant or used by Tenant for any purpose other than ingress and egress. 2. WINDOWS. Windows in the Premises shall not be covered or obstructed by Tenant. No bottles, parcels, or other articles shall be placed on the window sills, in the halls, or in any other part of the Building. No article shall be thrown out of the doors or windows of the Premises. 3. PROJECTIONS FROM BUILDING. No awnings, air conditioning units, or other fixtures shall be attached to the outside walls or the window sills of the Building by Tenant or otherwise affixed by it so as to project from the Building, without the prior written consent of Landlord. 4. SIGNS. No sign or lettering shall be affixed by Tenant to any part of the outside of the Building, or any part of the inside of the Leased Premises so as to be clearly visible from the outside of the Building, without the prior written consent of Landlord. 5. FLOOR COVERING. Tenant shall not lay linoleum or other similar floor covering so that the same shall come in direct contact with the floor of the Premises. If linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt first shall be fixed to the floor by a paste or other material that may easily be removed with water, the use of cement or other similar adhesive material being expressly prohibited. 6. INTERFERENCE WITH OCCUPANTS OF BUILDING. Tenant shall not make, or permit to be made, any unseemly or disturbing noises and shall not interfere with other tenants or those having business with them. Tenant will keep all mechanical apparatus in the Leased Premises free of vibration and noise which may be transmitted beyond the limits of the Leased Premises. 7. LOCKS, KEYS. No additional locks or bolts of any kind shall be placed on any of the doors or windows by Tenant. Notwithstanding, Tenant shall be permitted to install its own interior security system subject to Landlord's prior approval which shall not be unreasonably withheld. Tenant shall, on the termination of Tenant's tenancy, deliver to Landlord all keys to any space within the Building, either furnished to or otherwise procured by Tenant, and in the event of the loss of any keys furnished Tenant shall pay Landlord the cost thereof. Tenant, before closing and leaving the Leased Premises, shall ensure that all its windows are closed and its entrance doors locked. 8. CONTRACTORS. No contract of any kind with any supplier of non-inventory items, including towels, water, ice, toilet articles, waxing, rug shampooing, venetian blind washing, furniture polishing, electrical servicing or cleaning, removal of waste paper or garbage, or other like service shall be entered into by Tenant, nor shall any vending machine of any kind be installed in the Leased Premises or the Building, without the prior written consent of Landlord. Landlord shall not be responsible to Tenant for any loss of property from the Leased Premises however occurring, or for any damage done to the effects of Tenant by janitors or any of Tenant's employees, or by any other person or any other cause. 9. PROHIBITED AND LEASED PREMISES. Tenant shall not, without the prior written approval of Landlord, (i) conduct, or permit any other person to conduct, any auction upon the Leased Premises, (ii) manufacture or store goods, wares or merchandise upon the Leased Premises, except the storage of usual supplies and inventory to be used by Tenant in the conduct of its business, (iii) permit the Leased Premises to be used for gambling or any other illegal activity, (iv) make any unusual noises in the Building, (v) permit to be placed any musical instrument on the Leased Premises, (vi) permit to be played any radio, television, recorded or wired music in such a loud manner as to disturb or annoy other tenants, or (vii) permit any unusual odors to be produced upon the Leased Premises. Canvassing, soliciting and peddling into the Building Landlord's Initials:_________ Tenant's Initials:_________ are prohibited, and Tenant shall cooperate to prevent the same. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Leased Premises or the Building except that vehicles may be parked in the parking spaces provided in the Common Areas and in accordance with such other rules with respect to vehicles and parking as may be established from time to time by Landlord. 10. PLUMBING, ELECTRIC AND TELEPHONE WORK. Plumbing facilities shall not be used for any purpose other than those for which they were constructed; and no sweepings, rubbish, ashes, newspaper or other substances of any kind shall be thrown into them. Waste and excessive or unusual usage of electricity or water is prohibited. When electric wiring of any kind is introduced, it must be connected as directed by Landlord, and no stringing or cutting of wires will be allowed, except by prior written consent of Landlord, and shall be done by contractors approved by Landlord. The number and locations of telephones, telegraph instruments, electrical appliances, call boxes, etc., shall be subject to Landlord's approval. 11. MOVEMENT OF FURNITURE, FREIGHT OR BULKY MATTER. The carrying in or out of freight, furniture or bulky matter of any description must take place during such hours as Landlord may from time to time reasonably determine and only after at least three (3) days advance notice to the superintendent of the Building. The persons employed by Tenant for such work must be reasonably acceptable to Landlord. Tenant may, subject to such advance notice to the superintendent of the Building and such other reasonable conditions as Landlord may establish from time to time, as well as the other provisions hereof, move freight, furniture, bulky matter, and other material into or out of the Leased Premises provided Tenant pays additional costs, if any, incurred by Landlord for security guards, and for any other expenses occasioned by such activity of Tenant. If Landlord requests that Tenant deposit with Landlord, as security for Tenant's obligation to pay such additional costs, a sum of which Landlord reasonably estimates to be the amount of such additional costs. Tenant shall deposit such sum with Landlord as security for such cost. There shall not be used in the Building or Leased Premises, either by Tenant or by others in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and side guards, and no hand trucks will be allowed in the Building without the consent of the superintendent of the Building. 12. SAFES AND OTHER HEAVY EQUIPMENT. Landlord reserves the right to prescribe the weight and position of all safes and other heavy equipment so as to distribute properly the weight thereof and to prevent any unsafe condition from arising. 13. NOTICE OF ACCIDENTS. Tenant shall give Landlord prompt written notice of any accident or damage occurring on or to the Leased Premises or the Common Areas adjacent to the Leased Premises. Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT D LANDLORD STANDARD WORK LETTER PARTITIONS/DOORS/WINDOW SYSTEMS: >> Slab-to-slab 5/8", 1-hour fire rated sheetrock demising partitions and exterior walls taped and spackled (by Landlord) and ready for paint application (by Tenant). 3 5/8" supporting metal studs, 24" on center. Sound insulation to be provided in demising partitions at Tenant's option and expense. >> All interior columns covered with 1/2" sheetrock extended 6" above the ceiling, taped and spackled by Landlord and ready for paint application by Tenant. >> Building standard glass suite entry door and window combination system from exterior of Netcenter (as may be applicable), manufactured by United States Aluminum, 10'-0" x 12'-0", with 3'-0" x 8'-0" entry door, anodized natural aluminum frames, with low-E, double-pane insulated tempered glass. >> Building standard glass suite entry door and window combination system from interior of Netcenter, manufactured by United States Aluminum, 10'-0" x 12'-0", with 3'-0" x 8'-0" entry door, tempered glass with anodized natural aluminum frames. >> Building standard window system(s) from interior of Netcenter (where applicable), manufactured by United States Aluminum, 10'-0" x 12'-0", tempered glass with anodized natural aluminum frames. SPRINKLER: >> Existing condition base building sprinkler system to remain (meets or exceeds NFPA minimum standard). Existing sprinkler heads turned up in accordance with local codes until tenant improvements are constructed. Landlord will turn existing heads back down. >> Additional required and/or relocated heads based upon tenant layout to be provided at Tenant's expense. Sprinklers to be installed with recessed heads and in accordance with local codes. All sprinkler heads to be centered on acoustical tiles in drop ceiling. HVAC: >> HVAC system(s) provided by Landlord, installed at one ton per 400 RSF; additional HVAC capacity, if needed, provided at Tenant's expense. >> HVAC package units to be roof deck mounted and self-contained or split systems. Building standard thermostat controls to be provided, one for each package unit, installed in open areas of Tenant's space. >> Landlord to provide trunk distribution lines (rigid duct) above finished ceiling from each package unit. Tenant to be responsible for installation cost of flexible duct extensions and supply air/return air diffusers, as needed for Tenant space layout. CEILINGS: >> Interior grid and drop ceiling provided, 2' x 4' Celetex acoustical ceiling tile, with typical ceiling height of 10'-0" AFF. Landlord's Initials:_________ Tenant's Initials:_________ TENANT LIGHTING: >> 6" deep 2'x4' 277v 3-lamp F32/T8 Lithonia fluorescent fixtures with energy-saving electronic ballasts, parabolic 18-cell lay-in light lens, with air supply/return perimeter slots. >> Tenant lighting will be provided at one (1) light fixture per 100 RSF, additional fixtures to be provided at Tenant's expense. ELECTRICAL: >> Landlord to provide building standard electrical service extended from building electrical switch gear room to Tenant space as follows: - For each increment of 5,000 RSF of Tenant space, one (1) electrical distribution panel box with 200 AMP service installed within the Tenant space. Distribution of service and wiring within Tenant space to be provided at Tenant's expense. - 480/277v, three phase light panel within Tenant space for building standard fluorescent lighting. Two (2) watts per square foot capacity for lighting. - K-13 rated transformer. - 120/208, single-phase convenience power panel with up to forty (40) breaker switches. Estimated six (6) watts per square foot capacity available for Tenant's internal use. - Emergency and exit lighting as required in all core areas, including common lobbies, toilet rooms, and MEP and equipment rooms. All other fire and life safety lighting within Tenant's space to be provided at Tenant's expense. - E-mon D-mon KWH stand alone meter(s) to be installed in the main electrical switchboard room at Tenant's expense. Model number is based upon voltage and phase. FLOORING: >> Exposed concrete floor finish, ready to receive Tenant flooring material. TENANT SIGNAGE: >> Building standard Tenant suite identification signage provided by Landlord and paid for by Tenant. RESTROOMS >> Landlord, at its cost, provides restrooms in the common areas per code requirements based upon building square footage. If Tenant decides to install restrooms within its demised space, Tenant is responsible for the cost. ANY CHANGES IN MATERIALS, QUANTITIES, SIZES OR PROVISIONS IN EXCESS OF THOSE SPECIFIED HEREIN THAT TENANT DESIRES TO BE INSTALLED IN OR ABOUT THE LEASED PREMISES SHALL BE AT TENANT'S EXPENSE Landlord's Initials:_________ Tenant's Initials:_________ EXHIBIT E SUBORDINATION, NON-DISTURBANCE, ATTORNMENT AND ESTOPPEL AGREEMENT THIS AGREEMENT made as of the ____ day of __, 200___, among SOVEREIGN BANK, a Pennsylvania Bank with an office for the transaction of business at 2 Aldwyn Center, Villanova, PA 19085 ("Mortgagee"), and RAIT PARTNERSHIP, L.P., a Delaware limited partnership, having an address at 1845 Walnut Street, 10th Floor, Philadelphia, Pennsylvania 19103 ("Second Mortgagee"), and NETCENTER PARTNERS, LLC, a Virginia limited liability company, with an office at 1225 19th Street, NW, Suite 850, Washington, DC 20036 ("Landlord"), and ,__ a with an office at ________ ("Tenant"). W I T N E S S E T H WHEREAS, the Landlord owns title to an improved parcel of land located at 5200 West Mercury Boulevard in Hampton, Virginia upon which a mixed-use office and retail project has been constructed (collectively referred to herein as the "Facility"); and WHEREAS, the Landlord, in order to pay for various improvements to the Facility, has arranged a loan with the Mortgagee (the "Loan") and a loan with Second Mortgagee ("Second Loan"); and WHEREAS, as security for the Loan, Landlord has entered into or is otherwise obligated on a mortgage or mortgages (collectively, the "Mortgage") which grants to the Mortgagee a mortgage lien on the Facility and has entered into a certain Assignment of Rents and Leases (the "Assignment") which assigns to Mortgagee all of the right, title and interest of Landlord under all present and future leases of any part of the Facility including the Lease (as hereinafter defined); and WHEREAS, as security for the Second Loan, Landlord has entered into or is otherwise obligated on a mortgage or mortgages (collectively, the "Second Mortgage") which grants to the Second Mortgagee a mortgage lien on the Facility and has entered into a certain Second Assignment of Rents and Leases (the "Second Assignment") which assigns to Second Mortgagee all of the right, title and interest of Landlord under all present and future leases of any part of the Facility including the Lease (as hereinafter defined); and WHEREAS, the Mortgage, the Second Mortgage, the Assignment and the Second Assignment have been or are to be recorded in the Clerk's Office of Hampton, Virginia (the "Public Records"); and WHEREAS, Landlord and Tenant have entered into a certain lease agreement dated (the "Lease") for the lease by Tenant of certain premises in the Facility __________________ (the "Leased Premises"); and WHEREAS, the terms of the Mortgage and the Second Mortgage require that the Lease be subordinated to the lien, operation and effect of the Mortgage and the Second Mortgage; and WHEREAS, Tenant desires a recognition of and consent to the Lease terms by Mortgagee and to be assured of continued occupancy of the Leased Premises under the terms of the Lease in the event that Mortgagee succeeds to the rights of the Landlord under the Lease pursuant to the terms of the Mortgage or the Assignment; and WHEREAS, Tenant desires a recognition of and consent to the Lease terms by Second Mortgagee and to be assured of continued occupancy of the Leased Premises under the terms of the Lease in the event that Second Mortgagee succeeds to the rights of the Landlord under the Lease pursuant to the terms of the Second Mortgage or the Second Assignment. NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) by each party in hand, paid to the other, the receipt of which is hereby acknowledged, and in connection of the mutual promises, covenants and agreements herein contained, the parties hereto, intending to be legally bound hereby, promise, covenant and agree as follows: 1. Incorporation of Recitals. The Recitals portion of this Agreement is hereby incorporated by this reference as fully as though it were here rewritten. 2. Subordination of Lease. The Lease shall be subject and subordinate to the lien, operation and effect of the Mortgage, the Second Mortgage, the Assignment and the Second Assignment insofar as either of these instruments affects the Facility or other real and personal property owned by the Landlord of which the Leased Premises is a part, and to all renewals, modifications, consolidations, replacements and extensions thereof, to the full extent of the principal sum secured thereby and interest thereon, with the same force and effect as if the Mortgage, the Second Mortgage, the Assignment and the Second Assignment had been executed, delivered, and duly recorded in the Public Records, prior to the execution and delivery of the Lease. Mortgagee and Second Mortgagee hereby consent to the terms and provisions of the Lease. Notwithstanding the foregoing, Mortgagee and Second Mortgagee consent to the removal by Tenant of its Personal Property on the Leased Premises in accordance with the terms of the Lease. 3. Non-Disturbance of Tenant. In the event that Mortgagee and Second Mortgagee, or any purchaser at foreclosure sale or any successor or assign (such purchaser, successor or assign, "Successor") takes possession of the Leased Premises as a mortgagee-in-possession, by foreclosure of the Mortgage or the Second Mortgage, by acquisition of title in lieu of foreclosure, or pursuant to the Assignment or the Second Assignment, Mortgagee and Second Mortgagee (and their Successors) agree not to disturb Tenant's right to possession of the Leased Premises so long as Tenant is not then in default under any of the terms, covenants or conditions of the Lease, beyond any applicable cure period. 2 4. Attornment to Mortgagee and Second Mortgagee. (a) In the event that Mortgagee and Second Mortgagee (or their Successors) succeeds to the interest of Landlord under the Lease, Mortgagee and Second Mortgagee (or their Successors) and Tenant hereby agree to be bound to one another under all of the terms, covenants and conditions of the Lease. Accordingly, from and after such event, Mortgagee and Second Mortgagee (or their Successors) and Tenant shall have the same remedies against one another for the breach of any agreement contained in the Lease as Tenant and Landlord had before Mortgagee and Second Mortgagee (or their Successors) succeeded to the interest of Landlord, provided, however, Mortgagee and Second Mortgagee (or their Successors) shall not be: (i) bound by any rent, additional rent or other sum which Tenant might have paid for more than one (1) month in advance to Landlord of its due date under the Lease; (ii) liable for any act or omission of Landlord unless Tenant shall have given notice (pursuant to Paragraph 6(b) hereof) of such act or omission to the party who was then holder of the Mortgage and the Second Mortgage (whether or not such holder elected to cure or remedy such act or omission); (iii) liable for the return of any security deposits which Tenant may have paid to any prior landlord (including Landlord), unless such deposit is available to the party who was the holder of the Mortgage or the Second Mortgage at the time of a foreclosure; (iv) subject to any offset (except those expressly prohibited under the Lease) or defense or claims in the nature of a counterclaim which Tenant might have against Landlord unless such offset or defense is due to a default by Landlord, and Mortgagee and Second Mortgagee have been given proper notice of such default and failed to cure such default; (v) bound by any amendment or modification of the Lease made without the written consent of the Mortgagee and Second Mortgagee (or their Successors) other than an amendment or modification of the Lease which does not: (w) increase or decrease the term of the Lease; (x) decreases the rent; (y) materially increase Landlord's or Tenant's rights or obligation thereunder; or (z) material decrease Tenant's or Landlord's rights or obligations thereunder; and (vi) liable to Tenant for the payment of money to satisfy a judgment in the event of any default or breach with respect to any of the terms, covenants and conditions of the Lease to be observed and/or performed by the Mortgagee and Second Mortgagee if Mortgagee or Second Mortgagee should succeed to the position of the Landlord under the Lease, beyond the estate of the Mortgagee and Second Mortgagee in the Facility and the rents and other income therefrom, it being the intention of this Agreement that no asset of Mortgagee and Second Mortgagee except any interest it may have in the Facility, shall be subject to levy, execution or other procedures for the satisfaction of any money judgment of Tenant. (b) This attornment shall be effective and self-operative without the execution of any further instrument by any of the parties hereto immediately upon the Mortgagee and Second Mortgagee or any purchaser at a foreclosure sale or any successor or assign succeeding to the interest of the Landlord under the Lease, and the respective rights and obligations of Tenant and Mortgagee and Second Mortgagee upon such attornment, to the extent of the then remaining balance of the term of the Lease and any extension or renewal permitted thereby, shall be and are the same as are now set forth therein. 5. Attornment to New Owner. In the event that any one else acquires title to or the right to possession of the Lease Premises upon the foreclosure of the Mortgage or the Second 3 Mortgage, or upon the sale of the Facility or any part thereof by Mortgagee and Second Mortgagee (or their Successors) after foreclosure or acquisition of title in lieu thereof or otherwise, Tenant agrees not to seek to terminate the Lease by reason thereof, but shall remain bound unto the new owner, and any liability of Mortgagee and Second Mortgagee to Tenant under the Lease or hereunder accruing after the transfer shall terminate upon transfer of title to the Facility to such new owner. 6. Representations and Covenants by Both Landlord and Tenant. (a) Landlord and Tenant represent and warrant to the Mortgagee and Second Mortgagee that the Lease sets forth the all agreements of Landlord and Tenant with respect to the Leased Premises. The Lease has not been modified or amended and is in full force and effect on the date hereof. (b) Landlord and Tenant covenant and agree with the Mortgagee and Second Mortgagee that Landlord and Tenant will send to Mortgagee and Second Mortgagee copies of notices of default required to be given by either of them under the Lease or received by either of them with respect to the Leased Premises, which shall be sent to Mortgagee and Second Mortgagee at the same time as such statement or notice is sent by that party to the other. 7. Tenant Representations and Covenants. Tenant hereby warrants and represents, covenants and agrees to and with Mortgagee and Second Mortgagee that: (a) Tenant will not seek to terminate the Lease by reason of any default by the Landlord until Tenant shall have given written notice of such default to the Mortgagee and Second Mortgagee (or their Successors), and until in the event of (i) a default which (A) adversely affects in any material respect the interior of the Lease Premises or Tenant's use thereof, or (B) interferes in any material respect with vehicular or pedestrian access to the Leased Premises or the Facility or the parking area serving the Leased Premises, a period of thirty (30) days shall have elapsed; and (ii) any other default by Landlord, a period of forty (40) days shall have elapsed, the Mortgagee and Second Mortgagee (or their Successors) shall have the right, but not the obligation to remedy such default; provided, however, that if the default does not involve the payment of money from Landlord to Tenant and is of such a nature that it could not be reasonably remedied within such 30-day or 40-day period, as the case may be, or the nature of the default or the requirements of local law require the Mortgagee and Second Mortgagee (or their Successors) to appoint a receiver or to foreclose on or commence legal proceedings to recover possession of the Facility in order to effect such remedy and such legal proceedings and consequent remedy cannot reasonably be achieved within the applicable 30-day or 40-day period, then the Mortgagee and Second Mortgagee (or their Successors) shall have such further time as is reasonable under the circumstances to effect such remedy; provided, however, that the Mortgagee (or their Successors) shall notify Tenant within fifteen (15) days after receipt of Tenant's notice of the intention of the Mortgagee and Second Mortgagee (or their Successors) to effect such remedy; and provided, further, that the Mortgagee and Second Mortgagee (or their Successors) promptly institute legal proceedings to appoint a receiver for the Facility to foreclosure on or recover possession of the Facility within the applicable 30-day or 40-day 4 period and thereafter prosecutes said proceedings and remedy with due diligence and continuity to completion. (b) Tenant shall certify in writing to Mortgagee and Second Mortgagee within fifteen (15) days in connection with any proposed assignment of the Mortgage, the Second Mortgage, the Assignment or the Second Assignment, whether or not, to Tenant's knowledge, any default on the part of Landlord then exists under the Lease or whether any event has occurred which, but for the passage of time, the giving of notice or both, would constitute a default under the Lease. (c) Mortgagee and Second Mortgagee (or their Successors) and assigns shall be named as an additional insured, as its interest may appear, in any policies of insurance now or hereafter required under the Lease. (d) Upon receipt by Tenant from Mortgagee and Second Mortgagee of notice of any default under the Mortgage, the Second Mortgage, the Assignment or the Second Assignment, Tenant shall pay all rents and other sums due under the Lease directly to Mortgagee and Second Mortgagee, Landlord agreeing that any such payment to Mortgagee and Second Mortgagee will be an absolute release to Tenant of any obligation to pay the same sum to Landlord. (e) All of Landlord's right, title and interest as lessor under the Lease is being duly assigned to Mortgagee and Second Mortgagee pursuant to the terms of the Assignment, the Second Assignment and pursuant to the terms thereof all rental payments under the Lease shall continue to be paid to Landlord in accordance with the terms of the Lease unless and until Tenant is otherwise notified in writing by Mortgagee and Second Mortgagee. 8. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of all of the parties hereto. 9. Notices; Captions; and Gender. Any notices required or permitted to be given hereunder shall be in writing and (i) personally delivered, (ii) given by certified mail, postage prepaid, return receipt requested, or (iii) overnight courier, in each instance addressed to the following addresses or such other addresses as the parties may for themselves designate in writing as provided herein for the purpose of receiving notices hereunder: Mortgagee: Sovereign Bank 2 Aldwyn Center Villanova, PA 19085 5 Second Mortgagee: RAIT Partnership, L.P. 1845 Walnut Street, 10th Floor Philadelphia, PA 19103 Landlord: NetCenter Partners, LLC 1225 19th Street, NW Suite 850 Washington, DC 20036 Tenant: ----------------------- ----------------------- ----------------------- ----------------------- Any notice hereunder shall be deemed given, in the case of personal delivery, upon actual delivery, and in the case of certified mail or overnight courier, when actually received or receipt thereof is refused. 10. Miscellaneous. The captions used at the beginning of each paragraph of this Agreement are for the convenience of the reader and do not form a part of this Agreement. Whenever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall include all genders. This instrument shall be governed and construed in accordance with the laws of the Commonwealth of Virginia. [INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officer or partner as of the day and year first above written. SOVEREIGN BANK By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- RAIT PARTNERSHIP, L.P. By: , its ----------------------------------------- General Partner Name: --------------------------------------- Title: -------------------------------------- NETCENTER PARTNERS, LLC By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- -------------------------------------------- By: -------------------------------------------------- Name: ------------------------------------------------ Title: ----------------------------------------------- 7 Exhibit F Janitorial Specifications Landlord shall ensure that the Leased Premises are cleaned in accordance with a high level of professionalism and cleanliness which shall include, but not be limited to, the following specifications listed below. A. Daily 1. Remove trash from wastebaskets and replace plastic linings. Plastic liners to fit waste receptacles in such a manner as to not overhang the top by more than two (2) inches. Remove all materials from recycling boxes and place in separate recycling bins for storage. 2. Dust mop all hardwood floor areas with a treated dust mop. 3. Sweep, dry mop or vacuum all high- traffic floor areas with hard surface flooring or carpet, remove matter such as gum, staples, paper clips, tar, etc. which has adhered to the floor. 4. Dust all horizontal surfaces with a treated cloth or dust wand including furniture, files, equipment, blinds, art frames, computer monitors, shelves and louvers. Damp wipe countertops and conference room tables, except glass, which will be cleaned with glass clean. 5. Dust all grillwork within reach. 6. Spot clean doors, frames, walls and switch plates to remove fingerprints, spills and other markings. 7. Spot clean all interior partitions, walls, glass, windows and glass doors. 8. Spot clean all metal trim work, removing fingerprints, smudges, water and other marks. 9. Push Tenant employees' chairs up into desks. 10. Spot clean all carpet stains. B. Weekly 1. Dust all baseboards. 2. Damp wipe all telephones, including dials and crevices, using disinfectant and detergent. 3. Brush all fabric- covered chairs with a lint brush and all smooth or vinyl covered chairs with a damp cloth. 4. Wet mop and buff all hard surface flooring. Wipe all baseboards and furniture legs clean after mopping. 5. Dust all chair and table legs and rungs, baseboards, ledges, moldings, windowsills, and other low reach areas. 6. Vacuum all private offices and conference rooms floor areas with hard surface flooring or carpet. C. Monthly 1. Vacuum and damp wipe all ceiling air supply and exhaust diffusers and grills. 2. Wash all vinyl and metal kick plates. 3. Using tank vacuum or backpack, vacuum corners and edges. D. Quarterly 1. Scrub, strip and apply non-slip floor finish to all hard surface flooring using an approved, buffable, non-slip type floor finish on an as-needed basis. Wipe all baseboards and furniture legs clean after refinishing floor. 2. High dust all horizontal and vertical surfaces not reached in the nightly cleaning, such as pipes, light fixtures, door jams and other wall hangings. 3. Wash all interior glass using window detergent and squeegee. Wipe all metal vertical and horizontal mullions. 4. Vacuum and dust all books in place. 5. Damp wipe diffusers and grills, vents, and other such items, including surrounding walls and ceiling areas that are soiled. 6. Dust all venetian blinds. Landlord's Initials:___________ Tenant's Initials:____________ Exhibit G Watch Guard Specifications A. NetCenter currently employs an outside watch guard firm to provide watch guard services on the following schedule: 1. Monday- Friday a. 7 a.m.- 9 a.m.: Two armed officers b. 9 a.m.- 10 p.m.: Three armed officers c. 10 p.m.- 7 a.m.: One armed officer 2. Saturday a. 7 a.m.- 9 a.m.: Two armed officers b. 9 a.m.- 6 p.m.: Three armed officers c. 6 p.m.- 10 p.m.: One armed officer d. 10 p.m.- 7 a.m.: One armed officer 3. Sunday a. 7 a.m.- 10 a.m.: One armed officers b. 10 a.m.- 7 p.m.: Two armed officers c. 7 p.m.- 7 a.m.: One armed officer B. The officers are on duty for either eight (8) hour or four (4) hour shifts. C. The following are the primary functions of the watch guard personnel on a day-to-day basis: 1. Lock the entire building at night and open the building entrances in the morning. 2. During the peak hours (9 a.m.- 10 p.m.) one officer is canvassing the parking lots and exterior areas on an irregular schedule while the other patrols the interior space. 3. Visual inspections of office space in the facility. 4. Monitor all activity in and around the property. 5. Provide escorts to and from the property as may be desired. D. NetCenter reserves the right to change the watch guard services at Owner's discretion to a level equal to or greater than what is currently provided. EX-99.1 4 w66934exv99w1.htm CERTIFICATIONS

