<PAGE>

                                                                   EXHIBIT 10.31
                                 LEASE AGREEMENT

     THIS AGREEMENT OF LEASE, made as of the last date endorsed hereon
("Effective Date"), by and between NAPPEN & ASSOCIATES, a Pennsylvania limited
partnership, t/a 309 DEVELOPMENT COMPANY ("Lessor")

                                      A N D

     SURGICAL LASER TECHNOLOGIES, INC., a Delaware corporation ("Lessee").

     Lessee and Lessor, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged and intending to be legally bound hereby, agree as follows:

     1. Lease and Premises.

          A. Lessor hereby demises and leases to Lessee and Lessee hereby hires
from Lessor that certain premises situate in Montgomery Township, Montgomery
County, Pennsylvania, known and numbered Lot No. 14, Bethlehem Pike Industrial
Center, known and numbered 147 Keystone Road, Montgomeryville, PA 18936,
together with the building ("Building") containing approximately 42,000 sq. ft.,
more or less, and improvements constructed thereon, such ground, Building and
improvements being hereinafter called the "Premises."

          B. Lessee acknowledges that it has inspected the Premises and leases
the same in the condition existing on the date of execution hereof.
Notwithstanding anything set forth to the contrary, prior to the Lease
Commencement Date (as hereinafter defined), Lessor shall commence to install of
the improvements to the Premises shown on Exhibit "A" attached hereto and made
part hereof and shall substantially complete the office portion of such
improvements and a portion to be agreed upon by the parties, having not less
than 1,000 square feet, so as to permit Lessee's occupancy thereof, together
with the loading dock of the Premises, on or before July 6, 1996. The balance of
the improvements shown on Exhibit "A" shall be completed as soon as reasonably
possible thereafter, but in no case later than August 31, 1996. The improvements
shown on Exhibit "A" shall be constructed in accordance with Lessor's standard
specifications.

          C. The Premises shall be occupied and used for office, warehouse and
light manufacturing, in accordance with applicable laws, ordinances and
regulations.

<PAGE>

     2. Term.

          A. The term of this Lease shall be five (5) years, commencing July 7,
1996 ("Lease Commencement Date") and expiring at 11:59 p.m. on July 6, 2001,
unless extended, renewed or previously terminated, as hereinafter set forth.

          B. If Lessee remains in possession of the Premises, including failure
to remove Alterations and Improvements (as hereinafter defined) after the
expiration of the term of this Lease, or any extension thereof, without the
written consent of Lessor, such holding over may, at Lessor's sole option,
create a tenancy from month to month with respect to the Premises on all of the
same terms and conditions as are in effect on the last day of the preceding
term, except that the monthly installment of Minimum Annual Rent shall be
increased to an amount equal to three times the monthly installment of Minimum
Annual Rent effective on the last day of the preceding term.

          C. Notwithstanding anything set forth herein to the contrary, Lessee
shall have the option to cancel the term of this Lease, by notice to Lessor at
least one hundred fifty (150) days prior to the Cancellation Date, as defined
below ("Cancellation Notice") as of July 6, 1999 ("Cancellation Date"). Lessee
agrees to vacate the Premises, restore the Premises to the condition required
under the terms of this Lease, and pay Lessor a cancellation fee in the amount
of $125,000.00 ("Cancellation Fee"), on or before the Cancellation Date, in
which event, all rights and obligations of the parties accruing under the terms
and conditions of the Lease after the Cancellation Date shall be null and void,
and Minimum Annual Rent and Additional Rent shall be pro-rated as of the
Cancellation Date. In the event Lessee has not vacated the Premises, restored
the same and paid the Cancellation Fee, as aforesaid, on or before the
Cancellation Date, Lessee shall be treated as holding over under the terms and
conditions hereof. All rights and obligations of the parties accruing prior to
the later of the Cancellation Date or the end of the holdover period if Lessee
has held over, as aforesaid, shall remain in full force and effect.

          D. Lessee is hereby granted a license to occupy that portion of the
Premises which is not otherwise occupied by Moore Products Company, the prior
tenant for the period commencing on the Effective Date and ending July 6, 1996,
at 11:59 p.m. ("License Period") for the purposes of erecting and constructing
the improvements to the premises described in Exhibit "B" attached hereto and
made part hereof (the "Tenant Improvements"). Lessee agrees that during the
License Period, Lessee, its employees, agents, contractors, subcontractors and
materialmen, shall not in any manner interfere with erection and construction by
Lessor, its employees, agents, contractors, subcontractors and materialmen of
the improvements designated in Exhibit "A" attached hereto and made part hereof.
During the License Period, all of the terms and conditions of this Lease shall
be in full force and effect, with the exception of Article 3, infra., so that no
Minimum Annual Rent will be payable during the License Period and Article 4,
infra., so that no Additional Rent will be payable during the License Period.

     3. Minimum Annual Rent.

     The minimum annual rent ("Minimum Annual Rent") payable by Lessee to Lessor
shall be Two Hundred Twelve Thousand Five Hundred Twenty Dollars ($212,520.00)
per year, lawful money of the United States of America, payable in monthly
installments in advance during the said term of this Lease in sums of Seventeen
Thousand Seven Hundred Ten Dollars ($17,710.00) on the first day of each month,
rent to begin from the Lease Commencement Date, the first installment to be paid
at the time of signing this Lease. The first installment of Minimum Annual Rent
to be made during the occupancy of the Premises shall be adjusted to pro rate a
partial month of occupancy, if any, at the inception of this Lease at the rate
of Minimum Annual Rent in effect during the first Lease Year, i.e., the period
of twelve (12) calendar months following the Lease Commencement Date. If the
date of commencement of the term of this Lease shall be a day other than the
first day of the calendar month, then the term of this Lease shall be deemed
extended by the number of days between the Lease Commencement Date and the last
day of said month, so that the term of this Lease shall expire five (5) years
after such first day of the first calendar month following the Lease
Commencement Date, unless extended or previously terminated, as herein set
forth. Notwithstanding anything set forth herein to the contrary, until Lessor
shall have substantially completed the improvements set forth in Exhibit "A"
attached hereto and made part hereof, the monthly installments of Minimum Annual
Rent payable by Lessee to Lessor shall be reduced to a sum equal to Forty-Two
Cents ($0.42) multiplied by the leaseable square footage (exterior dimension) of
the Premises occupied by Lessee on July 7, 1996, and the first day of each
applicable month thereafter.

     4. Additional Rent.

          As Additional Rent ("Additional Rent") hereunder, Lessee shall pay
Lessor the following on or before the date such additional payment shall become
due, but not later than ten (10) days from rendition of a bill therefor (unless
otherwise set forth herein):

          A. All real and tangible personal property taxes assessed or imposed
upon the Premises during the term of this Lease and any extension or renewal
term or applicable to the Premises during the term of this Lease. The amount due
hereunder on account of such taxes shall be apportioned for that part of the
first and last calendar years covered by the original, renewal or extension term
hereof as regards county and township real estate taxes and for that part of the
first and last July 1st fiscal years covered by the original, renewal or
extension term hereof regarding school

<PAGE>

real estate taxes. At the time of execution of this Lease, Lessee shall pay
Lessor the pro rated portion of the township and county taxes on the Premises
for calendar year 1996. Lessor shall promptly forward to Lessee all bills
received by Lessor for such taxes and the amount of such taxes shall be paid by
Lessee to Lessor at least one (1) month before the expiration of the net payment
period for said taxes and before penalties are assessed. In the event Lessee
desires to take advantage of any early payment discount, said tax payment shall
be paid by Lessee to Lessor at least one (1) month before the expiration of any
discount period. A bill submitted by Lessor to Lessee shall be conclusive
evidence of the amount of taxes assessed or levied as well as the items taxed.

          "Taxes" as utilized in this Lease shall mean all taxes, assessments
and charges of whatsoever nature levied upon or with respect to the Premises, or
any tangible personal property of Lessor or Lessee used in the maintenance and
operation thereof, or Lessor's ownership interest in either the Premises or such
personal property therein contained. "Taxes" shall include, without limitation,
all general real property taxes and general and special assessments, charges,
fees, or assessments for transit, housing, police, fire or other governmental
services or purported benefits inuring to the Premises, service payments in lieu
of taxes, and any tax, fee or excise on the act of entering into and/or
maintaining this Lease or any other lease of space on the Premises, or the use
or occupancy of the Premises or any part thereof, or on the rent payable under
any lease or in connection with the business of leasing the Premises, including,
but not limited to, business privilege taxes that have been, or are now, or
hereafter levied or assessed against Lessor by the United States of America, the
Commonwealth of Pennsylvania or any political subdivision, political
corporation, district or other political or public entity, whether quasi in
nature or otherwise, but not including any federal or state income tax levied
solely on Lessor's income generally.