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Portfolio Recovery Associates, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven D. Fredrickson, Chief Executive Officer, President and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: December 16, 2002 By: /s/ Steven D. Fredrickson
Steven D. Fredrickson
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Portfolio Recovery Associates, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin P. Stevenson, Chief Financial Officer, Senior Vice President, Treasurer and Assistant Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: December 16, 2002 By: /s/ Kevin P. Stevenson
Kevin P. Stevenson
Chief Financial Officer, Senior Vice President,
Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer)

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EX-10.16

                                                                   EXHIBIT 10.16



                                    NETCENTER
                            FULL SERVICE OFFICE LEASE

        THIS FULL SERVICE OFFICE LEASE (this "Lease") is made this 13th day of
November, 2002, between NETCENTER PARTNERS, LLC, a Virginia limited liability
company ("Landlord"), and PORTFOLIO RECOVERY ASSOCIATES, LLC, a Delaware limited
liability company ("Tenant").

                               W I T N E S S E T H


        1. Definitions. The following definitions shall apply to the indicated
terms, whenever used in this Lease. Additional defined terms may be found in the
body of this Lease.

               (a) Landlord:        NETCENTER PARTNERS, LLC
                                    1225 19th Street, NW
                                    Suite 850
                                    Washington, DC 20036-2453

               (b) Tenant:          PORTFOLIO RECOVERY ASSOCIATES, LLC
                                    120 Corporate Boulevard
                                    Suite 100
                                    Norfolk, VA  23502

               (c) Agent:           Divaris Real Estate, Inc.
                                    One Columbus Center, Suite 700
                                    Virginia Beach, Virginia  23462

               (d) Leased Premises: Suite 285 deemed to be approximately
                                    23,,116.885 rentable square feet (rentable
                                    measurement includes a ten percent (10%)
                                    core factor), measured in accordance with
                                    the Building Owners and Managers Association
                                    International's Standard Method of measuring
                                    Floor Area in Office Buildings (ANSI.Z65.1),
                                    in a building commonly known as NETCENTER
                                    (the "Building"), located at 5200 W. Mercury
                                    Boulevard, Hampton, Virginia 23605, as more
                                    specifically set forth on Exhibit A - Floor
                                    Plan.

               (e) Permitted Use:   Office Space / Collection Call Center

               (f) Commencement     February 1, 2003, or ten (10) days after
                   Date:            receipt of written notice of substantial
                                    completion from Landlord to Tenant,
                                    whichever is later. Occupancy by Tenant is
                                    anticipated to be approximately sixty (60)
                                    days after issuance of a building permit by
                                    the City of Hampton. Landlord shall use its
                                    best reasonable efforts to deliver the
                                    Leased Premises as soon as reasonably
                                    possible.


               (g) Term:            Seven (7) years, four (4) months

               (h) Renewal          See Option Rider.  All renewal periods shall
                   Options:         be included in the definition of the Term.


Landlord's Initials:_________       Tenant's Initials:_________





               (i) Minimum
                   Rent:



- ---------------------------------------------------------------------------------------
                                                 ANNUAL          MONTHLY         PSF
 YEAR
- ---------------------------------------------------------------------------------------
                                                                     
   1      First two (2) months of Year 1            0                0             0
          Next eight (8) months of Year 1      $111,731.61      $13,996.45      $ 7.25
          Last two (2) months of Year 1        $ 55,865.81      $27,932.90      $14.50
   2                                           $346,984.44      $28,915.37      $15.01
   3                                           $359,005.22      $29,917.10      $15.53
   4                                           $371,719.51      $30,976.63      $16.08
   5                                           $384,664.97      $32,055.41      $16.64
   6                                           $398,072.76      $33,172.73      $17.22
   7                                           $411,942.89      $34,,328.57     $17.82
   8      First four (4) months of Year 8      $142,168.84      $35,542.21      $18.45
- ---------------------------------------------------------------------------------------



               (j) Rent
                   Payment
                   Address:         NetCenter Partners, LLC
                                    Post Office Box 6048
                                    Southeastern, PA 19398-6048

               (k) Operating
                   Expenses:        Lease is calculated on a Full Service basis
                                    with no operating expenses passed through to
                                    Tenant. Notwithstanding, Tenant shall
                                    reimburse Landlord monthly for any
                                    electrical usage that exceeds $0.11 per
                                    rentable square foot per month.

               (l) Security         $56,131.92 (see Section 8)
                   Deposit:

               (m) Notices:         To Landlord: NetCenter Partners, LLC
                                                 1225 19th Street, NW
                                                 Suite 850
                                                 Washington, DC  20036-2453
                                                 ATTN: R. Jeffery Arnold

                                    Copy to:     Divaris Real Estate, Inc.
                                                 One Columbus Center
                                                 Suite 700
                                                 Virginia Beach, Virginia
                                                 23462
                                                 ATTN: Jonathan Guion, SIOR

                                    To Tenant:   Portfolio Recovery Associates,
                                                 LLC
                                                 120 Corporate Boulevard
                                                 Suite 100
                                                 Norfolk, VA  23502



Landlord's Initials:_________       Tenant's Initials:_________



               (n) Attachments:     Option Rider
                                    Exhibit  A -  Floor Plan
                                    Exhibit A-1 - Right of First Refusal Space
                                      Floor Plan
                                    Exhibit  B -  Tenant Improvements
                                    Exhibit B-1 - Rules and Regulations for
                                      Contractors
                                    Exhibit  C - Rules and Regulations
                                    Exhibit D - Building Standard Work Letter
                                    Exhibit E - Non-disturbance and Attornment
                                      Agreement
                                    Exhibit F - Janitorial and Security
                                      Specifications
                                    Exhibit G - Watch Guard Specifications

        2. Description of Leased Premises. Landlord leases to Tenant, and Tenant
leases from Landlord, the Leased Premises described in Section 1. The Leased
Premises are delineated on the floor plan attached hereto and incorporated
herein as Exhibit A. Exhibit A sets forth the general outline of the Leased
Premises and shall not be deemed a warranty on the part of Landlord that the
Leased Premises are or will be exactly as indicated on such diagram. Tenant's
occupancy of the Leased Premises shall include the use in common with others
entitled thereto of such parking areas, service roads, sidewalks, equipment
facilities, service areas, hallways, doors, stairwells, and the like (the
"Common Areas") as Landlord may, from time to time, make available to Tenant for
use in common with others, subject, however, to the terms and conditions of this
Lease and to all Rules and Regulations for the use thereof as may from time to
time be prescribed by Landlord. Landlord may increase, reduce, or change the
number, dimensions, and locations of roadways, walks, buildings, and parking
areas as Landlord from time to time deems proper. However, any such reduction
that may occur to the shared core area of the Building shall not diminish the
shared core area of the Building to less than ten percent (10%) of the gross
building square footage, without a pro rata reduction in the Minimum Rent, nor
shall any such reduction diminish the parking spaces granted to Tenant, as set
forth in Section 11 of this Lease.