          Lessee at all times shall be responsible for and shall pay before
delinquency, all municipal, county, state or federal taxes assessed against any
leasehold interest or any tangible personal property of any kind, owned,
installed or used by Lessee.

          Lessee, at its sole cost and expense, and after having given twenty
(20) days prior written notice to Lessor, may contest by appropriate legal
proceedings, promptly instituted and thereafter conducted in good faith with due
diligence, the amount or validity, in whole or in part of any Taxes; provided,
however, Lessee shall have at the time of giving notice to Lessor,
contemporaneously deposited with Lessor such financial security, by certified
funds or an irrevocable letter of credit, for payment of the contested Taxes,
said amount deposited with Lessor to equal one hundred twenty percent (120%) of
the total contested Taxes,

<PAGE>

including interest and penalties, or other security as may reasonably be
required by Lessor.

          B. All sums which may become due by reason of the failure of Lessee to
comply with any of the terms, covenants and conditions of this Lease to be kept
and observed by Lessee, and any and all damages and costs and expenses
(including without limitation thereto, reasonable attorney's fees) which Lessor
may suffer or incur by reason of any default of Lessee and any damages to the
Premises caused by any act or omission of Lessee together with interest to the
date of payment at a rate per annum equal to three hundred (300) basis points
above the prime interest rate (Prime + 3%) of CoreStates Bank, Philadelphia,
Pennsylvania, or its successor, in effect during the period said payment is due.

          C. The premiums for insuring the Premises, including alterations,
additions and improvements other than Lessee's fixtures and equipment against
loss or damage by fire, all extended coverage, and rental value insurance
(covering twelve (12) months' rental on a fully gross basis) for the full, fair
and insurable value thereof, exclusive of foundations, excavations, and
pavement, and insuring Lessor against liability for bodily injury (including
death), personal injury and property damage in the amount of One Million Dollars
($1,000,000.00). The premiums shall be pro-rated for such portion of the term of
the Lease that is included within any period in which an insurance policy is in
effect.

          D. Upon the written request of Lessor's mortgagee, Lessee will pay to
Lessor, together with each monthly installment of Minimum Annual Rent, an amount
equal to one-twelfth of the aggregate annual amount of (i) the taxes referred to
in subparagraph A hereof and (ii) the insurance premiums referred to in
subparagraph C hereof, all as estimated by Lessor; such amounts shall be held in
escrow by Lessor or transmitted to any Mortgagee requiring such payments and
applied on account of the taxes and insurance premiums as and when payments
therefor are due. Without limitation of the foregoing, Lessee shall also pay to
Lessor such additional amounts as Lessor's Mortgagee may request from time to
time to provide a sufficient fund, at least thirty (30) days prior to the due
date (or, in the case of any tax which may be paid in installments, the due date
of the next installment thereof) for payment of such taxes and premiums. Any
amounts held in escrow by Lessor pursuant to this paragraph may be deposited in
a non-interest bearing account. Lessor may apply such deposit against any
arrearages by Lessee in the payment of Minimum Annual Rent and/or Additional
Rent. In the event Lessor assigns his interest in this Lease, Lessor shall have
the right to pay the balance of such amounts then in its possession to the
assignee, and Lessor shall thereupon be completely released from any liability
with respect to such amounts.

          E. In the event Lessee requests any consents or approvals of Lessor
and Lessor is obliged to expend counsel fees

<PAGE>

and costs by reason thereof, Lessee will reimburse Lessor for the reasonable
counsel fees and costs incurred, as Additional Rent, within ten (10) days of
submission of bills therefor.

          F. If Lessee does not pay any installment of Minimum Annual Rent or
any item of Additional Rent on the day when the same shall become due and
payable, and such failure shall continue for a period of ten (10) days, Lessee
shall pay Lessor as Additional Rent a service charge at the rate of One and
One-Half Percent (1- 1/2%) per month (or such lesser charge as may be the legal
maximum for a debtor of the same nature and character as Lessee in the
jurisdiction which the Premises is located) on the amount of such installment of
Minimum Annual Rent or item of Additional Rent or all of the same for each month
or a portion of a month that the same shall remain unpaid; provided, however,
that such charge shall in no event be less than Twenty-Five Dollars ($25.00) for
any month or a portion of a month that any installment of Minimum Annual Rent or
item of Additional Rent shall remain unpaid. Such charge shall be in the form of
Additional Rent for the purposes of defraying administrative expenses of Lessor
and is not intended as a penalty against Lessee. The provision of this paragraph
shall not preclude Lessor from exercising its options as set forth in any other
sections of this Lease, or as provided by law.

     5. Utilities.

          Lessee shall heat the Premises at its own expense and shall also pay
all charges of utility companies or public authorities for electricity, gas,
telephone, water, steam, sewer service or other services or utilities furnished
to the Premises. Under no circumstances shall Lessor be required to furnish or
be responsible for the furnishing of or the failure of any utility companies or
public authorities to furnish any utilities or any other service of any kind to
the Premises or any part thereof.

     6. Repairs.

          A. Except as otherwise set forth herein, Lessee shall be responsible
for all maintenance to the Premises and at Lessee's sole expense, shall make all
necessary or appropriate repairs, replacements, renewals, and additions,
interior and exterior, structural and non-structural, ordinary and
extraordinary, foreseen and unforeseen, required to keep and maintain the
Premises and all systems, equipment and apparatus appurtenant thereto or used in
connection therewith in good order and condition. Lessor shall be responsible
only for maintenance to the roof and structural portions of the Building, not
arising from the act or neglect of Lessee, its agents, servants, and business
visitors, in accordance with the provisions of subparagraph B hereof. Pertaining
to Lessee's responsibility to maintain the heating, air-conditioning and
sprinkler systems of the Premises, Lessee agrees that it shall, to the extent
generally available, at its cost and expense, enter

<PAGE>

into a service contract or contracts with responsible service companies
providing for at least two (2) semi-annual periodic inspections, and complete
maintenance including all necessary parts and labor, commencing upon the Lease
Commencement Date, which contract or contracts shall continue during the term of
this Lease and any renewal thereof and will be subject to the approval of
Lessor, which Lessor agrees not to unreasonably withhold. A copy of said service
contract shall be deposited with Lessor prior to the Lease Commencement Date and
said contract must provide for at least fifteen (15) days' notice to Lessor
prior to cancellation thereof. True and correct copies of all inspection reports
received from the service contractor shall be furnished to Lessor no later than
ten (10) days after receipt of same.

          B. Upon receipt of written notice from Lessee, Lessor agrees to
proceed with due diligence to repair at its own cost and expense, any leaks in
the roof, or make any repairs to the structural portions of the Building,
provided such repairs are not necessitated by any act or neglect on the part of
Lessee, its agents, servants or business visitors. In no event, however, shall
Lessor be liable to Lessee for damages, including consequential damages, for any
loss or damage sustained by Lessee due to, or alleged to be due to, failure to
make such repairs in a timely or proper manner. In the event Lessor fails to
make said repairs within a reasonable time and in a proper manner, after notice
by Lessee, Lessee may proceed to effect said repairs and Lessor shall repay
Lessee the reasonable costs of said repairs, but Lessee may not set off the
amount of such costs against any rent due to Lessor pursuant to the terms of
this Lease. Provided, however, that within ten (10) days of receipt of any such
bill for repairs, Lessor may submit the questions of the reasonableness of said
bills and/or Lessor's responsibility to pay for same to arbitration before the
American Arbitration Association in Philadelphia, Pennsylvania, and in
accordance with the rules and regulations of the American Arbitration
Association in Philadelphia, Pennsylvania. The decision of the arbitrators shall
be final and binding upon the parties and shall be unappealable. The cost of
arbitration shall be borne equally by the parties. Each party shall bear its own
costs.

          C. Any repairs, replacements, renewals and additions, and any labor
performed or materials furnished in, on or about the Premises shall be performed
and furnished by Lessee and/or Lessor, as the case may be, in strict compliance
with all applicable laws, regulations, ordinances and requirements of all duly
constituted municipal authorities or other governmental bodies having
jurisdiction over the Premises and the requirements of any board of underwriters
having jurisdiction thereof.

<PAGE>

     7. Insurance.

          A. Liability.

               (i) Lessee shall provide and keep in force at its own cost and
expense Commercial General Liability Insurance, including Personal Injury,
Bodily Injury Including Death, and Property Damage covering premises liability,
independent contractors liability, and contractual liability, with minimum
limits of coverage of One Million Dollars ($1,000,000.00) per occurrence and Two
Million Dollars ($2,000,000.00) aggregate applicable to the Premises only.

               (ii) Worker's Compensation Insurance in the full statutory
amount.

               (iii) All policies carried hereunder, providing liability
coverage, will include Lessor as an additional named insured with respect to
ownership of the Premises.

          B. Insurance policies required by this Lease shall:

               (i) Be issued by insurance companies licensed to do business in
the State of Pennsylvania, with general policyholder's ratings of at least A and
a financial rating of at least XI in the most current Best's Insurance Reports
available on the date of issuance. If the Best's ratings are changed or
discontinued, the parties shall agree to an equivalent method of rating
insurance companies;

               (ii) Provide that the insurance not be cancelled or materially
changed in scope or amount of coverage unless thirty (30) days advance notice is
given to the Lessor;

               (iii) Be primary policies -- not contributing with, or in excess
of the coverage that the Lessor may carry;

               (iv) Be permitted to be carried under a "blanket policy".
However, a specific minimum limit must be listed which is applicable to the
Premises and acceptable to the Lessor.

               (v) Be maintained during the entire term and any extension or
renewal term of this Lease.

               (vi) No "deductible" shall exceed the sum of One Thousand Dollars
($1,000.00).

          C. By the Lease Commencement Date and prior to Lessee entering
possession of the Premises, and upon each renewal of its insurance policies,
Lessee shall provide certificates of insurance to Lessor by notice hereunder.
The certificates shall specify amounts, types of coverage, the waiver of
subrogation, specified in Article 16 hereof, and the insurance criteria listed
in this

<PAGE>

paragraph 7. The policies shall be renewed or replaced and maintained by Lessee.
If Lessee fails to give any required certificate within the time provided
herein, Lessor may obtain and pay for that insurance and receive reimbursement
from Lessee as Additional Rent, any other provision of this Lease
notwithstanding.

     8. Destruction of Premises.

          A. Total Destruction of Building. In the event the Building is totally
destroyed or so damaged by fire or other casualty covered by a policy or
policies of insurance maintained by Lessor that the same cannot be repaired and
restored within ninety (90) days from the happening of such injury, this Lease
shall absolutely cease and determine and the Minimum Annual Rent and Additional
Rent shall abate for the balance of the term. Nothing contained herein shall be
construed to affect Lessor's right to collect the proceeds of rental value
insurance on the Building.

          B. Partial Destruction of Building. If the damage be only partial and
such that the Building can be restored to approximately its former condition
within ninety (90) days from the date of the casualty loss, Lessor shall restore
the same within ninety (90) days from the date of the casualty loss, reserving
the right to enter upon the Premises for that purpose. In such event, the rent
shall be apportioned and suspended during the term Lessor is in possession,
taking into account the portion of the demised Premises rendered untenantable
and the duration of the Lessor's possession. Nothing contained herein shall
affect or limit Lessor's right to collect the proceeds of any rental value
insurance on the Premises. If a dispute arises as to the amount of rent due
under this clause, Lessee agrees to pay the full amount claimed by Lessor, but
Lessee shall have the right to proceed by law to recover the excess payment, if
any.

          C. Lessor shall make all such election to repair the Premises or
terminate this Lease by giving notice thereof to Lessee within thirty (30) days
from the day Lessor received notice that the demised Premises had been damaged
by fire or other casualty.

          D. Lessor shall not be liable for any damage, compensation or claim by
reason of the necessity of repairing any portion of the Premises, the
interruption of the use of the Premises, any inconvenience or annoyance arising
as a result of such repairs or interruption or the termination of this Lease by
reason of damage or destruction of the Premises or any part thereof.

     9. Condemnation.

          A. Total Condemnation. In the event the entire Premises is taken or
condemned by any public or quasi-public authority exercising the right of
eminent domain, this Lease shall terminate as of the date the condemning
authority takes possession of the

<PAGE>

Premises, with the same force and effect as though such date were the date fixed
herein for expiration of the term. The entire amount of any award for such
taking shall belong to the Lessor, except for moving, business interruption
expenses, and damages to Lessee's personal property, if any, awarded directly to
Lessee and Lessee hereby waives any other right it may have to any portion of
such award.

          B. Partial Condemnation. In the event that a portion of the Premises,
but not the entire Premises is taken or condemned for a public or quasi-public
use, the Minimum Annual Rent herein shall abate equitably in proportion to the
area of the building on the Premises condemned as of the date on which the
condemning authority shall take possession of the condemned property. Provided,
however, that if the condemnation was so extensive that the Premises is not
suitable for Lessee's use as set forth herein, the taking shall be considered a
total taking and subparagraph A above will apply. The entire amount of any award
for such taking shall belong to Lessor except for moving, business interruption
expenses and damages to Lessee's personal property, if any, awarded directly to
Lessee and Lessee hereby waives any other right it may have to any portion of
such award. If the parties are unable to agree as to whether any taking is so
substantial as to constitute a total taking for the purposes of this Lease, or
as to the amount of abatement of rent after a partial taking, the matter shall
be submitted to arbitration in Philadelphia, Pennsylvania, in accordance with
the rules of the American Arbitration Association then in force and the decision
of the arbitrators shall be final and binding on both parties.

          C. If the condemning authority should take only the right to
possession for a fixed period of time or for the duration of an emergency or
other temporary condition, then, notwithstanding anything hereinabove provided,
this Lease shall continue in full force and effect without any abatement of rent
and the amounts payable by the condemning authority with respect to any period
of time prior to the expiration or sooner termination of this Lease (not
exceeding the Minimum Annual Rent and Additional Rent paid by Lessee to Lessor
during said period of time) shall be paid by Lessor to Lessee out of the amount
of any condemnation award received by Lessor.

     10. Use and Compliance with Regulations.

          A. Lessee hereby covenants and agrees that it will at no time use the
Premises for any other use or purpose than lawful purposes. Lessee further
agrees that it will at no time use the Premises in any manner which may be
deemed a violation of any municipal (including but not limited to township
authorities, regulatory agencies and water and sewer authorities), state or
federal law, rules, regulations or requirements. Lessee shall comply at its sole
cost and expense with any and all municipal, state and federal rules,
regulations, requirements or laws covering

<PAGE>

Lessee's occupancy and/or additional installations, which may be required.
Lessor represents and warrants that the applicable zoning ordinances permit
Lessee's intended use of the Premises as specified in Paragraph 1(C) hereof. The
applicable use and occupancy regulations of Montgomery Township, Montgomery
County, Pennsylvania, require a tenant to be in possession of its space and set
up for operation before making application for a certificate of occupancy ("CO")
and the necessary township inspection. Accordingly, Lessee shall take possession
of the Premises, set up its operation and promptly thereafter, make application
to Code Enforcement Officer of Montgomery Township for a CO for the Premises and
obtain any required CO. Lessee shall provide Lessor with a true and correct copy
of its CO promptly after issuance, by notice hereunder. In the event issuance of
a CO is withheld by reason of any condition of the Premises not related to
Lessee's specific use and occupancy, Lessor, at its sole cost and expense, shall
promptly use its best efforts to rectify this condition and otherwise will
cooperate with Lessee and render reasonable assistance to Lessee for issuance of
the CO. Lessee hereby agrees to protect, indemnify and save Lessor harmless from
and against any and all loss, damage, expense, cause of action, suits, demands,
judgments and claims of any nature whatsoever arising as a result of Lessee's
breach of the covenants contained in this paragraph, in addition to any other
indemnification provisions set forth in this Lease. Lessee shall deposit no
process wastes into the sanitary sewer system serving the Premises and agrees
that only sanitary waste shall be inserted into the sanitary sewer system. Seven
(7) EDU(s) of sanitary sewer capacity have been allocated to the Premises and
Lessee shall not exceed said allocation.