        3. Use of Leased Premises. The Leased Premises shall be used solely for
the Permitted Use indicated in Section 1, and for no other purpose.
Notwithstanding, Tenant, or any of its approved subtenants and/or assignees,
covenants that it will not, at any time during the Term, operate in the Leased
Premises (either directly or indirectly) as a provider of telecommunications,
cellular or long distance services that markets and services its customers
through a call center environment.

        4. Length and Commencement of Term.

                (a) The term of this Lease shall commence on the Commencement
Date, and continue for the Term indicated in Section 1 following the
Commencement Date. Landlord and Tenant shall execute and deliver a written
statement in recordable form prepared by Landlord specifying the Minimum Rent
due at commencement and Lease expiration date, if same have not been fixed by
this Lease.

                (b) If Landlord, due to delay in construction or for any other
reason whatsoever, does not deliver possession of the Leased Premises to Tenant
on or before February 1, 2003, this Lease shall not be void or voidable;
however, if a building permit is issued by the City of Hampton by December 15,
2002, and delivery of possession of the Leased Premises is delayed beyond MARCH
30, 2003 due to delay in construction or for any reason other than a delay
caused by Tenant, Tenant may, at its option, void the lease in the manner
prescribed hereafter, after giving written notice to Landlord indicate its
intent to void this Lease. For each day after December 15, 2002 that the
building permit has not been issued, the cancellation date shall be extended day
for day. Upon receipt of Tenant's written notice of intent to terminate,
Landlord shall have an additional thirty (30) days to deliver possession of the
Leased Premises, after which period the Lease shall automatically become void if
the Leased Premises are not delivered to Tenant. In such an event, cancellation
of the Lease by Tenant in this manner shall not be considered an event of
default and Tenant will not be liable for any payment of any amounts whatsoever
and shall be due an immediate refund of any security deposits paid.

        5. Rent. Tenant shall pay, as rent for the Leased Premises, the Minimum
Rent indicated in Section 1, paid in advance in monthly installments. If the
Commencement Date is not the first day of the month, rent for that month shall
be


Landlord's Initials:_________         Tenant's Initials:_________


prorated. If any rent or other sum is not received by Landlord by the fifth day
of the month, Tenant shall pay a late charge of One Thousand Dollars
($1,000.00). Such penalty, however, shall not be imposed for the first late
payment received by Landlord. If any payment under this Lease is made by check
and such check is returned by the pay or for any reason, Tenant shall pay a
returned check charge of One Hundred Dollars ($100.00). In addition, any rent or
other sum not received by Landlord when due shall bear interest from the due
date to the payment date at the prime rate published from time to time by the
Wall Street Journal, plus three percent (3%), but in no event shall it be less
than twelve percent (12%) per annum. If such rate exceeds the maximum rate
permitted by law with respect to Tenant, Tenant shall pay interest at the
highest lawful rate applicable to Tenant.

        6. Payments. All rental and other payments shall be made to Landlord at
the Rent Payment Address, as indicated in Section 1, until Landlord otherwise
directs in writing. All charges, fees, and other amounts due, other than Minimum
Rent, shall be deemed Additional Rent. Unless otherwise provided in this Lease
or in writing, all payments of Minimum Rent and Additional Rent shall be payable
monthly in advance on or before the first day of each month during the Term,
without prior demand and without offset, reduction, defense, or counterclaim.
All payments shall be made prior to the close of business (Eastern Standard
Time) on the date specified for such payment and in immediately available United
States funds.

        7. Operating Costs and Services.

                (a) Landlord covenants that it shall pay, when due, all real
        estate taxes and assessments, building insurance and all operating
        expenses, including payment for ordinary janitorial service to the
        Leased Premises (collectively, the "Expenses") for the Building and
        Common Areas.

                (b) Regarding the Common Areas associated with the Building,
        Landlord shall, during normal operating business hours, furnish adequate
        lighting, lavatory supplies, hot and cold water for lavatory and
        drinking purposes, janitorial and cleaning, heating and air-conditioning
        in the interior areas during the appropriate seasons of the year, as
        well as snow, ice and trash removal, parking lot sweeping, landscape
        maintenance, and nighttime lighting throughout the exterior areas of the
        Building property. Any security measures that Landlord may provide are
        for the protection of the Building only and shall not be relied upon by
        Tenant to protect Tenant or its employees, or Tenant's or its employee's
        property. Landlord shall continue to provide watch guard service in and
        around the Building at the same level of coverage as provided as of the
        execution of this Lease, as set forth in Exhibit G - Watch Guard
        Services. The normal operating business hours for the Building are
        defined as 8:00 AM to 6:00 PM, Monday through Friday, and 8:00 AM to
        1:00 PM on Saturdays, exclusive of federally recognized holidays.
        Notwithstanding, Tenant and its employees shall have access to the
        Building and to the Leased Premises 24 hours per day, 365 days per year.

                (c) Regarding the Leased Premises, Landlord shall furnish (i)
        electricity sufficient for lighting and typical office equipment; (ii)
        fluorescent tube replacements; (iii) janitorial and cleaning services
        five nights per week in accordance with prevailing industry practices,
        as set forth in Exhibit F - Janitorial Services; and (iv) electric
        heating and air conditioning, as needed. All such services shall be
        provided without cost to Tenant except for the cost of electricity
        consumed in excess of $.11 per rentable square foot per month. Any such
        excess shall be paid by Tenant as Additional Rent to Landlord within ten
        (10) days after receipt of Landlord's invoices. If Tenant is furnished
        additional services, or if Tenant's use of the Leased Premises causes
        additional expense to Landlord, Tenant shall pay any associated
        additional expense. If Tenant wishes to install electrical equipment
        such as electrical heating or refrigeration equipment, electronic data
        processing machines, or equipment using current which exceeds that
        usually furnished for use in office space, Tenant shall obtain the prior
        written consent of Landlord, which consent shall not be unreasonably
        withheld, and shall pay as Additional Rent the additional electricity
        cost involved. If any required services are suspended or curtailed due
        to accident, emergency, mechanical breakdown, or any other cause beyond
        Landlord's reasonable control, Landlord shall restore the services with
        reasonable dispatch, but Landlord shall not have any responsibility or
        liability for the curtailment or suspension of services and there shall
        be no abatement of rent or other effect on Tenant's obligations under
        this Lease.


Landlord's Initials:_________         Tenant's Initials:_________


        8. Security Deposit. Tenant will deposit with Landlord or Agent,
simultaneously with this Lease, the Security Deposit indicated in Section 1, as
security for the full performance by Tenant of all of its obligations under this
Lease. The Security Deposit shall be held by Landlord or Agent in escrow. Any
interest accruing to the Security Deposit shall accrue to Tenant. If Tenant
fails to pay any items of rent or other sum when due, or if Landlord elects to
perform any obligation of Tenant, or if Tenant otherwise defaults, Landlord
shall have the right, at its sole option and without prejudice to any other
remedy of Landlord, to apply all or such part of the Security Deposit as may be
necessary to either pay such amount due, compensate Landlord for its performance
of Tenant's obligation, or reimburse Landlord for any loss, damage, or expense
Landlord may have sustained as a result of Tenant's default. If Landlord so
applies all or part of the Security Deposit, Tenant shall immediately upon
demand restore the Security Deposit to its original amount. The Security Deposit
and accrued interest thereon shall be returned to Tenant in accordance with the
following schedule: Twenty percent (20%) after twenty-four months, provided that
Tenant maintains an uninterrupted record of full and timely Minimum Rent
payments and has not been in default under this Lease or delinquent in any
payment of Rents, Additional Rents or other sum of money due; an additional
twenty percent (20%) after 36 months, provided that Tenant is not then, and has
not previously been, delinquent in any payment of Rents Additional Rents or
other sum of money due; an additional twenty percent (20%) after 48 months,
provided that Tenant is not then, and has not previously been, delinquent in any
payment of Rents Additional Rents or other sum of money due; an additional
twenty percent (20%) after 60 months, provided that Tenant is not then, and has
not previously been, delinquent in any payment of Rents Additional Rents or
other sum of money due, and within sixty (60) days after the expiration or
termination of the Term, including any extensions and or renewals, and upon the
surrender of the Leased Premises in good and clean condition and accordance with
the provisions of this Lease, Landlord shall return the balance of the Security
Deposit to Tenant or to the then holder of Tenant's interest under this Lease,
less an amount, if any, estimated by Landlord as necessary to satisfy any unpaid
or unperformed obligations of Tenant. Delivery of such balance shall discharge
Landlord and Agent from any liability with respect to the Security Deposit.
Landlord or Agent shall further have the right to deliver the Security Deposit
to any transferee of Landlord's interest in this Lease, at which time Landlord
and Agent shall be discharged from any further liability with respect to the
Security Deposit. Landlord or Agent shall further have the right to deliver the
Security Deposit to any transferee of Landlord's interest in this Lease, at
which time Landlord and Agent shall be discharged from any further liability
with respect to the Security Deposit.

As required under Landlord's mortgage documents, Tenant hereby agrees not to
look to Landlord's lender, as lender, lender in possession, or successor in
title to the property, for accountability, for any security deposit required by
the Landlord hereunder, unless said sums have actually been received by said
lender as security for the Tenants performance of this Lease.


        9. Trade Fixtures. Tenant shall have the right to install its trade
fixtures in the Leased Premises, provided such installation shall not interfere
with either the construction or operation of the Building or the completion of
any improvements to the Leased Premises which Landlord may have specifically
agreed in this Lease to perform, and such installation shall be at the sole risk
and expense of Tenant. All trade fixtures installed in the Leased Premises by
Tenant shall remain the property of, and shall be removable by, Tenant at the
expiration of the Term, provided Tenant is not in default under this Lease, and
Tenant shall promptly repair, or reimburse Landlord for the cost of repairing,
all damages to the Leased Premises caused by the removal of those fixtures.
Tenant agrees that all additions and improvements and attached equipment
installed in or on the Premises by Tenant, including but not being limited to,
electric wiring, electric fixtures, floor coverings, heating and
air-conditioning machinery and equipment, shall immediately become the property
of Landlord and shall not be removed by Tenant at the termination of this Lease,
unless requested so to do by Landlord, in which event Tenant agrees to do so and
to repair promptly any damage caused by such removal. Landlord acknowledges that
any generator, telephone equipment, computer equipment, television cameras, and
plasma screens that may be installed by Tenant shall be deemed to be trade
fixtures.

        10. Control of Common Areas and Facilities by Landlord. The Common Areas
shall at all times be subject to the exclusive control and management of
Landlord, and Landlord shall have the right, from time to time, to establish,
modify, and enforce reasonable rules and regulations with respect to the Common
Areas. Without limiting the foregoing, Landlord shall have the right to
construct, maintain, and operate lighting facilities on all Common Areas; to
police the same; to change, in Landlord's sole discretion, the area, level,
location, quantity, and arrangement, from time to time, of the Common Areas; to


Landlord's Initials:_________         Tenant's Initials:_________


close or discontinue common use of all or any portion of the Common Areas to
such extent as may, in the opinion of Landlord or Landlord's counsel, be legally
sufficient, necessary, or proper to prevent a dedication or the accrual of any
rights to any person or the public; and to do and perform such other acts in and
to the Common Areas as Landlord, in its sole discretion, determines to be
necessary to improve the convenience and use thereof by tenants or their
officers, agents, employees, and customers, or to improve the profitability of
the Building. Landlord will operate and maintain the Common Areas in such manner
as Landlord, in its sole discretion, shall determine from time to time. Without
limiting the scope of such discretion, Landlord shall have the full right and
authority to employ all personnel and to make rules and regulations pertaining
to the proper operation and maintenance of the Common Areas and facilities.

        11. Use of Parking Areas. Landlord grants to Tenant for Tenant's
non-exclusive use, a maximum number of parking spaces equivalent to eight (8)
spaces per one thousand (1,000) square foot of rentable area. Such spaces will
be unreserved and unassigned and open to all Building tenants, employees and
visitors. All automobile parking areas, driveways, entrances, and exits in or
near the Building, and other facilities furnished by Landlord in or near the
Building, shall at all times be subject to Landlord's exclusive control and
management, and Landlord shall have the right from time to time to establish,
modify, and enforce reasonable rules and regulations with respect to all such
facilities and areas. If Tenant or Tenant's employees use such parking areas,
driveways, streets, or vacant land in violation of any such rules and
regulations, Landlord may order any violating vehicles to be towed from such
areas at Tenant's sole cost and expense, plus 10% for Landlord's overhead
expenses, which shall be payable to Landlord on demand.

        12. Maintenance by Landlord. Subject to the following section, Landlord
shall, within a reasonable time after having received written notice from Tenant
of such a need, make such repairs to the Building as may be necessary to keep
the Building in good condition and repair. Landlord will not be responsible for
any damage resulting from any leak or defect in the roof, sidewalls, gutters, or
downspouts unless such damage is due to Landlord's failure to repair such defect
within a reasonable time after Landlord has received notice from Tenant of the
need to repair such defect. Landlord shall maintain in good condition and
repair, and adequately light, the parking areas of the Building. In the event
that Landlord does not initiate and then complete any such repairs that have a
direct impact on Tenant in a reasonably timely manner, then Tenant shall have
the right to effect such repairs and then invoice Landlord for direct costs
incurred, provided that the costs are reasonable and appropriate. In such
circumstances, Tenant may not offset Rent payments.

        13. Maintenance by Tenant. Tenant shall, at its expense, make such
repairs to the Leased Premises as are caused by the negligence or willful act of
Tenant or any of its agents, employees, contractors, licensees, or invitees.

        14. Sundry Covenants of Tenant. Tenant shall: (a) comply with all
federal, state, and municipal laws, ordinances, and regulations relating to the
Leased Premises and its Permitted Use, including, without limitation, all
environmental laws, rules and regulations (collectively the "Environmental
Laws") and all laws, rules, and regulations in connection with the Americans
with Disabilities Act of 1990, as amended (the "ADA"); (b) notify Landlord
immediately upon receipt of all notices or other communications by governmental
authorities regarding possible or actual noncompliance with laws, ordinances, or
regulations; (c) not use or permit to be used any advertising medium or device,
such as radio, or public address system, without Landlord's prior written
consent; (d) not use or permit to be used the Leased Premises for any illegal or
immoral purpose; and (e) keep the Leased Premises free from insects, pests, and
vermin of all kinds, and for that purpose Tenant shall use, at Tenant's cost,
such pest extermination contractor as Landlord may direct and at such internals
as Landlord may require.

        The Leased Premises shall not be used for the treatment, storage, use,
or disposal of toxic or hazardous wastes or substances, or any other substance,
exposure to which is prohibited, limited, or regulated by a governmental or
quasi-governmental authority or which, even if not so regulated, could or does
pose a hazard to the health and/or safety of the occupants of the Building or
surrounding property. Tenant shall indemnify and hold Landlord harmless from and
against any expense or liability (including attorney's fees) arising under the
Environmental Laws resulting from Tenant's use of the Leased Premises or any
acts and/or omissions of Tenant, its agents, employees, invitees, or
independence contractors.

        15. Improvements. (Either (a) or (b) must be checked prior to
execution.)


Landlord's Initials:_________         Tenant's Initials:_________


          _______ (a) Tenant is accepting the Leased Premises "as is," except as
        specified in Exhibit B - "Tenant Improvements," and Tenant shall pay the
        cost of any improvements or alterations desired by Tenant. Any such
        improvements or alterations to the Leased Premises shall be performed
        only after Tenant has obtained the prior written consent of Landlord,
        which consent may be withheld for any or no reason. Tenant has inspected
        the Leased Premises and is satisfied with its physical condition.

          ___ X__ (b) Landlord shall provide the build-out of the Leased
        Premises in accordance with Exhibit B - Tenant Improvements attached
        hereto. Landlord will invite RGI General Contractors, in addition to
        those selected by Landlord, to submit bids to Landlord for the build out
        of the Leased Premises. Landlord will allow Tenant to participate in the
        general contractor selection process; however, Landlord shall make the
        final selection of the general contractor based upon reasonable
        selection criteria, including price, qualifications and the ability to
        deliver the Leased Premises on time. Any improvements or alterations to
        the Leased Premises in addition to those specified on Exhibit B - Tenant
        Improvements shall be performed at Tenant's expense, and only after
        Tenant has obtained the prior written consent of Landlord, which consent
        may be withheld for any or no reason. Notwithstanding, Tenant shall have
        the right to perform cosmetic, non-structural, non-electrical,
        non-mechanical, non-plumbing improvements in the Leased Premises without
        Landlord's approval, provided that any single cosmetic improvement does
        not exceed $1,000 in cost, or require a building permit.

        16. Compliance with Americans with Disabilities Act of 1990. If the ADA
requires that action be taken with respect to the Leased Premises (not including
the Common Areas), including without limitation removing barriers and altering
the Leased Premises in accordance with the ADA Accessibility Guidelines, such
action shall be taken by Tenant; provided, however, that if such action was
required to be taken during Landlord's build-out (if applicable) of the Leased
Premises, Landlord shall take such action. Tenant shall notify Landlord
immediately upon receipt of an oral or written complaint or notice by an
employee, customer, client, invitee, licensee, or governmental authority
regarding the ADA.

        17. Assignment and Subletting. Without Landlord's prior written consent,
Tenant shall not (either voluntarily, involuntarily, or by operation of law)
assign, transfer, mortgage, pledge, hypothecate, or encumber this Lease or any
interest under this Lease; nor sublet or grant concessions of or to the Leased
Premises, in whole or in part; nor allow any person (other than Tenant, its
employees, agents, servants, and invitees) to occupy or use all or part of the
Leased Premises. If Landlord consents to any such assignment, sublease, etc.,
Tenant shall pay an assignment fee of $500.00 to reimburse Landlord for the
time, effort, and expense incurred in processing such assignment, sublease, etc.
Regardless of any such consent, no assignment or subletting shall release Tenant
of its obligations or alter the primary liability of Tenant to pay rent and
perform all its other obligations under this Lease. Landlord's consent to one
assignment, subletting, occupation, or use by any other person shall not be
deemed consent to any subsequent assignment, subletting, occupation, or use by
another person. Notwithstanding anything to the contrary set forth in this
Section 17, Tenant shall have the right to sublease or assign this Lease to an
affiliated entity in which Tenant has controlling ownership without Landlord's
prior consent. Landlord's approval of any subleases or assignments to unrelated
entities shall not be unreasonably withheld, conditioned or delayed, provided
such sublessee or assignee has equal or better financial strength in comparison
to Tenant.

        18. Condemnation. If the whole or any part of the Leased Premises shall
be taken by power of eminent domain or condemned by any competent authority for
any public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction, or remodeling of any part of
the Leased Premises, or if Landlord shall grant a deed or other instrument in
lieu of such taking by eminent domain or condemnation, Landlord (and if more
than ten percent (10%) of the rentable area of the Leased Premises is taken, or
if access to the Leased Premises or any common restrooms serving the same is
materially impaired, Tenant) shall have the option to terminate this Lease upon
sixty (60) days' notice, provided such notice is given no later than 180 days
after the date of such taking, condemnation, configuration, vacation, deed, or
other instrument. Landlord shall be entitled to receive the entire award or
payment in connection therewith, and Tenant waives any right it may have to any
such award or payment. All rent shall be apportioned as of the date of such
termination or the date of such taking, whichever shall first occur. If any part
of the Leased Premises shall be taken, and this Lease shall not be so
terminated, the rent shall be proportionately abated.


Landlord's Initials:_________         Tenant's Initials:_________


        19. Damage by Fire or Other Casualty. If the Leased Premises is damaged
by fire or other casualty during the Term, but are not rendered untenable in
whole or in part, Landlord shall promptly at its expense cause such damage to
the Leased Premises to be repaired, and rent shall not be abated. If the Leased
Premises is damaged by fire or other casualty during the Term and is rendered
partially untenable, Landlord shall promptly at its own expense cause the damage
to the Leased Premises to be repaired, and rent shall be abated for the period
of untenantability in proportion to the portion of the Leased Premises rendered
untenable. If the Leased Premises is damaged by fire or other casualty during
the Term and is rendered untenable Landlord may, at its sole option, either (i)
restore the Leased Premises with reasonable dispatch to substantially the same
condition they were in prior to such damage, insofar as the proceeds from
Landlord's insurance permit, or (ii) terminate this Lease. If Landlord elects to
restore the Leased Premises, but is unable to deliver possession of the restored
Leased Premises to Tenant within sixty (60) days of the casualty, Tenant may
deliver notice to the Landlord of its intent to void the Lease. Upon receipt of
Tenant's notice of intent to terminate, Landlord shall have an additional
fifteen (15) days to deliver possession of the Leased Premises, after which
period the Lease shall automatically become void. In such an event, cancellation
of the Lease by Tenant in this manner shall not be considered an event of
default and Tenant will not be liable for any payment of any amounts whatsoever
and shall be due an immediate refund of any security deposits paid. If Landlord
elects to restore the Leased Premises, Landlord shall have no liability to
restore any improvements as may have been made to the Leased Premises,, whether
before or after the date of this Lease, nor to restore any of Tenant's fixtures,
decorations, equipment, furniture, or inventory. Landlord's sole responsibility,
if any, shall be to deliver to Tenant a shell space with roof, floor, exterior
walls, windows, and doors. If Landlord elects to terminate this Lease, all rent
payable shall be abated as of the date of such damage and Tenant shall remove
all of its property from the Leased Premises within thirty (30) days after the
notice of termination is given, provided Tenant is not in default at the time.

        20. Insurance.

                (a) Tenant shall, at all times during the Term and at its own
        cost and expense, carry: (i) comprehensive general liability insurance
        on the Leased Premises (including Common Areas adjoining the Leased
        Premises) with limits of not less than $2,000,000 for injury or death to
        one person, $5,000,000 for injury or death to more than one person, and
        $500,000 for property damage; (ii) "all-risk" casualty insurance,
        written at replacement cost value and with replacement cost endorsement,
        covering all Tenant's personal property in the Leased Premises
        (including, without limitation, inventory, trade fixtures, floor
        coverings, furniture, and other property removable by Tenant under the
        provisions of this Lease) and all leasehold improvements installed in
        the Leased Premises by or on behalf of Tenant; and (iii) if and to the
        extent required by law, workmen's compensation or similar insurance. The
        foregoing policies shall be primary policies not contributing with and
        not in excess of coverage which Landlord may carry.

                (b) Landlord shall maintain, upon such terms as Landlord deems
        appropriate, direct physical loss or damage insurance on the shell of
        the Building, Common Areas and existing tenant improvements, and a
        combined single limit bodily injury and property damage liability
        insurance policy. If Tenant changes its use of the Leased Premises or
        introduces any hazardous materials or equipment into the Leased Premises
        which cause any increase in Landlord's insurance premiums, Tenant shall
        pay the increase as Additional Rent.

                (c) All such insurance policies shall name Landlord as a named
        insured and shall be written by companies acceptable to Landlord and in
        form acceptable to Landlord. Each such policy shall also contain a
        provision prohibiting cancellation without thirty (30) days' prior
        written notice to Landlord or its designee. Certificates of such
        insurance policies shall be delivered to Landlord promptly after the
        issuance of the respective policies, and annually thereafter. If Tenant
        fails to provide or maintain any such insurance, Landlord may (but shall
        not be obligated to) do so and collect the cost thereof as Additional
        Rent.

        21. Indemnification of Landlord. Except in situations involving
Landlord's, its agents' or invitees' gross negligence or their failure to
perform their responsibilities under this Lease, Tenant shall indemnify and hold
Landlord harmless from liability for damages to person or property (including
Tenant's employees, customers, and other invitees) in or upon the Leased
Premises, including vestibules, entryways, and walkways adjoining the Leased
Premises, and the loading platform area, if any, allocated to the use of Tenant.
Tenant shall also indemnify and hold Landlord harmless from such liability for
damages in other parts of the Building if caused by Tenant's negligence,
affirmative act, or breach of its obligations under this Lease.


Landlord's Initials:_________         Tenant's Initials:_________


All property kept, stored, or maintained in the Premises shall be kept, stored,
or maintained at Tenant's sole risk. Tenant waives all claims against and
releases Landlord, and Landlord's employees and agents, from liability for
damages or injury suffered by Tenant or any person claiming through Tenant as a
result of any accident or other occurrence in or upon the Leased Premises or any
other part of the Building or Common Areas, unless the damage or injury was
caused by Landlord, or by Landlord's agents' or invitees' gross negligence,
willful misconduct or failure to perform their responsibilities under this
Lease.

        22. Waiver of Subrogation. Tenant waives all claims against Landlord for
any damage or loss Tenant may suffer which is covered by an insurance policy
carried by Tenant (or which Tenant is required to carry under this Lease); and
any insurance policy carried by Tenant covering the Leased Premises, its
contents, or any part thereof, shall contain an express waiver of any right of
subrogation against Landlord by the issuer of the policy.

        23. DEFAULT

                23.1    "Event of Default" Defined.

Any one or more of the following events shall constitute an "Event of Default":

                (a)     The sale of Tenant's interest in the Premises under
                        attachment, execution or similar legal process, or if
                        Tenant is adjudicated as bankrupt or insolvent under any
                        state bankruptcy or insolvency law or an order for
                        relief is entered against Tenant under the Federal
                        Bankruptcy Code and such adjudication or order is not
                        vacated within ten (10) days.

                (b)     The commencement of a case under any chapter of the
                        Federal Bankruptcy Code by or against Tenant or any
                        guarantor of Tenant's obligations hereunder, or the
                        filing of a voluntary or involuntary petition proposing
                        the adjudication of Tenant or any such guarantor as
                        bankrupt or insolvent, or the reorganization of Tenant
                        or any such guarantor, or an arrangement by Tenant or
                        any such guarantor with its creditors, unless the
                        petition is filed or case commenced by a party other
                        than Tenant or any such guarantor and is withdrawn or
                        dismissed within thirty (30) days after the date of its
                        filing.

                (c)     The admission in writing by Tenant or any such guarantor
                        of its inability to pay its debts when due;

                (d)     The appointment of a receiver or trustee for the
                        business or property of Tenant or any such guarantor,
                        unless such appointment shall be vacated within ten (10)
                        days of its entry.

                (e)     The making by Tenant or any such guarantor of an
                        assignment for the benefit of its creditors, or if in
                        any other manner Tenant's interest in this Lease shall
                        pass to another by operation of law.

                (f)     The failure of Tenant to pay any Minimum Rent,
                        Additional Rent or other sum of money when due.

                (g)     Default by Tenant, after receipt of written notice from
                        Landlord, in the performance or observance of any
                        covenant or agreement of this Lease (other than a
                        default involving the payment of money), which default
                        is not cured within ten (10) days after the giving of
                        notice thereof by Landlord, unless such default is of
                        such nature that it cannot be cured within such ten (10)
                        day period, in which case no Event of Default shall
                        occur so long as Tenant shall commence the curing of the
                        default within such ten (10) days period and shall
                        thereafter diligently prosecute the curing of same;
                        provided, however, if Tenant shall default in the
                        performance of any such covenant or agreement of this
                        Lease two (2) or more times in any twelve (12) month
                        period, then notwithstanding that each of such defaults
                        shall have been cured by Tenant, any further similar
                        default shall be deemed an Event of Default without the
                        ability for cure.

                (h)     The vacation or abandonment of the Premises by Tenant at
                        any time following delivery of possession of the
                        Premises to Tenant.


Landlord's Initials:_________         Tenant's Initials:_________


                (i)     The occurrence of any other event described as
                        constituting an "Event of Default" elsewhere in this
                        Lease.

                23.2    Remedies.

Upon the occurrence of an Event of Default, [except for Items 23.1(a), 23.1(b),
23.1(c), 23.1(d), 23.1(e), and/or 23.1(g)], Landlord, upon 10 days notice to
Tenant (except where otherwise expressly provided for below or by applicable
law) may do any one or more of the following:

                (a)     With or without judicial process, enter the Premises and
                        take possession of any and all goods, inventory,
                        equipment, fixtures and all other personal property
                        (excluding portfolio and individual financial files) of
                        Tenant, which is or may be put into the Premises during
                        the Term, whether exempt or not from sale under
                        execution or attachment (it being agreed that said
                        property shall at all times be bound with a lien in
                        favor of Landlord and shall be chargeable for all Rental
                        and for the fulfillment of the other covenants and
                        agreements herein contained), and Landlord may sell all
                        or any part thereof at public or private sale. Tenant
                        agrees that ten (10) days prior written notice of any
                        public or private sale shall constitute reasonable
                        notice. The proceeds of any such sale shall be applied,
                        first, to the payment of all costs and expenses of
                        conducting the sale or caring for or storing said
                        property (including reasonable attorneys' fees); second,
                        toward the payment of any indebtedness, including
                        (without limitation) indebtedness for Rental, which may
                        be or may become due from Tenant to Landlord; and third,
                        to pay Tenant, on demand, any surplus remaining after
                        all indebtedness of Tenant to Landlord has been fully
                        paid;

                (b)     Perform, on behalf and at the expense of Tenant, any
                        obligation of Tenant under this Lease which Tenant has
                        failed to perform and of which Landlord shall have given
                        Tenant notice, the cost of which performance by
                        Landlord, together with interest thereon at the Default
                        Rate from the date of such expenditure, shall be deemed
                        Additional Rental and shall be payable by Tenant to
                        Landlord upon demand. Notwithstanding the provisions of
                        this clause (b) and regardless of whether an Event of
                        Default shall have occurred, Landlord may exercise the
                        remedy described in this clause (b) without any notice
                        to Tenant if Landlord, in its good faith judgment,
                        believes it would be materially injured by failure to
                        take rapid action or if the unperformed obligation of
                        Tenant constitutes an emergency;

                (c)     Elect to terminate this Lease and the tenancy created
                        hereby by giving ten (10) days prior written notice of
                        such election to Tenant, and reenter the Premises,
                        without the necessity of legal proceedings, and remove
                        Tenant and all other persons and property from the
                        Premises, and may store such property in a public
                        warehouse or elsewhere at the cost of and for the
                        account of Tenant without resort to legal process and
                        without Landlord being deemed guilty of trespass or
                        becoming liable for any loss or damage occasioned
                        thereby; or

                (d)     Exercise any other legal or equitable right or remedy
                        which it may have.

Any costs and expenses incurred by Landlord (including, without limitation,
reasonable attorneys' fees) in enforcing any of its rights or remedies under
this Lease shall be deemed to be Additional Rental and shall be repaid to
Landlord by Tenant upon demand.

                23.3    Damages.

If this Lease is terminated by Landlord pursuant to Section 23.2, Tenant
nevertheless shall remain liable for (a) any Rental and damages which may be due
or sustained prior to such termination, all reasonable costs, fees and expenses
including, but not limited to, reasonable attorneys' fees, costs and expenses
incurred by Landlord in pursuit of its remedies hereunder, or in renting the
Premises to others from time to time (all such Rental, damages, costs, fees and
expenses being referred to herein as "Termination Damages"), and (b) additional
damages (the "Liquidated Damages"), which, at the election of Landlord, shall be
either:


Landlord's Initials:_________         Tenant's Initials:_________


                (i)     an amount equal to the Rental which, but for termination
                        of this Lease, would have become due during the
                        remainder of the Term, less the amount of Rental, if
                        any, which Landlord shall receive during such period
                        from others to whom the Premises may be rented (other
                        than any Additional Rental received by Landlord as a
                        result of any failure of such other person to perform
                        any of its obligations to Landlord), in which case such
                        Liquidated Damages shall be computed and payable in
                        monthly installments, in advance, on the first day of
                        each calendar month following termination of the Lease
                        and continuing until the date on which the Term would
                        have expired but for such termination, and any suit or
                        action brought to collect any such Liquidated Damages
                        for any month shall not in any manner prejudice the
                        right of Landlord to collect any Liquidated Damages for
                        any subsequent month by a similar proceeding; or

                (ii)    an amount equal to the present worth (as of the date of
                        such termination) of Rental which, but for termination
                        of this Lease, would have become due during the
                        remainder of the Term, less the fair rental value of the
                        Premises, as determined by an independent real estate
                        appraiser named by Landlord, in which case such
                        Liquidated Damages shall be payable to Landlord in one
                        lump sum on demand and shall bear interest at the
                        Default Rate until paid. For purposes of this clause
                        (ii), "present worth" shall be computed by discounting
                        such amount to present worth at a discount rate equal to
                        one percentage point above the discount rate then in
                        effect at the Federal Reserve Bank nearest to the
                        location of the Building.

Termination Damages shall be due and payable immediately upon demand by Landlord
following any termination of this Lease pursuant to Section 23.2. Liquidated
Damages shall be due and payable at the times set forth herein.