          B. As used herein, "Hazardous Substance" means any substance which is
toxic, ignitable, reactive or corrosive and which is regulated by any local
government, the State of Pennsylvania or the United States Government. Hazardous
Substance includes any and all materials or substances which are defined as
'hazardous waste', 'extremely hazardous waste' or 'hazardous substance' pursuant
to state, federal or local governmental laws or regulations. "Hazardous
Substance" includes, but is not restricted to asbestos, polychlorinated
byphenals (PCBs) and petroleum. Lessee shall not cause or permit any Hazardous
Substance to be used, stored, generated or disposed of on or in the Premises by
Lessee, Lessee's agents, employees, contractors or invitees, except in
accordance with applicable laws and regulations. If Hazardous Substances are
used, stored, generated or disposed of on or in the Premises in violation of
applicable laws and regulations, or if the Premises become contaminated in any
manner for which Lessee is legally liable, Lessee shall indemnify, defend and
hold harmless the Lessor from any and all claims, damages, fines, judgments,
penalties, costs, liabilities or losses (including without limitation, a
decrease in value of the Premises or the Building or the Lot, damages because of
adverse impact on marketing of the Premises and any and all sums paid for
settlement of claims, attorneys', consultant and expert fees) arising during or
after the

<PAGE>

term hereof and arising as a result of such contamination by Lessee. This
indemnification includes, without limitation, any and all costs incurred because
of any investigation of the Lot or any clean-up, removal or restoration mandated
by a federal, state or local agency or political subdivision. In addition, if
Lessee causes or permits the presence of any Hazardous Substance on the Premises
and this results in contamination, Lessee shall promptly, at its sole expense,
take any and all necessary actions to return the Premises to the condition
existing before the presence of any such Hazardous Substance on the Premises,
provided, however, that Lessee shall first obtain Lessor's approval for any such
remedial action. Within ten (10) days after receipt, Lessor and Lessee shall
advise the other party in writing and provide the other party with copies of (as
applicable), any notices alleging violation of any law or regulation relating to
any Hazardous Substance upon any portion of the Premises, the Building or the
Lot; any claims made or threatened in writing regarding non-compliance with any
law or regulation involving the presence of any Hazardous Substance on any
portion of the Premises, the Building or the Lot; or any governmental or
regulatory actions or investigations instituted or threatened regarding
non-compliance with any law or regulation involving any Hazardous Substance upon
any portion of the Premises, the Building or the Lot. Hazardous Substances which
Lessee currently uses in its business, in accordance with OSHA's Hazardous
Communication Policy, are listed in Exhibit "C" attached hereto and made part
hereof.

          C. Within ten (10) days after receipt, Lessor and Lessee shall advise
the other party in writing and provide the other with copies of (as applicable),
any notices alleging violation of the Americans with Disabilities Act of 1990
("ADA") relating to any portion of the Premises, the Building or the Lot; any
claims made or threatened in writing regarding non-compliance with the ADA and
relating to any portion of the Premises, the Building or the Lot; or any
governmental or regulatory actions or investigations instituted or threatened
regarding non-compliance with the ADA and relating to any portion of the
Premises, the Building or the Lot.

     11.  Indemnification.

          A. The Lessee shall keep, save and hold harmless the Lessor from any
and all damages and liability for anything and everything whatsoever arising
from or out of the occupancy of the Premises and abutting common areas by or
under the Lessee, the Lessee's agents, servants, or business visitors, and from
any loss or damage arising from any fault or negligence by the Lessee or any
failure on the Lessee's part to comply with any of the covenants, terms and
conditions contained in this Lease.

          B. Notwithstanding anything set forth herein to the contrary, in the
event Lessor is held liable to an employee of Lessee on account of work-related
injuries sustained by such employee on the Premises, Lessee shall be liable to
Lessor for

<PAGE>

damages, contribution and indemnity in any action at law or otherwise. This
subparagraph 11(B) shall constitute "a written contract" between Lessor and
Lessee pursuant to Section 303(b) of the Workmen's Compensation Act, 77 P.S.
Section 481(b).

     12. Mechanic's Liens.

          Lessee shall not permit any mechanic's, materialmen's or similar liens
to remain upon the Premises for labor or material furnished to Lessee or claimed
to have been furnished to Lessee in connection with work of any character
performed or claimed to have been performed on the Premises by, or at the
direction of, or with the consent of Lessee, whether such work was performed or
materials furnished before or after the commencement of the term of this Lease.
Lessee may, however, contest the validity of any such lien or claim, provided
Lessee shall give Lessor such reasonable security to insure payment and to
prevent any sale, foreclosure or forfeiture of the Premises by reason of such
non-payment as Lessor may require. Upon final determination of the validity of
any such lien or claim, Lessee shall immediately pay any judgment or decree
rendered against Lessee or Lessor with all proper costs and charges and shall
cause such lien to be released of record without cost to Lessor.

     13. Subordination.

          A. This Lease shall be subordinate in all respects to the lien of any
mortgage now or hereafter encumbering the Premises or any part thereof, with the
same force and effect as if such mortgage had been executed, acknowledged,
delivered and recorded prior to the execution of this Lease. The subordination
contained in this Article is and shall be effective without the necessity of any
further act or writing by either party hereto, but Lessee agrees that it will,
immediately upon Lessor's request, deliver such additional documents as any
mortgagee may require to confirm such subordination. Lessee, at the request of
any mortgagee or any one acquiring title to Lessor's estate or the Premises by
foreclosure, deed in lieu of foreclosure or otherwise, shall attorn to the then
owner and recognize such owner as Lessor for the balance of the term of this
Lease, subject to all of the terms and provisions hereof. Such mortgagee or
purchaser at said foreclosure sale shall not be:

          (1) Liable for any act or omission of Lessor;

          (2) Subject to any offsets or defenses which Lessee may have against
the Lessor;

          (3) Bound by any rent or Minimum Annual Rent which the Lessee may have
paid to the Lessor for more than the current month; or

<PAGE>

          (4) Bound by any amendment or modification of the Lease made, without
its consent.

          B. At Lessee's request, by notice hereunder, Lessor shall use its best
efforts to obtain a Subordination, Non-Disturbance and Attornment Agreement
from Lessor's mortgagee. Any fee charged for this agreement by the mortgagee
shall be paid by Lessee as Additional Rent.

     14. Estoppel Certificate.

          Lessee agrees to execute and deliver to any mortgagee or purchaser of
the Premises immediately upon request, an "Estoppel Certificate" stating the
amount of rent due from Lessee hereunder, that this Lease remains in full force
and effect without modification, any reasonable representations requested by
said mortgagee or purchaser, and that Lessee has no setoffs against rent; or if
this Lease has been modified, or if Lessee has any setoffs against rent, the
exact nature of the modification and the precise amount of the setoffs.

     15. Assignment and Subletting.

          Lessee may assign this Lease in whole or in part and sublet all or a
portion of the herein demised Premises provided the business of the assignee or
sublessee shall be no more hazardous than that of Lessee's present business and
shall comply with the zoning and all other governmental regulations and
regulations of insurance underwriters, and provided further that Lessee shall
obtain prior written approval from Lessor which shall not be unreasonably
withheld; saving and excepting, that Lessor may specifically withhold consent if
the proposed assignee's or sublessee's projected use of the Premises involves
the use, storage, generation or disposal of Hazardous Substances, as defined in
subparagraph 10(B) of this Lease. However, Lessee shall not be relieved of any
liability or responsibility under the terms of this Lease by reason of such
assignment or subletting.

     16. Waiver of Subrogation.

          Lessor and Lessee hereby agree that all insurance policies which each
of them shall carry to insure the Premises and the contents therein against
casualty loss shall contain waivers of the right of subrogation against Lessor
and Lessee herein, their heirs, administrators, successors and assigns.

     17. Security Deposit.

          A. Lessee shall have deposited with Lessor upon execution hereof, the
sum of Seventeen Thousand Seven Hundred Ten Dollars ($17,710.00) as security for
Lessee's faithful performance of Lessee's obligations hereunder. Additionally,
from time to time, as necessary, Lessee shall deposit with Lessor amounts as

<PAGE>

determined by Lessor under paragraph 24(D), infra., to secure the removal of
Alterations and Improvements (as hereinafter defined) upon termination of the
Lease. If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said security deposit for the payment of any rent
or other charge in default or for the payment of other sums to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all
or any portion of said deposit, Lessee shall within ten (10) days after written
demand thereof, deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Lessee's failure to do so
shall be a material breach of this Lease. Lessor shall not be required to keep
said deposit separate from its general accounts. If Lessee performs all of
Lessee's obligations hereunder, said deposit, or so much thereof as had not
theretofore been applied by Lessor, shall be returned to Lessee without interest
(or at Lessor's option, to the last assignee, if any, of Lessee's interest
hereunder) at the expiration of the term hereof, and after Lessee has vacated
the Premises. No trust relationship is granted herein between Lessor and Lessee
with respect to said security deposit.

          B. In lieu of a cash security deposit, Lessee may, at its election,
deposit with Lessor an irrevocable letter of credit, in non-documentary form, of
a bank or trust company acceptable to Lessor, in its sole discretion.

               (i) The letter of credit shall be in the amount of the security
deposit and shall state that it is payable unconditionally to the Lessor or
order on demand upon presentation of a sight draft under the letter of credit
before the expiration date set forth in the letter of credit.

               (ii) Without affecting the non-documentary status of the letter
of credit and without involving the issuer of the letter of credit in any
matters affecting this Lease, Lessor shall not present a draft under the letter
of credit for payment unless (y) there is a default by Lessee (whereupon the
funds paid on the letter of credit shall be applied by Lessor, as provided in
subparagraph 17(A) in respect to cash security); or (z) the letter expires
before the time set forth in the Lease for the return of the security deposit
and at least thirty (30) days before the expiration of the letter of credit, a
renewal letter of credit shall not have been delivered to Lessor. If Lessee
employs a letter of credit, it must keep renewing that letter of credit until
the time specified for the return of the security deposit unless a good check is
substituted therefor, without any need on the part of Lessor to give Lessee any
notice that it is in default of supplying that renewal, any provision of this
Lease as to notice of default to Lessee to the contrary, notwithstanding.

<PAGE>

               (iii) The employment of the letter of credit is an accommodation
to Lessee and the object of subparagraph 17(B)(i) and (ii) is not to diminish
Lessor's rights to deal with the security deposit as would prevail if it were a
cash deposit.

               (iv) Without limiting the foregoing suparagraphs 17(B)(i), (ii)
and (iii), the issuer of the letter of credit has no interest in, or concern
with, this Lease or the performance under it by either party. The issuer's sole
obligation is to honor a sight draft timely drawn and presented.

     18. Inspection - Access.

          Lessor may, at all reasonable times, by itself or its duly authorized
agents, go upon and inspect the Premises and every part thereof and/or at its
option to make repairs, alterations and additions to the Premises or the
building of which the Premises is a part. Provided, however, that Lessor agrees
that it will not enter upon the Premises for repairs except during business
hours, without the consent of Lessee, unless said repairs are of an emergency
nature. Provided further that such repairs, alterations and additions to the
Premises should not be undertaken so as to interfere with the business
operations of Lessee, and that Lessor's designees coming upon the Premises shall
preserve the trade secrets and confidential matters of Lessee's business
operations as confidential.

     19. Right of Assignee.

          All rights granted to Lessor hereunder may be exercised by any
assignee of Lessor's right, title and interest in this Lease in his, her or
their name, any statute, rule of court, custom or practice to the contrary
notwithstanding. In addition, upon such assignment, Lessor may pay over any
security deposit hereunder to said assignee and upon said payment, all
obligations of Lessor to Lessee pertaining to said security deposit shall
terminate. In addition, upon assignment of Lessor's interest herein to an
assignee, any obligations of Lessor hereunder arising on or after such
assignment, shall cease and terminate and said Assignee shall be responsible
therefor to Lessee. Notwithstanding, Lessor shall remain responsible to Lessee
for any obligations hereunder arising to prior to such assignment.

     20. Intentionally deleted by the parties.

     21. Signs.

          Lessee may erect reasonable signs which will not damage or injure in
any way the roof or structural portions of the Premises, or any buildings on the
Premises and will not detract from the appearance of the Premises and
surrounding environments,

<PAGE>

having first obtained Lessor's permission, said permission to not be
unreasonably withheld. Lessee shall conform, at its sole cost and expense, with
all governmental rules and regulations, with respect to Lessee's sign, and will
save Lessor harmless from any mechanic's lien claim or claims for personal
injury or property damage arising from the erection, provision, installation or
maintenance and removal of said sign. At the termination of this Lease, Lessee
shall remove all signs and shall restore the Premises to its original good
condition, at Lessee's sole cost and expense.

     22. Quiet Enjoyment.

          Notwithstanding anything herein contained to the contrary, Lessee's
possession and quiet enjoyment of the Premises will not be interfered with by
Lessor or any person claiming by, through or under Lessor or by any predecessor
of Lessor so long as Lessee complies with the terms of this Lease and is not in
default hereunder.

     23. Events of Default - Remedies.

          A. The following events or any one or more of them shall be events of
default under this Lease:

               (i) Lessee shall fail to pay any Minimum Annual Rent, Additional
Rent or other sums payable hereunder when the same are due and payable; or

               (ii) Lessee shall fail to perform or comply with any of the other
terms, covenants, agreements or conditions hereof; or

               (iii) Lessee shall make a general assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy or shall be adjudged a
bankrupt or insolvent, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file an
answer admitting or not contesting the material allegations of a petition
against it in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of Lessee or any material
part of its property; or

               (iv) If within sixty (60) days after commencement of any
proceedings against Lessee seeking any reorganization, arrangement, composition,
readjustment, liquidation or dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not have been
dismissed or, if, within sixty (60) days after the appointment without the
consent or acquiescence of Lessee of any trustee, receiver or liquidator of

<PAGE>

Lessee or any material part of its properties, such appointment shall not have
been vacated

               (v) Lessee shall vacate the Premises in violation of Article 28
hereof.

          B. In the event of any such event of default (regardless of the
pendency of any proceeding which has or might have the effect of preventing
Lessee from complying with the terms of this Lease) Lessor at any time
thereafter may exercise any one or more of the following remedies:

               (i) Intentionally deleted by the parties.

               (ii) Termination of Lease. Lessor may terminate this Lease
without any right by Lessee to reinstate its rights by payment of rent due or
other performance of the terms and conditions hereof. Upon such termination,
Lessee shall immediately surrender possession of the Premises to Lessor and
Lessor shall immediately become entitled to receive from Lessee damages equal to
the difference between the aggregate rentals reserved for the balance of the
term and the fair rental value of the Premises for that period, determined as of
the date of such termination; provided, however, that the amount of such damages
shall be discounted at the rate of Five Percent (5%) per annum for the period
from the date of payment by Lessee to Lessor to the date of expiration of the
term of this Lease.

               (iii) Reletting. With or without terminating this Lease, as
Lessor may elect, Lessor may re-enter and repossess the Premises or any part
thereof, and lease them to any other person upon such terms as Lessor shall deem
reasonable for a term within or beyond the term of this Lease; provided,
however, that any such reletting prior to termination shall be for the account
of Lessee, and Lessee shall remain liable for:

                    (1) All Minimum Annual Rent, Additional Rent and other sums
which would be payable under this Lease by Lessee in the absence of such
expiration, termination or repossession, less

                    (2) The net proceeds, if any, of any reletting effective for
the account of Lessee after deducting from such proceeds without limitation, all
repossession costs, broker's commissions, attorneys' fees and expenses,
employees' expenses, reasonable alteration costs and expenses of preparation for
such reletting.

                    If the Premises are at the time of default sublet or leased
by Lessee to others, Lessor may, as Lessee's agent, collect rents due from any
subtenant or other tenant and apply such rents to the rent and other obligations
due hereunder without in any way affecting Lessee's obligations to Lessor

<PAGE>

hereunder. Such agency, being given for security, is hereby declared to be
irrevocable.

               (iv) Acceleration of Rent. Lessor may declare Minimum Annual
Rent and all items of Additional Rent for the entire balance of the then current
term immediately due and payable, together with all other charges, payments,
costs and expenses payable by Lessee as though such amounts were payable in
advance on the date of the event of default occurred.

          C. No expiration or termination of this Lease term pursuant to
subparagraph (B)(ii) above or by operation of law or otherwise (except as
expressly provided herein), and no repossession of the Premises or any part
thereof or exclusion of Lessee from the Premises pursuant to subparagraph B
above or otherwise shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive such exclusion, expiration, termination or
repossession and Lessor may, at its option, sue for and collect rent and other
charges due hereunder at any time and from time to time as and when such charges
accrue.

          D. Intentionally deleted by the parties.

          E. The parties hereby waive trial by jury in any action or proceeding
hereunder.

          F. Lessee hereby expressly waives any and all rights of redemption
granted by or under any present or future law in the event this Lease is
terminated or Lessee is evicted or dispossessed by reason of violation by Lessee
of any of the provisions of this Lease.

          G. In the event of breach or threatened breach by Lessee of any
provision of this Lease, Lessor shall have the right of injunction as if other
remedies were not provided for herein.

          H. No right or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right or remedy herein or by law provided,
but each shall be cumulative and in addition to every other right or remedy
given herein or now or hereafter existing at law or in equity or by statute.