If this Lease is terminated pursuant to Section 23.2, Landlord may relet the
Premises or any part thereof, alone or together with other premises, for such
term or terms (which may be greater or less than the period which otherwise
would have constituted the balance of the Term) and on such terms and conditions
(which may include concessions or free rent and alterations of the Premises) as
Landlord, in its sole discretion, may determine, but Landlord shall not be
liable for, nor shall Tenant's obligations hereunder be diminished by reason of,
any failure by Landlord to relet the Premises or any failure by Landlord to
collect any rent due upon such reletting.

Nothing contained in this Lease shall limit or prejudice the right of Landlord
to prove for and obtain, in proceedings for the termination of this Lease by
reason of bankruptcy or insolvency, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damages referred to
above. The failure or refusal of Landlord to relet the Premises or any part or
parts thereof shall not release or affect Tenant's liability for damages.

        24. Waiver by Landlord. Landlord's failure to insist upon strict
performance by Tenant of any obligation under this Lease, irrespective of the
length of time for which such failure continues, shall not be construed as a
waiver or relinquishment of Landlord's right to demand strict compliance in the
future. The receipt and acceptance by Landlord or Agent of rent with knowledge
of the breach of any obligation hereof shall not be deemed a waiver of such
breach, and no waiver by Landlord of any provision of this Lease shall be deemed
to have been agreed upon unless expressed in a writing signed by the parties.

        25. Liens. Tenant shall pay all sums of money due for labor, services,
materials, supplies, and equipment furnished at Tenant's request with respect to
the Leased Premises or any other part of the Building. If a mechanic's,
materialman's, or other lien (or notice of intent to file such a lien) is filed
or recorded against the Leased Premises, the Building, or Landlord's interest in
either, based upon labor, services, materials, supplies, equipment, or the like
ordered, or alleged to have been ordered by Tenant, Tenant shall cause such lien
to be discharged of record within ten (10) days after Tenant first has knowledge
of such lien. If such lien is not discharged within the ten (10) day period,
Landlord may (but shall not be obligated to) cause such discharge by (i) payment
to the lienor, (ii) deposit of substitute security with a court having
jurisdiction, (iii) bonding, or (iv) such other means chosen by Landlord; and
the entire cost of the discharge shall be paid to Landlord by Tenant upon
demand. Tenant shall, upon request, furnish Landlord with contractors'
affidavits, full and final waivers of right to lien, and receipted bills
covering all labor and materials expended and used in or about the Leased
Premises by or at the request of Tenant.


Landlord's Initials:_________         Tenant's Initials:_________


        26. Signage. Tenant shall not place or display (or cause to be placed or
displayed) on any exterior door, wall, or window of the Leased Premises any
sign, advertising matter, or other thing of any kind, and shall not place or
display any decoration, lettering, or advertising matter on the glass of any
window or door of the Leased Premises, without Landlord's prior written
approval, Tenant shall maintain such sign, decoration, lettering, advertising
matter, or other thing, as may be approved by Landlord, in good condition and
repair at all times. Tenant, at Tenant's expense, shall be permitted to place
exterior signage on the Mercury Boulevard monumental sign, subject to code
restrictions and design approval. Additionally, Tenant, at Tenant's expense,
shall be permitted to place its name on exterior in-ground, multi-tenant
identification signs, using consistent lettering, that Landlord may, from time
to time, erect outside the Building entrances, as well as such additional
interior and exterior signage as may be approved by Landlord. Tenant shall be
obligated to use the building standard suite entry signage as defined in Exhibit
D.

        27. Exhibits, Addenda, Rules, and Regulations. All Exhibits, Addenda and
Rules and Regulations appended to this Lease are hereby incorporated into this
Lease, and Tenant shall comply with and observe the same. Tenant's failure to
comply with and observe the same shall constitute a breach of this Lease.
Landlord reserves the right to amend, supplement, or add to the Rules and
Regulations from time to time, provided that Landlord gives Tenant written
notice of all such changes and that such changes are applicable to other office
tenants, except Verizon, in the Building.

        28. Surrender of Premises. On expiration or sooner termination of the
Term, Tenant shall surrender to Landlord the Leased Premises and all Tenant's
improvements and alterations, broom clean, in good order, condition, and repair,
except for ordinary wear and tear or condemnation or destruction of the Leased
Premises, and except for trade fixtures that Tenant has removed. Tenant shall
also deliver to Landlord all keys to the Leased Premises and the combination to
any safe, remove all its personal property, and make all repairs and
reimbursements required pursuant to this Lease; provided, however, Tenant may
not remove its personal property from the Leased Premises without Landlord's
prior written consent, if Tenant is in breach or default hereunder.

        Landlord may elect to retain or dispose of in any manner any unapproved
alterations or Tenant's personal property that Tenant does not remove from the
Premises on expiration or termination of the Term. Title to any such unapproved
alterations or Tenant's personal property that Landlord elects to retain or
dispose of after expiration of the Term shall vest in Landlord. Tenant waives
all claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of any such unapproved alterations or personal
property. Tenant shall be liable to Landlord for Landlord's costs of storing,
removing, and disposing of any unapproved alterations or Tenant's personal
property which Landlord does not elect to acquire.

        29. Holdover. Tenant shall indemnify and hold Landlord harmless from and
against all costs, claims, loss, or liability resulting from delay by Tenant in
surrendering the Leased Premises, including, without limitation, any claims made
by any succeeding tenant founded on such delay. The parties recognize and agree
that the damage to Landlord resulting therefrom may be substantial, could exceed
the amount of the Minimum Rent payable under this Lease, and could be impossible
to measure accurately. Tenant therefore agrees that if Landlord suffers such
damages due to Tenant's failure to deliver possession of the Leased Premises
within twenty-four (24) hours after the date of the expiration or termination of
the Term, then Tenant shall pay, for each month and for each portion of any
month during which Tenant holds over in the Leased Premises after the expiration
or termination of the Term, 1.5 times the aggregate of that portion of the
Minimum Rent which was payable under this Lease during the last month of the
Term; however, Tenant may with the consent of the Landlord, holdover in the
Leased Premises for a term not to exceed ninety (90) days at 1.035 times the
aggregate of that portion of the Minimum Rent which was payable under this Lease
during the last month of the Term. If, at the expiration of the ninety (90) day
Landlord agreed holdover period, Tenant has not vacated the Leased Premises and
delivered possession to Landlord, or executed a new lease with Landlord, Tenant
shall pay 1.5 times the aggregate of that portion of the Minimum Rent which was
payable under the Lease during the last month of the Term. Nothing contained in
this Lease shall be deemed to permit Tenant to retain possession of the Leased
Premises after the expiration of the Term. The provisions of this Section shall
survive the expiration or termination of the Term.


Landlord's Initials:_________         Tenant's Initials:_________


        30. Subordination and Attornment. This Lease is and shall be subject and
subordinate to any mortgage, deed of trust, underlying leasehold estate, or
other arrangement or right to possession that may now or hereafter be placed
upon or affect the Leased Premises or the Land of which the Leased Premises is a
part, or against any building hereafter placed upon the land of which the Leased
Premises is a part, to all advances to be made thereunder, to the interest and
principal payable thereon, and to all renewals, replacements, modifications,
consolidations, and extensions thereof. Upon Landlord's request Tenant shall
execute and deliver such documents, in such terms as Landlord reasonably
requests, to evidence the same. Upon request of any such mortgagee, Tenant shall
attorn to and acknowledge the foreclosure purchaser or purchasers as Landlord
hereunder. The form of the current lender's non-disturbance and attornment
agreement is attached as Exhibit E.

        31. Estoppel Certificates. Upon Landlord's request, Tenant shall
execute, acknowledge, and deliver to Landlord a written statement, addressed to
such person as Landlord may request, (a) certifying that this Lease is in full
force and effect and unmodified (or if modified, specifying the modifications),
and that Landlord is not in default under this Lease (or if a default is
alleged, specifying the default), (b) stating the date to which rent and any
other charges have been paid by Tenant and the address to which notices to
Tenant should be sent, and (c) certifying or stating such other matters as may
be required by Landlord. If Landlord has not received a response within 10 days
of any such request, such certificate shall be deemed acceptable to Tenant,
whereupon Landlord shall be appointed as Tenant's attorney-in-fact to execute
and deliver such certificate.

        32. Future Refinancing. If all or part of the Building can be refinanced
or further financed only upon the basis of modifications of this Lease, Tenant
shall cooperate with Landlord in making such reasonable Lease modifications as
may be required; provided, however, Tenant shall not be required to make any
modifications that impair Tenant's use of the Leased Premises or relate to, or
increase Tenant's costs, liability, risk, amount of Minimum or Excess Rent, the
use of the Leased Premises, the duration of the Term, or the improvements, if
any, to be made by Landlord to the Leased Premises.

        33. Right of Entry. Tenant shall allow Landlord or its representatives
to enter the Leased Premises at any reasonable hour to inspect the same, to make
any repairs or renovations deemed necessary or desirable, or to show the Leased
Premises to prospective tenants, purchasers, or lenders.

        34. Force Majeure. Whenever Tenant or Landlord is required by the terms
of this Lease or by law to perform any contract, act, work, labor or services,
or to discharge any lien against the Leased Premises, or to perform and comply
with any laws, rules, orders, ordinances, or regulations, but is unable to
perform such act(s), then Tenant or Landlord, as appropriate, shall not be
deemed to be in default and the other party shall not enforce or exercise any of
its rights under this Lease, if and so long as nonperformance or default is
directly caused by strikes, non-availability of materials, war or national
defense preemptions, governmental restrictions, acts of God, acts of the other
party, or other similar causes beyond the reasonable control of the
non-performing party. Tenant and Landlord shall in any event pay any sum of
money required to discharge any lien incurred by them if at any time the Leased
Premises, or any part thereof, is in danger of being foreclosed, forfeited, or
lost by reason of such lien.

        35. Limitation of Landlord's Liability. To the extent covered by
Landlord's insurance, Landlord shall be responsible or liable for latent
defects, deterioration, or change in the condition of the Building, the Common
Areas, or the Leased Premises, and for any damage resulting therefrom, whether
to person or property, or for loss to any property of Tenant as a result of
theft or misplacement, or for inconvenience, business interruption, or loss of
business of Tenant for any reason, provided, however, if Landlord fails to keep
in place any insurance required under this Lease, Landlord shall be fully liable
for, and shall indemnify Tenant against, all such claims. To the extent covered
by Tenant's insurance, Tenant shall indemnify and hold Landlord harmless from
and against any and all claims arising out of Tenant's use or occupancy of, or
from any other activity permitted or suffered by Tenant in or about the Leased
Premises, the Building, or the Common Areas; provided, however, if Tenant fails
to keep in place any insurance required under this Lease, Tenant shall be fully
liable for, and shall indemnify Landlord against, all such claims. Regardless of
any other provision in this Lease, if Landlord defaults in the performance of
any of its obligations, Tenant agrees to look solely to Landlord's insurance and
Landlord's interest in the Building or to the undistributed proceeds of any sale
of the Building for the satisfaction of any judgment obtained by Tenant as a
result of any default, and Tenant shall not otherwise seek any personal money
judgment against Landlord or any of its officers, directors,


Landlord's Initials:_________         Tenant's Initials:_________


stockholders, or partners. The foregoing shall not be deemed to limit Tenant's
right, if any, to obtain equitable remedies such as injunctive relief or
specific performance.

        36. Notices. Any notice, demand, consent, request, or other
communication required or permitted under this Lease shall be in writing and
shall be given by hand delivery or sent by the United States mail by certified
mail, return receipt requested, postage prepaid, and addressed as indicated in
Section 1. Notice shall be deemed given when hand delivered or two days after
deposit with the United States Postal Service. The parties may change their
respective addresses by written notice to all other parties.

        37. Quiet Enjoyment. Landlord covenants that Tenant, on paying all rents
and performing all the obligations set forth in this Lease, shall have and enjoy
quiet and peaceable possession of the Leased Premises during the Term.

        38. Entire Agreement. This Lease contains the entire agreement between
the parties with respect to the leasing of the Leased Premises and supersedes,
merges and replaces all prior written or oral agreements, negotiations, offers,
representations, and warranties with respect to the leasing of the Leased
Premises. This agreement cannot be altered, waived, or modified in any way,
including the provisions of this Section, except in a writing signed by the
parties. No course of dealing between the parties, no usage of trade, and no
parol or outside evidence of any nature shall be used to modify, interpret, or
supplement any provision of this Lease.

        39. Survival. The representations, warranties, and agreements of the
parties contained in this Lease and in all other documents delivered in
connection with this Lease shall survive the expiration or sooner termination of
this Lease.

        40. Severability. If any provision of this Lease is unenforceable, the
remainder of this Lease shall continue in effect and be construed as if the
unenforceable provision had not been contained in this Lease. Each provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.

        41. Successors and Assigns. This Lease shall be binding upon and inure
to the benefit of the parties and their respective heirs, personal
representatives, successors, and assigns; provided, however, that this Section
shall not be construed to permit the assignment of this Lease except as
expressly provided.

        42. Third Party Beneficiaries. The provisions of this Lease are intended
to benefit only the parties to this Lease. No person not a party to this Lease
shall be deemed a third party beneficiary of this Lease, nor shall any such
person be authorized or empowered to enforce the provisions of this Lease,
except to the extent such a person becomes a permitted assignee of one of the
parties.

        43. Venue. Regardless of what venue would otherwise be permissive or
required, the parties stipulate that all actions arising under or affecting this
Lease shall be brought in the Circuit or General District Courts of the City of
Hampton, Virginia, the parties agreeing that such forum is mutually convenient
and bears a reasonable relationship to this Lease.

        44. Consent to Jurisdiction and Service of Process. The parties
irrevocably submit to the jurisdiction of the state courts of the Commonwealth
of Virginia and to the jurisdiction of the United States District Court for the
Eastern District of Virginia, for the purpose of any suit, action, or other
proceeding arising under or affecting this Lease.

        45. Counting Days. In computing the number of days for purposes of this
Lease, all days shall be counted including weekends and holidays; provided,
however, that if the last day for taking any action under this Lease shall fall
on a Saturday, Sunday, or banking holiday, the time for taking such action shall
be extended to the next regular business day.

        46. Number and Gender. When used in this Lease, the singular includes
the plural, the plural includes the singular, and the use of any gender includes
any other gender, as circumstances may require. The term "person" includes both
natural persons and entities.


Landlord's Initials:_________         Tenant's Initials:_________


        47. Headings. The headings contained in this Lease are for the
convenience of the parties only, and are not a part of the substantive agreement
of the parties nor shall they affect the meaning or interpretation of any
provision of this Lease in any way.

        48. Counterparts. This Lease may be executed in multiple counterparts.
When at least one copy of this Lease has been executed by each party to this
Lease, this Lease shall be in full force and effect, and all of such
counterparts shall be read together as a single agreement.

        49. Recording. Upon request of either Tenant of Landlord, the parties
shall execute a short form of this Lease on a written document witnessed and
acknowledged in form capable of being recorded in the public records, which
short form Lease shall be recorded at the sole cost and expense of the party
requesting the same in the Clerk's Office of the Circuit Court of the city
wherein the Leased Premises are located.

        50. Reimbursement for Credit Report. Intentionally omitted

        51. Agent's Commission.

                        (a) In consideration of Agent's services in procuring
                this Lease, Landlord shall pay Agent a leasing commission per
                separate agreement. Landlord and Tenant represent to each other
                that they have not dealt with any broker in connection with this
                Lease, other than Agent and CB Richard Ellis, and that no broker
                or other person is entitled to any commission or fee by reason
                of the negotiation and execution of this Lease.

                        (b) Upon execution of this Lease by both parties, Lessor
                shall pay to CB Richard Ellis of Virginia, Inc., licensed real
                estate broker, the sum of four percent (4%) of the aggregate
                total lease value, one half within thirty (30) days after lease
                execution and one half within thirty (30) days after occupancy
                for brokerage services rendered by said broker to Lessor in this
                transaction.

        52. Agent Disclosure. The parties acknowledge that Divaris Real Estate,
Inc. is a licensed real estate brokerage firm and is acting in the capacity as
broker for the Building.

        53. Trial by Jury. Landlord and Tenant each waives any right to trial by
jury of any issue(s) in a summary proceeding or any other suit, action,
proceeding or counterclaim at any time brought or instituted by or against the
other with respect to or involving the Leased Premises or any matter arising
under or connected with this Lease and the relationship of Landlord and Tenant
created by this Lease.

        54. Right of First Refusal. Landlord grants to Tenant the right of first
refusal on the contiguous first floor space directly below the proposed
Premises, commonly known as Suites 173 - 185, and more specifically delineated
in Exhibit BA-1. The right of first refusal will apply to any functional part of
this area that Tenant chooses to lease. In the event that Landlord proposes, or
in good faith intends to propose to lease, some or the entire first right of
refusal space, Landlord shall provide written notice of the significant terms
and conditions of such proposal. Tenant shall have the first right to lease the
proposed space under the same terms and conditions by providing affirmative
written notice to Landlord within ten (10) days of receipt of Landlord's notice.
Tenant's affirmative response shall be binding upon Tenant. Failure by Tenant to
notify Landlord of its intentions within ten (10) days shall be deemed a waiver
of Tenant's right to lease such space.

        IN WITNESS WHEREOF each corporate party hereto has caused this Lease to
be executed in its name and behalf by its duly authorized officer or agent; each
individual party hereto has hereunto set his hand, and each partnership party
hereto has caused this Lease to be executed in its name and behalf by the
required number of its Members.



                        LANDLORD:    NetCenter Partners, LLC


Landlord's Initials:_________         Tenant's Initials:_________


                                            By:     /S/ R. Jeffery Arnold
                                                   -----------------------------
                                            Name:  R. Jeffery Arnold

                                            Title: Managing Member

                                            Date:
                                                   -----------------------------


                        TENANT:        Portfolio Recovery Associates, LLC

                                            By:    /S/ Steven D. Fredrickson
                                                   -----------------------------

                                            Name:  Steven D. Fredrickson

                                            Title: President, CEO

                                            Date:  November 14, 2002

COMMONWEALTH OF VIRGINIA
CITY OF ______________________, to-wit:

        The foregoing instrument was acknowledged before me this ____ day of
_________, 2002 by ______________________________ of
____________________________.


                                               ---------------------------------
                                                          Notary Public

My Commission expires: _________________________


                                      * * *

COMMONWEALTH OF VIRGINIA
CITY OF ______________________, to-wit:

        The foregoing instrument was acknowledged before me this ____ day of
_________, 2002 by ______________________________ of
____________________________.

                                               ---------------------------------
                                                          Notary Public

My Commission expires: _________________________


                                      * * *


Landlord's Initials:_________         Tenant's Initials:_________



                                  OPTION RIDER


Landlord grants to Tenant an option to renew this Lease, upon the following
terms and conditions:


Provided Tenant is not in default of any of the terms and conditions of the
Lease and Tenant is not, at the time the Option may be renewed and at the time
the Option is renewed, delinquent in any payment of Rents, Additional Rents or
other sum of money due, Landlord grants to Tenant two (2) consecutive options of
five (5) years each to renew Lease. Tenant must give Landlord a minimum of one
hundred-eighty (180) days advance written notice of Tenant's exercise of each
option prior to the expiration of the current Term or extended Term, as
applicable. The Minimum Rent shall be adjusted to the then market rate for
equivalent facilities in the Building and for relevant and comparable facilities
in the general marketplace.



Landlord's Initials:_________         Tenant's Initials:_________



                                    EXHIBIT A

                                  [FLOOR PLAN]



Landlord's Initials:_________         Tenant's Initials:_________



                                   EXHIBIT A-1

                    [RIGHT OF FIRST REFUSAL SPACE FLOOR PLAN]




Landlord's Initials:_________         Tenant's Initials:_________


                                    EXHIBIT B

                               TENANT IMPROVEMENTS


Tenant accepts the Premises in "as is" condition except for the following:


1. Landlord shall, at its expense, construct the shell improvements above the
finished ceiling (and including the finished ceiling) within the Leased Premises
in accordance with the attached Landlord Standard Work Letter (Exhibit D),
except that HVAC shall be installed at one (1) ton per 350 square feet of usable
square feet.

2. Landlord agrees to complete the Tenant's interior build-out, first, to the
specifications provided as part of the approved construction drawings and,
secondly, to the Landlord's standard building specifications. Landlord will
construct Tenant's improvements up to an allowance of $16 per rentable square
foot below the finished ceiling. Any costs over the allowance will be the
Tenant's sole financial responsibility. Tenant will reimburse Landlord for all
costs in excess of $16 per rentable square foot within ten (10) days after
receipt of Landlord's invoice and supporting detail.

3. Interior architectural design for the Premises (above and below the ceiling)
will be provided by Morrisette Architecture at an allowance by Landlord of $0.60
per square foot for space plans and approved final construction drawings.
Payment of the aforementioned $0.60 per usable square foot will be the
Landlord's financial responsibility; any additional costs above $0.60 per usable
square foot associated with space planning or construction drawings shall be
Tenant's financial responsibility.

4. Landlord, at its cost, will provide electronic security card access to the
Building at the northeast exterior entrance on the second level. All other
Building access doors will be manually locked after normal operating business
hours for the Building. In addition, interior card access portals separating the
retail area of the Building from the office area of the Building will be
installed at Landlord's expense.

5. In the event that Tenant elects to specify non building standard upgraded
lighting, Landlord shall install, at Tenant's expense, such Tenant desired
ceiling light fixtures and provide a credit of $60 per building light fixture
that would have otherwise been installed. If Tenant desires lighting in excess
of one (1) fixture per one-hundred (100) rentable square feet, Landlord shall
install such additional lighting at Tenant's expense.

6. In the event that Tenant elects to specify non building standard ceiling
height (greater or less than ten (10) feet), Tenant shall be responsible for all
additional cost implications, including, but not limited to, sprinkler head
installation, mechanical equipment, extra sheetrock, etc.

7. Landlord will allow Tenant, at its expense, to construct an exterior
generator pad to the rear of the Leased Premises, as shown on Exhibit A, subject
to Landlord's approval regarding specific location and design. Tenant may, at
its expense, install a generator on the generator pad, provided that said
generator is properly ventilated and enclosed. Tenant shall be responsible for
maintaining and servicing its generator.

8. Landlord will allow Tenant to create an outside seating area near the
proposed exterior generator pad in the location shown on Exhibit A. Landlord, at
its expense, will remove the existing exterior brick wall and Tenant will be
financially responsible for any and all improvements associated with its outside
seating area. The design and layout of Tenant's outside seating area shall be
subject to code as well as approval by Landlord. Tenant shall, at its expense,
be responsible for policing, cleaning and maintaining the outside seating area
upon completion.


Landlord's Initials:_________         Tenant's Initials:_________


                                   EXHIBIT B-1


                      RULES AND PROCEDURES FOR CONTRACTORS

The following rules and procedures have been promulgated by NetCenter Partners,
LLC ("Landlord") to ensure that any modifications or improvements within
NetCenter (the "Building") and/or to the Building or the Building systems and
equipment (and/or to any leased premises within the Building) are completed in
compliance with established standards while maintaining a level of safety
consistent with industry standards. The review of tenant plans and/or
specifications by Landlord and its insurers, consultants or other
representatives, does not imply that any plans so reviewed comply with
applicable laws, ordinances, codes, standards or regulations. Nor does
Landlord's review or approvals imply that any work is to be performed at
Landlord's expense.

Landlord reserves the explicit right to eject from the Building any person or
contractor who does not comply with these rules after one day's notice.

I. GENERAL

        A.  No work will be performed within the Building until the Landlord has
            received a full set of architectural drawings and specifications and
            has given written approval.

        B.  All modifications performed within the Building must comply with
            applicable federal, state and local codes and ordinances.

        C.  Prior to the commencement of any work, a building permit must be
            obtained and displayed and a certificate of insurance from the
            Contractor must be furnished to the Landlord naming the following
            entities as additional insureds:

                -  NetCenter Partners, LLC
                -  Divaris Property Management Corp.
                -  Concord Partners, LLC
                -  RAIT Partnership, L.P.
                -  Sovereign Bank

        D.  The Contractor must notify the Landlord of all work scheduled and
            provide the Landlord with a list of personnel working in the
            Building.

        E.  The Contractor must furnish the Landlord with a list of all
            subcontractors to be engaged as well as emergency phone and/or pager
            numbers prior to commencing the work.

        F.  The Contractor must provide an on-site project superintendent while
            construction work is in process.

        G.  All workers must be dressed appropriately when working in the
            Building. Shirts must be worn at all times. No shorts are permitted.

        H.  All carts must be furnished with pneumatic tires and rubber bumpers.

        I.  Smoking is not allowed in any occupied part of the Building.


Landlord's Initials:_________         Tenant's Initials:_________


        J.  The use of loud music is prohibited.

        K.  Any work that requires access to another tenant's space must first
            be coordinated through the Landlord's representative. Any additional
            costs of security or building engineering services required due to
            Contractor's work [or during the performance of the Contractor's
            work] shall be charged to the Contractor.

        L.  Dumping of construction debris into Building drains, mop sinks,
            trash dumpsters, etc. is strictly prohibited. If this activity does
            occur, the Contractor shall be charged 200% of Landlord's cost of
            clearing any drain, sink or dumpster where evidence of this activity
            is found.

        M.  Common building restrooms will be designated for use by the
            Contractor. The Contractor shall be responsible for any damage to
            such restrooms and for cleaning and stocking during construction.

        N.  The Contractor shall repair all existing common area finishes
            disturbed by the work or damaged by the Contractor's or
            subcontractor's personnel.

        O.  The work performed by the Contractor or its subcontractors may be
            performed only during hours and days pre-approved by the Landlord's
            representative. The Landlord's representative must pre-approve any
            work that entails excessive noise, vibration or noxious odors.

        P.  Prior to core drilling or cutting, all slabs must be x-rayed and
            Landlord's structural engineer must review x-rays before the
            Contractor may commence work. If obstructions are detected, the core
            drill locations or cutting must be moved as necessary.

        Q.  Any roof related work must be performed by the base Building roofing
            contractor in order to ensure that the roof warranties are not
            jeopardized or voided.

        R.  The Contractor shall immediately report all accidents to the
            Landlord in writing after first notifying Landlord's representative
            by telephone or in person.

        S.  The Contractor shall obtain lien waivers from all subcontractors and
            suppliers of materials relating to the work performed. In the event
            that any mechanics liens are filed against the Building, the
            Contractor shall, within five (5) days, pay off, or escrow
            sufficient funds against or bond around the filed lien(s).

II. INSURANCE

        A.  Prior to the commencement of any construction work in the Building,
            or in any leased premises, Contractor is required to submit a
            Certificate of Insurance, in limits acceptable to the Landlord,
            naming the following entities as additional insureds:

                             NetCenter Partners, LLC
                             1225 19th Street, NW, Suite 850
                             Washington, DC 20036
                                            and
                             Divaris Property Management Corp.
                             One Columbus Center, Suite 700
                             Virginia Beach, VA 23462
                                            and
                             RAIT Partnership, L.P.
                             1818 Market Street, 28th Floor
                             Philadelphia, PA  19103


Landlord's Initials:_________         Tenant's Initials:_________


                                            and
                             Sovereign Bank
                             2000 Market Street, Suite 1420
                             Philadelphia, PA 19103


        The Landlord reserves the right to inspect the Contractor's requirements
        for Certificates of Insurance for each of the subcontractors.

        B.  Minimum Limits of Insurance

                The Contractor shall maintain limits no less than:

                1.  Commercial general liability: $1,000,000 combined single
                    limit per occurrence for death, bodily injury and property
                    damage. Minimum $2,000,000 aggregate. (The general aggregate
                    limit shall apply separately to this project/location or the
                    general aggregate shall be twice the required limit.)

                2.  Automobile liability: $1,000,000 per person/$2,000,000 per
                    accident for death, bodily injury and property damage.

                3.  Workers compensation and employers liability: Workers
                    compensation limits as required by the labor code of the
                    jurisdiction in which the Building is located and employers
                    liability limits of $1,000,000 per accident.

                4.  Umbrella Liability: $5,000,000 per occurrence and $5,000,000
                    aggregate. (The aggregate limit shall apply separately to
                    this project/location).

        C. Coverages

                1.  General Liability and Automobile Liability Coverage

                    (a) The Landlord, the managing agent of the Building, the
                        holder of any mortgage, and their respective officers
                        and employees are to be covered as additional insureds
                        as respects: liability arising out of activities
                        performed by or on behalf of the Contractor; projects
                        and completed operations of the Contractor; premises
                        owned, leased, or used by the Contractor; or automobiles
                        owned, leased, hired, or borrowed by the Contractor.

                            The coverage shall contain no special limitations on
                            the scope afforded. The Contractor's insurance shall
                            apply separately to each insured against whom claim
                            is made or suit is brought except with respect to
                            the limits of the insurer's liability.

                2.  Workers Compensation and Employers Liability Coverage

The insurer shall agree to waive all rights of subrogation against the Landlord,
its officers, officials, and employees for losses arising from work performed by
the Contractor for the Landlord.

                3.  All Coverages

Each insurance policy required by this clause shall be endorsed to state that
coverage shall not be suspended, voided, canceled by either party, reduced in
coverage or in limits except after 30 days prior written notice by certified
mail, return receipt requested, has been given to the Landlord.


III. LIFE SAFETY, FIRE AND SPRINKLER SYSTEMS


Landlord's Initials:_________         Tenant's Initials:_________


                A.  All work to the Building's sprinklers or life safety systems
                    must be arranged in advance through the Building Manager,
                    who may be reached at (757) 497-2113 or (757) 838-9500.

                B.  The Building Manager must be contacted prior to any welding
                    so that the fire alarm systems can be properly monitored or
                    turned off.

                C.  Contractor will not disconnect, tamper with, delete,
                    obstruct, relocate, or expand any life safety equipment,
                    except as indicated on drawings approved by the Building
                    Manager.

                D.  Any unit or device temporarily incapacitated will be
                    red-tagged "Out of Service" and the Building Manager will be
                    alerted prior to the temporary outage.

                E.  All Tenant installed fire alarm initiation and notification
                    devices that connect with the base building fire alarm
                    system shall match the base building system and be approved
                    by the Building Manager.

                F.  All sprinkler systems and equipment are to be designed and
                    installed in accordance with the current standards of the
                    National Fire Protection Association.

                G.  All corrective work to the fire alarm system due to the
                    Contractor's work shall be charged to the Contractor.


IV. DELIVERIES, LOADING DOCK AND PARKING

                A.  Entrance and exit to the Building by workmen or by delivery
                    persons shall be at times and locations pre-determined by
                    the on-site Building Manager.

                B.  All employees of Contractor or any subcontractor must notify
                    the on-site Building Manager each day of the commencement of
                    work.

                C.  Any large material deliveries, activities affecting other
                    tenants of the Building, staying in the parking lot or
                    access to electrical or telephone closets must be
                    coordinated through the on-site Building Manager at (757)
                    838-9500.

                D.  Parking in the Building parking lot by workmen must be in
                    areas pre-approved by the Building Manager.

                E.  Deliveries which entail the rolling of materials across
                    finished floor surfaces require that the flooring be
                    protected by masonite during the delivery.

V. ELEVATOR

                A   The passenger elevator(s) and escalator(s) may not be used
                    by workmen or delivery persons for any purpose.

                B.  The freight elevators may be used by workmen or delivery
                    persons with prior notice to and approval by the Building
                    Manager.

                C.  Any costs to repair damage to the elevators or escalators
                    including dust or dirt in machine rooms or costs for service
                    calls resulting from the Contractor's operations will be
                    charged to the Contractor.



Landlord's Initials:_________         Tenant's Initials:_________


VI. BUILDING OPERATING HOURS

                A.  The Building is staffed from 9:00 a.m. to 6:00 p.m., Monday
                    through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays. Any
                    construction work occurring beyond these hours must be
                    approved at least 24 hours in advance with the Building
                    Manager.

                B.  No construction activity will be permitted outside of the
                    stated hours without the permission of the Building Manager.


Landlord's Initials:_________         Tenant's Initials:_________


VII. OTHER BUILDING TENANTS, COMMON AREAS AND HOUSEKEEPING

                A.  If work is necessary in an occupied or unoccupied adjacent
                    tenant space, the Contractor will be fully responsible to
                    protect existing finishes, furniture, etc.

                B.  Any damage done in adjacent spaces or in common areas will
                    be the sole responsibility of the Contractor.

                C.  All cleanup and trash removal from the Building are the sole
                    responsibility of the Contractor.


VIII. PERMITS, DRAWINGS AND CODES

                A.  Approved Drawings: Contractor will supply the Building
                    Manager with one copy of all approved drawings for review
                    prior to commencement of any alteration (including
                    architectural, structural, mechanical, electrical, plumbing
                    and lighting). Any work to be performed that impacts the
                    sprinkler systems shall require submission of sprinkler
                    drawings showing locations of all existing sprinkler heads
                    as well a proposed location of new heads along with approved
                    hydraulic calculations to be approved by the local Fire
                    Marshall prior to commence of work.

                B.  As-Built Drawings: At the completion of the work, the
                    Contractor shall furnish the Landlord with one (1) set of
                    reproducible drawings and two (2) sets of blue-line prints
                    showing the final as-built construction work performed.

                C.  Building Permits and Codes: Applicable alterations shall be
                    approved by the appropriate government agencies and permits
                    shall be obtained by the Contractor. A copy of all such
                    permits shall be supplied to the Building Manager.


IX. UTILITIES

                A.  Utilities (i.e. electric, gas, water, telephone/cable) must
                    not be cut off or interrupted without 48 hours prior notice
                    and written permission given by the Building Manager and
                    affected tenants.