          I. If Lessee shall default in the performance of any covenant required
to be performed by it under this Lease, Lessor may perform the same for the
account and at the expense of Lessee, after first giving notice to Lessee of its
intention to do so. If Lessor at any time is compelled to pay or elects to pay,
any sum of money or to do any act which will require the payment of any sum of
money by reason of the failure of Lessee to comply with any provisions hereof,
or if Lessor is compelled to incur any expense, including reasonable counsel
fees, in instituting, prosecuting or defending against any action or proceedings
instituted by reason of any default of Lessee hereunder, the amount of such
payments or

<PAGE>

expenses shall be paid by Lessee to Lessor as Additional Rent on the next day
following such payment or the incurring of such expenses upon which a regular
monthly rental is due, together with interest thereon at the rate set forth
herein.

          J. No waiver by Lessor of any breach by Lessee of any of its
obligations, agreements or covenants hereunder shall be a waiver of any
subsequent breach or of any other obligation, agreement or covenant, nor shall
any forbearance by Lessor to seek a remedy for any breach by Lessee be a waiver
by Lessor of its rights and remedies with respect to such or any subsequent
breach.

          K. Lessee expressly waives any right of defense which it may have
based on any purported merger of any cause of action, and neither the
commencement of any actions or proceeding nor the settlement thereof or the
entering of judgment therein shall bar Lessor from bringing subsequent action or
proceedings from time to time.

          L. Intentionally deleted by the parties.

          THE FOLLOWING PARAGRAPH 23(M) SETS FORTH A WARRANT OF AUTHORITY FOR
ANY PROTHONOTARY OR ATTORNEY OF COURT OF RECORD TO CONFESS JUDGMENT AGAINST THE
LESSEE. IN GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE
LESSEE, THE LESSEE, FOLLOWING CONSULTATION WITH (OR DECISION NOT TO CONSULT)
SEPARATE COUNSEL FOR THE LESSEE AND WITH KNOWLEDGE OF THE LEGAL EFFECT THEREOF,
HEREBY KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE LESSEE HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR
HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF
AMERICA, THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE. IT IS SPECIFICALLY
ACKNOWLEDGED BY THE LESSEE THAT THE LESSOR HAS RELIED ON THIS WARRANT OF
ATTORNEY IN EXECUTING THIS LEASE AND AS AN INDUCEMENT TO GRANT FINANCIAL
ACCOMMODATIONS HEREUNDER TO THE LESSEE.

          M. Upon the expiration of the then current term of this Lease or the
earlier termination or surrender hereof as provided in this Lease, Lessee with
understanding of the RELINQUISHMENT OF CERTAIN RIGHTS, to which Lessee would
otherwise be entitled as a matter of law and due process, including the right to
notice and judicial hearing, agrees that it shall be lawful for any attorney to
appear as attorney for Lessee as well as for all persons claiming by, through or
under Lessee and to sign an Agreement for entering in any competent court an
amicable action in ejectment against Lessee and all persons claiming by, through
or under Lessee and therein CONFESS JUDGMENT FOR THE RECOVERY BY LESSOR OF
POSSESSION OF THE PREMISES, for which this Lease shall be its sufficient
warrant, whereupon if Lessor so desires, a writ of possession or other
appropriate writ under the Rules of Civil Procedure then in effect may issue
forthwith, without any prior writ or proceedings; provided, however, if for any
reason after such action shall have been commenced, the same shall be determined

<PAGE>

and the possession of the Premises remain in or be restored to Lessee, Lessor
shall have the right for the same default and upon any subsequent default or
defaults, or upon the termination of this Lease under any of the terms of this
Lease, to bring one or more further amicable action or actions as hereinbefore
set forth to recover possession of the Premises and confess judgment for the
recovery of possession of the Premises as hereinabove provided.

          N. In any amicable action for ejectment, Lessor shall first cause to
be filed in such action an affidavit made by it or someone acting for it,
setting forth the facts necessary to authorize the entry of judgment and if a
true copy of this Lease (and such affidavit shall be sufficient evidence of the
truth of the copy) be filed in such action, it shall not be necessary to file
the original as warrant of attorney, any rule of court, custom or practice to
the contrary notwithstanding. Lessee hereby releases to Lessor and to any and
all attorneys who may appear for Lessee all errors in said proceedings and all
liability thereof.

          O. If proceedings shall be commenced by Lessor to recover possession
under the Acts of Assembly and Rules of Civil Procedure, either at the end of
the term or earlier termination of this Lease, or for nonpayment of rent or any
other reason, Lessee specifically waives the right to the three (3) month notice
and to the fifteen (15) or thirty (30) days notice required by the Landlord and
Tenant Act of 1951, and agrees that five (5) days' notice shall be sufficient in
either or any such case.

          P. Notwithstanding anything herein elsewhere contained to the
contrary, Lessor agrees that Lessor will not exercise any right or remedy
provided for in this Lease or allowed by law, because of any default of Lessee,
unless Lessor shall first have given written notice thereof to Lessee, and
Lessee, (i) within a period of ten (10) days thereafter shall have failed to pay
the sum or sums due if the default consists of the failure to pay money, or (ii)
if said default shall consist of anything other than the failure to pay the sum
or sums due hereunder, Lessee shall have failed within the period of thirty (30)
days after notice from Lessor to have cured said default, except that if such
default cannot be cured within said thirty (30) days, Lessee shall only be in
default if Lessee shall have failed to begin and actively and diligently in good
faith proceed with the correction of the default until it shall be fully
corrected not later than seventy-five (75) days after such notice; provided,
further, however, that no such notice from Lessor shall be required nor shall
Lessor be required to allow any part of the said notice periods if Lessee shall
have removed from or shall be in the course of removing from the Premises, or
Lessee shall have failed to provide the insurance required by this Lease or if a
Petition in Bankruptcy or for reorganization shall have been filed by or against
the Lessee resulting in an order for relief in bankruptcy, or for
reorganization, or if a receiver or trustee is appointed for Lessee and such
appointment and such receivership or trusteeship is not

<PAGE>

terminated within seventy-five (75) days, or if Lessee makes an assignment for
the benefit of creditors, or if Lessee is levied upon and is about to be sold
out upon the Premises by any sheriff, marshall or constable; provided, further,
however, that Lessor shall not be required to give any notice of monetary
default called for by this Article of the Lease more than two (2) times within
any twelve (12) month period.

     24.  Alterations and Additions.

          A. The improvements set forth on Exhibit "A" attached hereto and made
part hereof are not intended to be covered by this Article 24. Lessee may, at
its own cost and expense, install additional improvements ("Alterations and
Improvements") upon the demised Premises, provided that such Alterations and
Improvements shall not adversely affect the roof and structural soundness of the
Premises or the building of which the Premises is a part in the case of
multi-tenant properties, or any Systems contained therein.

          B. All such Alterations and Improvements shall be in accordance with
plans and specifications to be supplied by Lessee, which plans shall in all
instances first be subject to Lessor's prior written approval, which shall not
be unreasonably withheld. Lessee shall provide Lessor with evidence that each
contractor performing Alterations and Improvements on the Premises has adequate
workmen's compensation insurance and general liability insurance in the amount
of at least Two Million Dollars ($2,000,000.00) for bodily injury or death to
any person or persons and property damage, on an occurrence basis, together with
a certificate from the insurer who shall be reasonably satisfactory to Lessor,
to the effect that such insurance may not be cancelled or substantially modified
without at least thirty (30) days' prior written notice to Lessor. Lessor hereby
approves the alterations and improvements described in Exhibit "B" attached
hereto and made part hereof.

          C. To the extent permitted by law, no Alterations or Improvements at
the Premises shall be done except after filing a waiver of the right to file any
lien therefor (commonly known as "mechanic's lien") in the local prothonotary's
office or elsewhere as provided by law, so as to constitute an effective waiver
by anyone having a right to file such a lien.

          D. As to Alterations and Improvements installed with the prior written
consent of Lessor, Lessee may, or at Lessor's demand, shall remove all
Alterations and Improvements prior to the end of the term of this Lease and
Lessee shall at its own cost and expense, return the Premises to its condition
as of the Lease Commencement Date, ordinary wear and tear and damage by insured
casualty excepted. In the event, in violation of subparagraph B hereof, Lessee
installs Alterations and Improvements upon the Premises without Lessor's prior
written approval, Lessee shall remove all Alterations and Improvements prior to
the end of this

<PAGE>

Lease, at its own cost and expense, returning the Premises to its condition as
of the Lease Commencement Date. In the event Lessee shall fail to remove the
Alterations and Improvements and restore the Premises, as herein provided,
Lessor shall have the right to go upon the Premises and do so, and Lessee agrees
to pay the cost thereof as Additional Rent. Additionally, Lessor may decline to
accept surrender of the Premises by Lessee so long as such Alterations and
Improvements have not been removed and until removal of the same, Lessee shall
be deemed to have held over under the provisions of paragraph 2(B), supra. With
respect to those Alterations and Improvements which, with Lessor's consent, have
remained upon the Premises at the end of the term of this Lease, Lessee agrees
that title to the same shall vest in Lessor. Prior to commencing to install any
Alterations or Improvements, Lessee shall deposit with Lessor an additional
security deposit, to be held by Lessor in accordance with the provisions of
paragraph 17, supra., in an amount reasonably established by Lessor to cover the
cost of removal of said Alterations and Improvements upon termination of this
Lease.