X. SECURITY

                A.  The Contractor will be responsible for controlling any keys
                    or access cards furnished by Landlord and will return them
                    to the Landlord.

                B.  The Contractor will be responsible for locking any secure
                    area made available to the Contractor whenever that area is
                    unattended.

                C.  The Contractor's on-site personnel may be required to wear
                    acceptable forms of identification badges.

XI. CLEANING

                A.  Contractor will remove all trash and debris as often as
                    necessary to maintain cleanliness in the Building. The
                    Building trash compactors or containers are not to be used
                    for construction debris.

                B.  Walk-off mats or other protection must be provided at door
                    entrances where work is being performed.


Landlord's Initials:_________         Tenant's Initials:_________


                C.  Carpeting must be protected by plastic runners or hardboard
                    as necessary to maintain cleanliness and to protect carpets
                    from damage.

                D.  Tile, granite and wood floors shall be protected from damage
                    as necessary.

                E.  Contractor will furnish a vacuum(s) with a supply of clean
                    bags and an operator to facilitate ongoing clean-up.

                F.  Trash removal will be scheduled by the Contractor and
                    coordinated with the Building Manager.

                G.  Contractors must remove all food cartons and related debris
                    from the work area on a daily basis.

                H.  Driveway and street cleaning by the Contractor will be
                    required when the Contractor's work has created mud or
                    debris.


XII. MECHANICAL AND ELECTRICAL WORK

                A.  Before any new electrical or mechanical equipment is
                    installed in the Building, Contractor must submit a copy of
                    the manufacturer's data sheets along with complete shop
                    drawings and submittals to the Landlord for approval.

                B.  Any installation or modification to Building HVAC or
                    electrical system must be first submitted for review by the
                    Landlord. This includes Building systems as well as
                    supplemental units and/or exhaust systems.

                C.  The mechanical and electrical plans must be prepared by a
                    licensed engineer and must show size and location of all
                    supply and return grilles. The Landlord's MEP engineer will
                    review all MEP drawings.

                D.  Contractors modifying ductwork, air grilles, VAV boxes, etc.
                    must balance the air and water systems as necessary. All air
                    balancing must be done in the presence of the Landlord. Two
                    copies of all balance reports shall be submitted to the
                    Landlord for review and approval.

                E.  Exhaust fans must not be installed which discharge into a
                    return ceiling plenum. Such fans will be ducted to the
                    outside via exhaust shafts or other routes as approved by
                    the Landlord.

                F.  All telecommunications and electrical systems wiring which
                    are not to be reused including conduit, BX cable, electric,
                    telephone or data wiring, shall be removed from the ceiling
                    back to the originating terminal block or panel.

                G.  The installation of Tenant equipment (except emergency
                    lighting per code) on the base building emergency power
                    supply systems is not permitted.

                H.  All circuit breaker panels must be clearly and accurately
                    identified with typed labels.

                I.  Tenant installed equipment that supplements existing base
                    building equipment such as VAV boxes, fire alarm devices,
                    control work; etc. shall be identical to the existing base
                    building equipment to facilitate warranty and maintenance
                    operations.

                J.  All concealed equipment shall be located with necessary
                    accessibility for maintenance and repair.


Landlord's Initials:_________         Tenant's Initials:_________


                                    EXHIBIT C

                              RULES AND REGULATIONS

        1. OBSTRUCTION OF PASSAGEWAYS. The sidewalks, entrances, passages,
courts, corridors, and other public parts of the Building shall not be
obstructed or encumbered by Tenant or used by Tenant for any purpose other than
ingress and egress.

        2. WINDOWS. Windows in the Premises shall not be covered or obstructed
by Tenant. No bottles, parcels, or other articles shall be placed on the window
sills, in the halls, or in any other part of the Building. No article shall be
thrown out of the doors or windows of the Premises.

        3. PROJECTIONS FROM BUILDING. No awnings, air conditioning units, or
other fixtures shall be attached to the outside walls or the window sills of the
Building by Tenant or otherwise affixed by it so as to project from the
Building, without the prior written consent of Landlord.

        4. SIGNS. No sign or lettering shall be affixed by Tenant to any part of
the outside of the Building, or any part of the inside of the Leased Premises so
as to be clearly visible from the outside of the Building, without the prior
written consent of Landlord.

        5. FLOOR COVERING. Tenant shall not lay linoleum or other similar floor
covering so that the same shall come in direct contact with the floor of the
Premises. If linoleum or other similar floor covering is desired to be used, an
interlining of builder's deadening felt first shall be fixed to the floor by a
paste or other material that may easily be removed with water, the use of cement
or other similar adhesive material being expressly prohibited.

        6. INTERFERENCE WITH OCCUPANTS OF BUILDING. Tenant shall not make, or
permit to be made, any unseemly or disturbing noises and shall not interfere
with other tenants or those having business with them. Tenant will keep all
mechanical apparatus in the Leased Premises free of vibration and noise which
may be transmitted beyond the limits of the Leased Premises.

        7. LOCKS, KEYS. No additional locks or bolts of any kind shall be placed
on any of the doors or windows by Tenant. Notwithstanding, Tenant shall be
permitted to install its own interior security system subject to Landlord's
prior approval which shall not be unreasonably withheld. Tenant shall, on the
termination of Tenant's tenancy, deliver to Landlord all keys to any space
within the Building, either furnished to or otherwise procured by Tenant, and in
the event of the loss of any keys furnished Tenant shall pay Landlord the cost
thereof. Tenant, before closing and leaving the Leased Premises, shall ensure
that all its windows are closed and its entrance doors locked.

        8. CONTRACTORS. No contract of any kind with any supplier of
non-inventory items, including towels, water, ice, toilet articles, waxing, rug
shampooing, venetian blind washing, furniture polishing, electrical servicing or
cleaning, removal of waste paper or garbage, or other like service shall be
entered into by Tenant, nor shall any vending machine of any kind be installed
in the Leased Premises or the Building, without the prior written consent of
Landlord. Landlord shall not be responsible to Tenant for any loss of property
from the Leased Premises however occurring, or for any damage done to the
effects of Tenant by janitors or any of Tenant's employees, or by any other
person or any other cause.

        9. PROHIBITED AND LEASED PREMISES. Tenant shall not, without the prior
written approval of Landlord, (i) conduct, or permit any other person to
conduct, any auction upon the Leased Premises, (ii) manufacture or store goods,
wares or merchandise upon the Leased Premises, except the storage of usual
supplies and inventory to be used by Tenant in the conduct of its business,
(iii) permit the Leased Premises to be used for gambling or any other illegal
activity, (iv) make any unusual noises in the Building, (v) permit to be placed
any musical instrument on the Leased Premises, (vi) permit to be played any
radio, television, recorded or wired music in such a loud manner as to disturb
or annoy other tenants, or (vii) permit any unusual odors to be produced upon
the Leased Premises. Canvassing, soliciting and peddling into the Building


Landlord's Initials:_________         Tenant's Initials:_________


are prohibited, and Tenant shall cooperate to prevent the same. No bicycles,
vehicles or animals of any kind shall be brought into or kept in or about the
Leased Premises or the Building except that vehicles may be parked in the
parking spaces provided in the Common Areas and in accordance with such other
rules with respect to vehicles and parking as may be established from time to
time by Landlord.

        10. PLUMBING, ELECTRIC AND TELEPHONE WORK. Plumbing facilities shall not
be used for any purpose other than those for which they were constructed; and no
sweepings, rubbish, ashes, newspaper or other substances of any kind shall be
thrown into them. Waste and excessive or unusual usage of electricity or water
is prohibited. When electric wiring of any kind is introduced, it must be
connected as directed by Landlord, and no stringing or cutting of wires will be
allowed, except by prior written consent of Landlord, and shall be done by
contractors approved by Landlord. The number and locations of telephones,
telegraph instruments, electrical appliances, call boxes, etc., shall be subject
to Landlord's approval.

        11. MOVEMENT OF FURNITURE, FREIGHT OR BULKY MATTER. The carrying in or
out of freight, furniture or bulky matter of any description must take place
during such hours as Landlord may from time to time reasonably determine and
only after at least three (3) days advance notice to the superintendent of the
Building. The persons employed by Tenant for such work must be reasonably
acceptable to Landlord. Tenant may, subject to such advance notice to the
superintendent of the Building and such other reasonable conditions as Landlord
may establish from time to time, as well as the other provisions hereof, move
freight, furniture, bulky matter, and other material into or out of the Leased
Premises provided Tenant pays additional costs, if any, incurred by Landlord for
security guards, and for any other expenses occasioned by such activity of
Tenant. If Landlord requests that Tenant deposit with Landlord, as security for
Tenant's obligation to pay such additional costs, a sum of which Landlord
reasonably estimates to be the amount of such additional costs. Tenant shall
deposit such sum with Landlord as security for such cost. There shall not be
used in the Building or Leased Premises, either by Tenant or by others in the
delivery or receipt of merchandise, any hand trucks except those equipped with
rubber tires and side guards, and no hand trucks will be allowed in the Building
without the consent of the superintendent of the Building.

        12. SAFES AND OTHER HEAVY EQUIPMENT. Landlord reserves the right to
prescribe the weight and position of all safes and other heavy equipment so as
to distribute properly the weight thereof and to prevent any unsafe condition
from arising.

        13. NOTICE OF ACCIDENTS. Tenant shall give Landlord prompt written
notice of any accident or damage occurring on or to the Leased Premises or the
Common Areas adjacent to the Leased Premises.


Landlord's Initials:_________         Tenant's Initials:_________


                                    EXHIBIT D

                          LANDLORD STANDARD WORK LETTER




PARTITIONS/DOORS/WINDOW SYSTEMS:

>>  Slab-to-slab 5/8", 1-hour fire rated sheetrock demising partitions and
    exterior walls taped and spackled (by Landlord) and ready for paint
    application (by Tenant). 3 5/8" supporting metal studs, 24" on center. Sound
    insulation to be provided in demising partitions at Tenant's option and
    expense.

>>  All interior columns covered with  1/2" sheetrock extended 6" above the
    ceiling, taped and spackled by Landlord and ready for paint application by
    Tenant.

>>  Building standard glass suite entry door and window combination system from
    exterior of Netcenter (as may be applicable), manufactured by United States
    Aluminum, 10'-0" x 12'-0", with 3'-0" x 8'-0" entry door, anodized natural
    aluminum frames, with low-E, double-pane insulated tempered glass.

>>  Building standard glass suite entry door and window combination system from
    interior of Netcenter, manufactured by United States Aluminum, 10'-0" x
    12'-0", with 3'-0" x 8'-0" entry door, tempered glass with anodized natural
    aluminum frames.

>>  Building standard window system(s) from interior of Netcenter (where
    applicable), manufactured by United States Aluminum, 10'-0" x 12'-0",
    tempered glass with anodized natural aluminum frames.

SPRINKLER:

>>  Existing condition base building sprinkler system to remain (meets or
    exceeds NFPA minimum standard). Existing sprinkler heads turned up in
    accordance with local codes until tenant improvements are constructed.
    Landlord will turn existing heads back down.

>>  Additional required and/or relocated heads based upon tenant layout to be
    provided at Tenant's expense. Sprinklers to be installed with recessed heads
    and in accordance with local codes. All sprinkler heads to be centered on
    acoustical tiles in drop ceiling.

HVAC:

>>  HVAC system(s) provided by Landlord, installed at one ton per 400 RSF;
    additional HVAC capacity, if needed, provided at Tenant's expense.

>>  HVAC package units to be roof deck mounted and self-contained or split
    systems. Building standard thermostat controls to be provided, one for each
    package unit, installed in open areas of Tenant's space.

>>  Landlord to provide trunk distribution lines (rigid duct) above finished
    ceiling from each package unit. Tenant to be responsible for installation
    cost of flexible duct extensions and supply air/return air diffusers, as
    needed for Tenant space layout.

CEILINGS:

>>  Interior grid and drop ceiling provided, 2' x 4' Celetex acoustical ceiling
    tile, with typical ceiling height of 10'-0" AFF.


Landlord's Initials:_________         Tenant's Initials:_________


TENANT LIGHTING:

>>  6" deep 2'x4' 277v 3-lamp F32/T8 Lithonia fluorescent fixtures with
    energy-saving electronic ballasts, parabolic 18-cell lay-in light lens, with
    air supply/return perimeter slots.

>>  Tenant lighting will be provided at one (1) light fixture per 100 RSF,
    additional fixtures to be provided at Tenant's expense.

ELECTRICAL:

>>  Landlord to provide building standard electrical service extended from
    building electrical switch gear room to Tenant space as follows:

    -   For each increment of 5,000 RSF of Tenant space, one (1) electrical
        distribution panel box with 200 AMP service installed within the Tenant
        space. Distribution of service and wiring within Tenant space to be
        provided at Tenant's expense.

    -   480/277v, three phase light panel within Tenant space for building
        standard fluorescent lighting. Two (2) watts per square foot capacity
        for lighting.

    -   K-13 rated transformer.

    -   120/208, single-phase convenience power panel with up to forty (40)
        breaker switches. Estimated six (6) watts per square foot capacity
        available for Tenant's internal use.

    -   Emergency and exit lighting as required in all core areas, including
        common lobbies, toilet rooms, and MEP and equipment rooms. All other
        fire and life safety lighting within Tenant's space to be provided at
        Tenant's expense.

    -   E-mon D-mon KWH stand alone meter(s) to be installed in the main
        electrical switchboard room at Tenant's expense. Model number is based
        upon voltage and phase.

FLOORING:

>>  Exposed concrete floor finish, ready to receive Tenant flooring material.

TENANT SIGNAGE:

>>  Building standard Tenant suite identification signage provided by Landlord
    and paid for by Tenant.

RESTROOMS

>>  Landlord, at its cost, provides restrooms in the common areas per code
    requirements based upon building square footage. If Tenant decides to
    install restrooms within its demised space, Tenant is responsible for the
    cost.

ANY CHANGES IN MATERIALS, QUANTITIES, SIZES OR PROVISIONS IN EXCESS OF THOSE
SPECIFIED HEREIN THAT TENANT DESIRES TO BE INSTALLED IN OR ABOUT THE LEASED
PREMISES SHALL BE AT TENANT'S EXPENSE


Landlord's Initials:_________         Tenant's Initials:_________

                                    EXHIBIT E
                         SUBORDINATION, NON-DISTURBANCE,
                        ATTORNMENT AND ESTOPPEL AGREEMENT


         THIS AGREEMENT made as of the ____ day of __, 200___, among SOVEREIGN
BANK, a Pennsylvania Bank with an office for the transaction of business at 2
Aldwyn Center, Villanova, PA 19085 ("Mortgagee"), and RAIT PARTNERSHIP, L.P., a
Delaware limited partnership, having an address at 1845 Walnut Street, 10th
Floor, Philadelphia, Pennsylvania 19103 ("Second Mortgagee"), and NETCENTER
PARTNERS, LLC, a Virginia limited liability company, with an office at 1225 19th
Street, NW, Suite 850, Washington, DC 20036 ("Landlord"), and ,__ a with an
office at ________ ("Tenant").

                               W I T N E S S E T H

         WHEREAS, the Landlord owns title to an improved parcel of land located
at 5200 West Mercury Boulevard in Hampton, Virginia upon which a mixed-use
office and retail project has been constructed (collectively referred to herein
as the "Facility"); and

         WHEREAS, the Landlord, in order to pay for various improvements to the
Facility, has arranged a loan with the Mortgagee (the "Loan") and a loan with
Second Mortgagee ("Second Loan"); and

         WHEREAS, as security for the Loan, Landlord has entered into or is
otherwise obligated on a mortgage or mortgages (collectively, the "Mortgage")
which grants to the Mortgagee a mortgage lien on the Facility and has entered
into a certain Assignment of Rents and Leases (the "Assignment") which assigns
to Mortgagee all of the right, title and interest of Landlord under all present
and future leases of any part of the Facility including the Lease (as
hereinafter defined); and

         WHEREAS, as security for the Second Loan, Landlord has entered into or
is otherwise obligated on a mortgage or mortgages (collectively, the "Second
Mortgage") which grants to the Second Mortgagee a mortgage lien on the Facility
and has entered into a certain Second Assignment of Rents and Leases (the
"Second Assignment") which assigns to Second Mortgagee all of the right, title
and interest of Landlord under all present and future leases of any part of the
Facility including the Lease (as hereinafter defined); and

         WHEREAS, the Mortgage, the Second Mortgage, the Assignment and the
Second Assignment have been or are to be recorded in the Clerk's Office of
Hampton, Virginia (the "Public Records"); and

         WHEREAS, Landlord and Tenant have entered into a certain lease
agreement dated (the "Lease") for the lease by Tenant of certain premises in the
Facility __________________ (the "Leased Premises"); and





         WHEREAS, the terms of the Mortgage and the Second Mortgage require that
the Lease be subordinated to the lien, operation and effect of the Mortgage and
the Second Mortgage; and

         WHEREAS, Tenant desires a recognition of and consent to the Lease terms
by Mortgagee and to be assured of continued occupancy of the Leased Premises
under the terms of the Lease in the event that Mortgagee succeeds to the rights
of the Landlord under the Lease pursuant to the terms of the Mortgage or the
Assignment; and

         WHEREAS, Tenant desires a recognition of and consent to the Lease terms
by Second Mortgagee and to be assured of continued occupancy of the Leased
Premises under the terms of the Lease in the event that Second Mortgagee
succeeds to the rights of the Landlord under the Lease pursuant to the terms of
the Second Mortgage or the Second Assignment.

         NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) by
each party in hand, paid to the other, the receipt of which is hereby
acknowledged, and in connection of the mutual promises, covenants and agreements
herein contained, the parties hereto, intending to be legally bound hereby,
promise, covenant and agree as follows:

         1.       Incorporation of Recitals. The Recitals portion of this
Agreement is hereby incorporated by this reference as fully as though it were
here rewritten.

         2.       Subordination of Lease. The Lease shall be subject and
subordinate to the lien, operation and effect of the Mortgage, the Second
Mortgage, the Assignment and the Second Assignment insofar as either of these
instruments affects the Facility or other real and personal property owned by
the Landlord of which the Leased Premises is a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof, to the full
extent of the principal sum secured thereby and interest thereon, with the same
force and effect as if the Mortgage, the Second Mortgage, the Assignment and the
Second Assignment had been executed, delivered, and duly recorded in the Public
Records, prior to the execution and delivery of the Lease. Mortgagee and Second
Mortgagee hereby consent to the terms and provisions of the Lease.
Notwithstanding the foregoing, Mortgagee and Second Mortgagee consent to the
removal by Tenant of its Personal Property on the Leased Premises in accordance
with the terms of the Lease.

         3.       Non-Disturbance of Tenant. In the event that Mortgagee and
Second Mortgagee, or any purchaser at foreclosure sale or any successor or
assign (such purchaser, successor or assign, "Successor") takes possession of
the Leased Premises as a mortgagee-in-possession, by foreclosure of the Mortgage
or the Second Mortgage, by acquisition of title in lieu of foreclosure, or
pursuant to the Assignment or the Second Assignment, Mortgagee and Second
Mortgagee (and their Successors) agree not to disturb Tenant's right to
possession of the Leased Premises so long as Tenant is not then in default under
any of the terms, covenants or conditions of the Lease, beyond any applicable
cure period.

                                       2



         4.       Attornment to Mortgagee and Second Mortgagee.


                  (a)      In the event that Mortgagee and Second Mortgagee (or
their Successors) succeeds to the interest of Landlord under the Lease,
Mortgagee and Second Mortgagee (or their Successors) and Tenant hereby agree to
be bound to one another under all of the terms, covenants and conditions of the
Lease. Accordingly, from and after such event, Mortgagee and Second Mortgagee
(or their Successors) and Tenant shall have the same remedies against one
another for the breach of any agreement contained in the Lease as Tenant and
Landlord had before Mortgagee and Second Mortgagee (or their Successors)
succeeded to the interest of Landlord, provided, however, Mortgagee and Second
Mortgagee (or their Successors) shall not be: (i) bound by any rent, additional
rent or other sum which Tenant might have paid for more than one (1) month in
advance to Landlord of its due date under the Lease; (ii) liable for any act or
omission of Landlord unless Tenant shall have given notice (pursuant to
Paragraph 6(b) hereof) of such act or omission to the party who was then holder
of the Mortgage and the Second Mortgage (whether or not such holder elected to
cure or remedy such act or omission); (iii) liable for the return of any
security deposits which Tenant may have paid to any prior landlord (including
Landlord), unless such deposit is available to the party who was the holder of
the Mortgage or the Second Mortgage at the time of a foreclosure; (iv) subject
to any offset (except those expressly prohibited under the Lease) or defense or
claims in the nature of a counterclaim which Tenant might have against Landlord
unless such offset or defense is due to a default by Landlord, and Mortgagee and
Second Mortgagee have been given proper notice of such default and failed to
cure such default; (v) bound by any amendment or modification of the Lease made
without the written consent of the Mortgagee and Second Mortgagee (or their
Successors) other than an amendment or modification of the Lease which does not:
(w) increase or decrease the term of the Lease; (x) decreases the rent; (y)
materially increase Landlord's or Tenant's rights or obligation thereunder; or
(z) material decrease Tenant's or Landlord's rights or obligations thereunder;
and (vi) liable to Tenant for the payment of money to satisfy a judgment in the
event of any default or breach with respect to any of the terms, covenants and
conditions of the Lease to be observed and/or performed by the Mortgagee and
Second Mortgagee if Mortgagee or Second Mortgagee should succeed to the position
of the Landlord under the Lease, beyond the estate of the Mortgagee and Second
Mortgagee in the Facility and the rents and other income therefrom, it being the
intention of this Agreement that no asset of Mortgagee and Second Mortgagee
except any interest it may have in the Facility, shall be subject to levy,
execution or other procedures for the satisfaction of any money judgment of
Tenant.

                  (b)      This attornment shall be effective and self-operative
without the execution of any further instrument by any of the parties hereto
immediately upon the Mortgagee and Second Mortgagee or any purchaser at a
foreclosure sale or any successor or assign succeeding to the interest of the
Landlord under the Lease, and the respective rights and obligations of Tenant
and Mortgagee and Second Mortgagee upon such attornment, to the extent of the
then remaining balance of the term of the Lease and any extension or renewal
permitted thereby, shall be and are the same as are now set forth therein.

         5.       Attornment to New Owner. In the event that any one else
acquires title to or the right to possession of the Lease Premises upon the
foreclosure of the Mortgage or the Second

                                       3


Mortgage, or upon the sale of the Facility or any part thereof by Mortgagee and
Second Mortgagee (or their Successors) after foreclosure or acquisition of title
in lieu thereof or otherwise, Tenant agrees not to seek to terminate the Lease
by reason thereof, but shall remain bound unto the new owner, and any liability
of Mortgagee and Second Mortgagee to Tenant under the Lease or hereunder
accruing after the transfer shall terminate upon transfer of title to the
Facility to such new owner.

         6.       Representations and Covenants by Both Landlord and Tenant.

                  (a)      Landlord and Tenant represent and warrant to the
Mortgagee and Second Mortgagee that the Lease sets forth the all agreements of
Landlord and Tenant with respect to the Leased Premises. The Lease has not been
modified or amended and is in full force and effect on the date hereof.

                  (b)      Landlord and Tenant covenant and agree with the
Mortgagee and Second Mortgagee that Landlord and Tenant will send to Mortgagee
and Second Mortgagee copies of notices of default required to be given by either
of them under the Lease or received by either of them with respect to the Leased
Premises, which shall be sent to Mortgagee and Second Mortgagee at the same time
as such statement or notice is sent by that party to the other.

         7.       Tenant Representations and Covenants. Tenant hereby
warrants and represents, covenants and agrees to and with Mortgagee and Second
Mortgagee that:

                  (a)      Tenant will not seek to terminate the Lease by reason
of any default by the Landlord until Tenant shall have given written notice of
such default to the Mortgagee and Second Mortgagee (or their Successors), and
until in the event of (i) a default which (A) adversely affects in any material
respect the interior of the Lease Premises or Tenant's use thereof, or (B)
interferes in any material respect with vehicular or pedestrian access to the
Leased Premises or the Facility or the parking area serving the Leased Premises,
a period of thirty (30) days shall have elapsed; and (ii) any other default by
Landlord, a period of forty (40) days shall have elapsed, the Mortgagee and
Second Mortgagee (or their Successors) shall have the right, but not the
obligation to remedy such default; provided, however, that if the default does
not involve the payment of money from Landlord to Tenant and is of such a nature
that it could not be reasonably remedied within such 30-day or 40-day period, as
the case may be, or the nature of the default or the requirements of local law
require the Mortgagee and Second Mortgagee (or their Successors) to appoint a
receiver or to foreclose on or commence legal proceedings to recover possession
of the Facility in order to effect such remedy and such legal proceedings and
consequent remedy cannot reasonably be achieved within the applicable 30-day or
40-day period, then the Mortgagee and Second Mortgagee (or their Successors)
shall have such further time as is reasonable under the circumstances to effect
such remedy; provided, however, that the Mortgagee (or their Successors) shall
notify Tenant within fifteen (15) days after receipt of Tenant's notice of the
intention of the Mortgagee and Second Mortgagee (or their Successors) to effect
such remedy; and provided, further, that the Mortgagee and Second Mortgagee (or
their Successors) promptly institute legal proceedings to appoint a receiver for
the Facility to foreclosure on or recover possession of the Facility within the
applicable 30-day or 40-day


                                       4



period and thereafter prosecutes said proceedings and remedy with due diligence
and continuity to completion.

                  (b)      Tenant shall certify in writing to Mortgagee and
Second Mortgagee within fifteen (15) days in connection with any proposed
assignment of the Mortgage, the Second Mortgage, the Assignment or the Second
Assignment, whether or not, to Tenant's knowledge, any default on the part of
Landlord then exists under the Lease or whether any event has occurred which,
but for the passage of time, the giving of notice or both, would constitute a
default under the Lease.

                  (c)      Mortgagee and Second Mortgagee (or their Successors)
and assigns shall be named as an additional insured, as its interest may appear,
in any policies of insurance now or hereafter required under the Lease.

                  (d)      Upon receipt by Tenant from Mortgagee and Second
Mortgagee of notice of any default under the Mortgage, the Second Mortgage, the
Assignment or the Second Assignment, Tenant shall pay all rents and other sums
due under the Lease directly to Mortgagee and Second Mortgagee, Landlord
agreeing that any such payment to Mortgagee and Second Mortgagee will be an
absolute release to Tenant of any obligation to pay the same sum to Landlord.

                  (e)      All of Landlord's right, title and interest as lessor
under the Lease is being duly assigned to Mortgagee and Second Mortgagee
pursuant to the terms of the Assignment, the Second Assignment and pursuant to
the terms thereof all rental payments under the Lease shall continue to be paid
to Landlord in accordance with the terms of the Lease unless and until Tenant is
otherwise notified in writing by Mortgagee and Second Mortgagee.

         8.       Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of all of the parties
hereto.

         9.       Notices; Captions; and Gender. Any notices required or
permitted to be given hereunder shall be in writing and (i) personally
delivered, (ii) given by certified mail, postage prepaid, return receipt
requested, or (iii) overnight courier, in each instance addressed to the
following addresses or such other addresses as the parties may for themselves
designate in writing as provided herein for the purpose of receiving notices
hereunder:

                  Mortgagee:                Sovereign Bank
                                            2 Aldwyn Center
                                            Villanova, PA  19085




                                       5



                  Second Mortgagee:         RAIT Partnership, L.P.
                                            1845 Walnut Street, 10th Floor
                                            Philadelphia, PA  19103

                  Landlord:                 NetCenter Partners, LLC
                                            1225 19th Street, NW
                                            Suite 850
                                            Washington, DC  20036

                  Tenant:
                                            -----------------------

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

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

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


                  Any notice hereunder shall be deemed given, in the case of
personal delivery, upon actual delivery, and in the case of certified mail or
overnight courier, when actually received or receipt thereof is refused.

         10.      Miscellaneous. The captions used at the beginning of each
paragraph of this Agreement are for the convenience of the reader and do not
form a part of this Agreement.

                  Whenever used, the singular number shall include the plural,
the plural the singular, and the use of any gender shall include all genders.

                  This instrument shall be governed and construed in accordance
with the laws of the Commonwealth of Virginia.


                           [INTENTIONALLY LEFT BLANK]




                                       6




         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer or partner as of the day
and year first above written.

                 SOVEREIGN BANK



                 By:
                    --------------------------------------------------
                 Name:
                      ------------------------------------------------
                 Title:
                       -----------------------------------------------

                 RAIT PARTNERSHIP, L.P.


                 By:                                         , its
                    -----------------------------------------
                      General Partner
                 Name:
                      ---------------------------------------
                 Title:
                       --------------------------------------

                 NETCENTER PARTNERS, LLC


                 By:
                    -----------------------------------------
                 Name:
                      ---------------------------------------
                 Title:
                       --------------------------------------

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


                 By:
                    --------------------------------------------------
                 Name:
                      ------------------------------------------------
                 Title:
                       -----------------------------------------------


                                       7





Exhibit F

Janitorial Specifications

Landlord shall ensure that the Leased Premises are cleaned in accordance with a
high level of professionalism and cleanliness which shall include, but not be
limited to, the following specifications listed below.

A.       Daily

         1.       Remove trash from wastebaskets and replace plastic linings.
                  Plastic liners to fit waste receptacles in such a manner as to
                  not overhang the top by more than two (2) inches. Remove all
                  materials from recycling boxes and place in separate recycling
                  bins for storage.

         2.       Dust mop all hardwood floor areas with a treated dust mop.

         3.       Sweep, dry mop or vacuum all high- traffic floor areas with
                  hard surface flooring or carpet, remove matter such as gum,
                  staples, paper clips, tar, etc. which has adhered to the
                  floor.

         4.       Dust all horizontal surfaces with a treated cloth or dust wand
                  including furniture, files, equipment, blinds, art frames,
                  computer monitors, shelves and louvers. Damp wipe countertops
                  and conference room tables, except glass, which will be
                  cleaned with glass clean.

         5.       Dust all grillwork within reach.

         6.       Spot clean doors, frames, walls and switch plates to remove
                  fingerprints, spills and other markings.

         7.       Spot clean all interior partitions, walls, glass, windows and
                  glass doors.

         8.       Spot clean all metal trim work, removing fingerprints,
                  smudges, water and other marks.

         9.       Push Tenant employees' chairs up into desks.

         10.      Spot clean all carpet stains.

B.       Weekly

         1.       Dust all baseboards.

         2.       Damp wipe all telephones, including dials and crevices, using
                  disinfectant and detergent.

         3.       Brush all fabric- covered chairs with a lint brush and all
                  smooth or vinyl covered chairs with a damp cloth.

         4.       Wet mop and buff all hard surface flooring. Wipe all
                  baseboards and furniture legs clean after mopping.

         5.       Dust all chair and table legs and rungs, baseboards, ledges,
                  moldings, windowsills, and other low reach areas.

         6.       Vacuum all private offices and conference rooms floor areas
                  with hard surface flooring or carpet.

C.       Monthly

         1.       Vacuum and damp wipe all ceiling air supply and exhaust
                  diffusers and grills.

         2.       Wash all vinyl and metal kick plates.

         3.       Using tank vacuum or backpack, vacuum corners and edges.

D.       Quarterly

         1.       Scrub, strip and apply non-slip floor finish to all hard
                  surface flooring using an approved, buffable, non-slip type
                  floor finish on an as-needed basis. Wipe all baseboards and
                  furniture legs clean after refinishing floor.

         2.       High dust all horizontal and vertical surfaces not reached in
                  the nightly cleaning, such as pipes, light fixtures, door jams
                  and other wall hangings.

         3.       Wash all interior glass using window detergent and squeegee.
                  Wipe all metal vertical and horizontal mullions.

         4.       Vacuum and dust all books in place.

         5.       Damp wipe diffusers and grills, vents, and other such items,
                  including surrounding walls and ceiling areas that are soiled.

         6.       Dust all venetian blinds.

Landlord's Initials:___________                 Tenant's Initials:____________






Exhibit G

Watch Guard Specifications

A.       NetCenter currently employs an outside watch guard firm to provide
         watch guard services on the following schedule:

         1.       Monday- Friday

                  a.       7 a.m.- 9 a.m.: Two armed officers
                  b.       9 a.m.- 10 p.m.: Three armed officers
                  c.       10 p.m.- 7 a.m.: One armed officer

         2.       Saturday

                  a.       7 a.m.- 9 a.m.: Two armed officers
                  b.       9 a.m.- 6 p.m.: Three armed officers
                  c.       6 p.m.- 10 p.m.: One armed officer
                  d.       10 p.m.- 7 a.m.: One armed officer

         3.       Sunday

                  a.       7 a.m.- 10 a.m.: One armed officers
                  b.       10 a.m.- 7 p.m.: Two armed officers
                  c.       7 p.m.- 7 a.m.: One armed officer

B.       The officers are on duty for either eight (8) hour or four (4) hour
         shifts.

C.       The following are the primary functions of the watch guard personnel on
         a day-to-day basis:

         1.       Lock the entire building at night and open the building
                  entrances in the morning.

         2.       During the peak hours (9 a.m.- 10 p.m.) one officer is
                  canvassing the parking lots and exterior areas on an irregular
                  schedule while the other patrols the interior space.

         3.       Visual inspections of office space in the facility.

         4.       Monitor all activity in and around the property.

         5.       Provide escorts to and from the property as may be desired.

D.       NetCenter reserves the right to change the watch guard services at
         Owner's discretion to a level equal to or greater than what is
         currently provided.

EX-99.1

exv99w1