          E. If as a result of any Alterations and Improvements which may be
made to the Premises by the Lessee, either pursuant to this clause or without
authorization from the Lessor, any person and/or property shall be injured
and/or damaged, the liability therefor shall be the sole responsibility of
Lessee.

          F. In making any Alterations and Improvements, Lessee shall comply
with any and all laws, statutes, ordinances, rules, regulations and requirements
of the municipal and other duly constituted governmental authorities and
insurance organizations.

     25. Extensions and Renewals.

          A. Extensions. It is hereby mutually agreed that in the event Lessee
has not given the "Preliminary Renewal Notice" as defined in subparagraph 25(B),
or has given the Preliminary Renewal Notice but has withdrawn the same, Lessee
may terminate this Lease at the end of this term and any renewal term or
extension term, by giving to Lessor written notice at least one hundred eighty
(180) days prior thereto, and Lessor may terminate this Lease at the end of this
term and any renewal or extension thereof by giving to Lessee written notice at
least one hundred fifty (150) days prior thereto; but in default of such notice
from either party, this Lease shall continue for an extension term of one (1)
year, commencing the day after the expiration of the current term, upon the
terms and conditions in force immediately prior to the expiration of the
then-current term, extension term or renewal term (except for the Minimum Annual
Rent, which shall be as computed in subparagraph 25(C)(iii)), and so on from
year to year, unless terminated by the giving of notice within the times and in
the manner aforesaid. In the event that Lessee or Lessor shall have given
notice, as stipulated in this Lease, to vacate the Premises at the end of the
present term or any renewal or extension thereof

<PAGE>

and Lessee shall fail or refuse to vacate same at the date designated by said
notice, then it is expressly agreed that Lessor shall have the option either:

               (i) to disregard the notice so given as having no effect, in
which case all of the terms and conditions of this Lease as in effect at the end
of the current term, extension term or renewal term shall continue thereafter
with full force precisely as if such notice had not been given; or

               (ii) Lessor may, at any time, within thirty (30) days after the
present term or any renewal or extension thereof, as aforesaid, give the said
Lessee ten (10) days' written notice of its intention to terminate the said
Lease; whereupon Lessee expressly agrees to vacate the Premises at the
expiration of the said period of ten (10) days specified in the aforesaid
notice. In the event Lessee has not vacated the Premises in accordance with said
notice, Lessee shall be treated as holding over in accordance with the terms of
paragraph 2(B) hereof.

          All powers granted to Lessor by this Lease shall be exercised and all
obligations imposed upon Lessee by this Lease shall be performed by Lessee as
well during any extension or renewal of the original term of this Lease as
during the original term hereof.

          Notwithstanding anything set forth in subparagraph 25(A) to the
contrary, if the term of this Lease is not previously terminated, the term of
this Lease shall end absolutely, without further notice, at 11:59 p.m. on the
day previous to the 29th anniversary of the Lease Commencement Date.

     B. Option to Renew.

          Provided Lessee is not then in default under any of the terms,
covenants and conditions of this Lease, and Lessee is not in default under the
terms of this Lease at the end of the original term, Lessee shall have the right
and privilege, at its election, to renew the term of this Lease for an
additional period of five (5) years commencing upon the day after the expiration
of the term hereof and terminating five (5) years thereafter without further
notice. Such five year period is hereinafter referred to as a "Renewal Term".

          In order to exercise said option, Lessee must give Lessor written
notice of its election to renew ("Preliminary Renewal Notice") at least two
hundred ten (210) days prior to the expiration of the term hereof. Said renewal
shall be on the same terms and conditions as herein provided for the original
term except that the Minimum Annual Rent shall be calculated as set forth in the
following paragraph. In the event Lessee does not exercise its option to renew
within the time set forth, the provisions of subparagraph 25(A) shall apply.

<PAGE>

     C. Computation of Minimum Annual Rent in the event of Renewal.

          In the event of exercise of the option to renew this Lease by Lessee
in accordance with the terms of subparagraph A, commencing with the rental
payment due on the first day of the Renewal Term, the Minimum Annual Rent shall
be the greater of the Minimum Annual Rent set forth in this Lease for the last
Lease Year of the original term or the fair market rental. The fair market
rental shall be determined as follows:

          (i)   Within fifteen (15) days from receipt of the Preliminary Renewal
Notice, Lessor shall advise Lessee of the fair market rental of the Premises as
of the commencement of the Renewal Term, by notice hereunder, including examples
of rentals for comparable space in the Warminster area of Bucks County and the
Montgomeryville area of Montgomery County. In the event Lessee is dissatisfied
with the fair market rental as specified by Lessor, it may withdraw the
Preliminary Renewal Notice, by notice to Lessor, given at least one hundred
eighty-one (181) days prior to the end of the term.

          (ii)  The new Minimum Annual Rent, effective on or after the first day
of the Renewal Term and for the balance of said Renewal Term, shall be the
greater of the fair market rental set forth in Lessor's notice or the Minimum
Annual Rent as set forth in this Lease for the last year of the original term,
whichever is applicable, but not more than Two Hundred Forty-Five Thousand Seven
Hundred Dollars ($245,700.00) per year. This Minimum Annual Rent shall be
payable in equal monthly installments commencing on the first day of the Renewal
Term and on the first day of each month thereafter during the said Renewal Term.

          (iii) For extensions of this Lease under subparagraph 25(A), the
Minimum Annual Rent during a one-year extension term shall be the greater of the
Minimum Annual Rent for the previous Lease Year or the fair market rental for
the Premises as of the commencement of the extension term, but not more than Two
Hundred Forty-Five Thousand Seven Hundred Dollars ($245,700.00) per year,
payable in monthly installments on the first day of each month during the
extension term.

     26.  Place of Payment of Rent and Notices.

          All rent shall be payable without notice or demand and all notices
shall be given to Lessor by registered or certified mail, return-receipt
requested, at the following address or at such address as Lessor may designate
by notice to Lessee:

          Nappen & Associates t/a 309 Development Company
          P.O. Box 26752
          Elkins Park, PA 19027

          All notices required to be given by Lessor to Lessee shall be
sufficiently given if sent by registered or certified

<PAGE>

mail, return-receipt requested, to the Premises or to such other place as Lessee
may designate by notice to Lessor.

          All notices or consents required by this Agreement shall be in
writing.

     27. Condition of Premises at Termination.

          At the expiration of the term hereof, Lessee shall surrender the
Premises to Lessor in good order and condition, broom clean, all Alterations and
Improvements designated for removal under the provisions of paragraph 24,
supra., having been removed, reasonable wear and tear and damage by insured
casualty alone excepted. Provided Lessee is not in default hereunder, all
furniture and trade fixtures installed at the expense of Lessee shall remain the
property of Lessee. Provided Lessee is not in default hereunder, Lessee shall
have the right to remove fixtures and/or equipment installed by Lessee in the
herein demised Premises during the term of this Lease and any renewal or
extension term. Lessee agrees to repair at its cost and expense any damage done
to the Premises by reason of the removal of such fixtures and/or equipment.

     28. Vacation.

          Lessee shall not vacate or desert the Premises during the term of this
Lease or permit the same to be empty and unoccupied without taking adequate
measures to secure the demised Premises, reasonably satisfactory to Lessor.

     29. Net Lease.

          The parties intend this to be a "fully net" Lease pursuant to which
the rent payable hereunder shall be an absolutely net return to Lessor for the
term of this Lease, undiminished by the taxes, or any of them or any part
thereof or any other carrying charges, maintenance charges (except for roof and
structural maintenance) or any other charges of any kind or nature whatsoever
except any mortgage now or hereafter placed upon the Premises and Lessor shall
not be required to perform any services or furnish any utilities of any kind or
nature whatsoever. Lessor may discontinue at any time, any and all facilities
furnished and services rendered by Lessor not expressly covenanted for herein or
required to be furnished or rendered by law; it being understood that they
constitute no part of the consideration for this Lease.

     30. Miscellaneous.

          A. Parties Bound. Subject to the provisions of this Lease regarding
consent by Lessor, this Lease shall be binding upon the parties hereto and shall
be binding upon and inure to the benefit of and be enforceable by their
respective successors and assigns.

          B. Waiver of Custom. Lessor shall have the right at all times, any
law, usage or custom notwithstanding, to enforce

<PAGE>

strictly the provisions of this Lease, and the failure of Lessor at any time or
times, strictly to enforce any provision hereof, shall not be construed as
having created a custom or waiver in any way contrary to the specific provisions
of this Lease or as having in any way or manner modified this Lease.

          C. Number and Gender. For the purposes of this Lease, the singular
shall include the plural and the plural shall include the singular and the
masculine shall include the feminine and the neuter, as the context may require.
The word "Lessor" as used herein shall mean the owner from time to time of the
fee or equitable title to the Premises and upon transfer of the fee or equitable
title, the person named herein as Lessor shall have no further liability or
obligation hereunder.

          D. Captions. The captions contained herein are for the convenience of
the parties only. They do not in any way modify, amplify, alter or give full
notice of the provisions hereof.

          E. Amendments. This Lease may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.

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

          G. Governing Law. This Lease shall be governed by the laws of the
Commonwealth of Pennsylvania.

          H. "For Sale" Sign. Lessor shall have the right to display a "For
Sale" sign at any time, and also, after notice from either party of intention to
determine this Lease, or any time within three (3) months prior to the
expiration of this Lease, a "For Rent" sign, or both "For Rent" and "For Sale"
signs; and all said signs shall be placed upon such part of the Premises as
Lessor may elect and may contain such matter as Lessor shall require.
Prospective purchasers or tenants, authorized by Lessor may inspect the Premises
at reasonable hours at any time on reasonable advanced notice to Lessee so as to
minimize the effect of same on Lessee's use and enjoyment of the Premises.

          I. Entire Agreement. This Lease constitutes the entire agreement
between the parties hereto. Except as set forth herein, there are no promises,
representations or understandings between the parties of any kind or nature
whatsoever.

          J. Effectiveness. The furnishing of the form of this Lease shall not
constitute an offer and this Lease shall become

<PAGE>

effective upon and only upon its execution by and delivery to each party hereto.

          K. Time of the Essence. All times set forth herein shall be of the
essence of this agreement.

          L. Broker. Neither the Lessee nor the Lessor has taken any action or
knows of any circumstances which would make any party hereto liable for any
brokerage or finder's fees, except Lessor's obligation to Binswanger
Corporation, as set forth in a separate agreement between Lessor and Binswanger
Corporation. Each party agrees to indemnify the other, if contrary to the
representation or warranty herein set forth, any such party should become liable
for the payment of any such fee.

     31. Bankruptcy or Insolvency.

          Intentionally deleted by the parties since the subject will be covered
by existing laws.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
intending to be legally bound, as of the day and year last below written.

                                         NAPPEN & ASSOCIATES, a
                                         Pennsylvania limited partnership
                                         t/a 309 DEVELOPMENT COMPANY
Dated: 5/29/96

                                         By: /s/ Robert W. Nappen
                                             --------------------------------
                                             Robert W. Nappen, General Partner

                                         SURGICAL LASER TECHNOLOGIES, INC.,
                                         a Delaware corporation


                                         By: /s/ Terry A. Fuller
                                             --------------------------------
Dated: 5/29/96
                                         Its:          COO & EVP
                                             --------------------------------

                                         TIN NO.
                                                -----------------------------

<PAGE>

                                    EXHIBIT A

In accordance with Paragraphs 1B and 24A, Lessor shall make the following
alterations and improvements to the Premises. These alterations and improvements
need not be removed at the end of the lease. The attached plan, dated May 23,
1996 and entitled "SLT- REV," attached hereto as Schedule 1 (the "Plan")
comprises Lessor alterations and improvements and illustrates the locations of
the work:

     1. Changes to the layout of the Premises as set forth in the Plan,
     including without limitation:

          a. hooking up a sink in the clean room and a floor sink by the loading
          dock;

          b. installing certain new partition walls and opening up certain
          existing partition walls; and

          c. installing certain lighting fixtures to light levels as indicated.
          All light levels not indicated shall be suitable for general office
          lighting.

     2. Making the following improvements to the Premises generally:

          a. Overhead lighting filter panels, where aged or damaged, shall be
          replaced with new, matching panels.

          b. All block wall areas abutting dropped ceiling areas shall be filled
          and finished, so as to correct for particulates caused by seepage.

          c. Air ducts and exhaust registers shall be made to be reasonably
          clean.

     3. The following finishes shall be made for areas other than the clean
     room:

          a. Existing ceiling tiles where aged or damaged shall be replaced with
          new, matching tiles.

          b. All walls shall be patched, sealed and painted with semi-gloss,
          washable paint, color #953 I/A, Benjamin Moore Paints.

          c. All areas marked on the Plan as tiled (e.g. cafeteria, mfg. area,
          copy room) shall be tiled with Armstrong Imperial textured vinyl
          composition (#51839, fortress white 12x12 1/8" gauge with Roppe 1/8"
          vinyl cove base #578 pewter).

          d. All areas marked on the plan as carpeted (e.g. office areas, R&D
          area) shall be carpeted with Stratton Ambition Tufted textured loop
          pile carpet (#80530 Ashen grey) with Roppe 1/8" vinyl cove base #578
          pewter.

     4. Specifically for the clean room, the finishes shall be:

          a. The ceiling in the clean room shall be weighted vinyl-covered
          panels.

          b. The walls in the clean room shall be patched and painted with
          high-gloss washable paint, color #953 I/A, Benjamin Moore Paints.

          c. The floor in the clean room shall be tiled with welded Armstrong
          Medintech tandem sheet flooring (#91416 Almond gauge 0.080") and have
          Roppe 1/8" vinyl cove base (#578 pewter.

     5. The HVAC system to the clean room shall exceed class 100,000 and be
     designed in consultation with Lessee. The HVAC system in general shall be
     in first class condition.

<PAGE>

Exhibit A to the Lease Agreement dated May 29, 1996 between Nappen Associates
and Registrant includes a floor plan of the leased space in Montgomeryville. The
floor plan is entitled "Lot no. 14 - 42,000 Sq. Ft. Building, Bethlehem Pike
Industrial Center, Montgomeryville, Pa. 5-23-96 SLT Rev." Depicted on the floor
plan are, among other things, areas for executive offices, R&D, manufacturing,
machine shop, clean room, warehouse, quality assurance room.


                                    EXHIBIT B

In accordance with Paragraph 24B, Lessee is permitted to make the following
alterations and improvements to the Premises. Such alterations and improvements
shall be removed, at Lessor's option, at the termination of the lease. The Plan
illustrates the locations of the work.

     1. Lessee shall be responsible for electrical drops in the clean room,
     manufacturing area, compressor room, the machine shop, the optics lab, etc.
     The drops shall be multiple 110 volt 20 amp, and 208 volt 3 phase, and 208
     volt 1 phase.

     2. Lessee shall be responsible for installing a compressor(s) and
     compressed air line to the manufacturing area.

     3. Lessee shall be responsible for installing its office cubicles and file
     cabinets.

     4. Lessee shall be permitted to install racking in the warehouse area.

     5. Lessee shall have vented ducts, one in the clean room (to be installed
     by Lessor's HVAC contractor), and several in the machine shop and
     manufacturing area.

     6. Lessee shall be permitted to retain in place the following improvements
     made by Moore Products: (a) air line drops to the compressor room; and (b)
     2 ducts leading to and venting from the rear wall. Lessee shall be
     responsible for removing these improvements at the end of the Lease unless
     the Lessor permits otherwise or unless the succeeding lessee to the
     Premises shall have need for the improvements.

<PAGE>

                                    EXHIBIT C

With reference to Paragraph 10B, Lessee currently uses the following substances
in its business operations.

            .  Accelerator 711
            .  Acetone
            .  Acetone Soluble Adhesive
            .  Acrylamide
            .  Aliphatic Amine Blend
            .  Amyl Acetate
            .  Bath Guard-Disinfectant Bathroom Cleaner
            .  Black Ink #7
            .  Blue Skies - Disinfectant Cleaner
            .  Bowl Cleaner
            .  Bright-Washroom Cleaner
            .  Braze 505
            .  Butane (Liquified)
            .  Cargille Optical Gel (Code 0608)
            .  Catalyst (Dow 4)
            .  Catalyst (Dow 176)
            .  Ceramabond 571 Powder
            .  Cerama-Bond 618
            .  Cerama-Dip 538 & Thinner
            .  Charge-Bowl Cleaner Detergent Thickened
            .  Creamy Lemon Wax Furniture Polish (SSS)
            .  Cyclohexane
            .  Cyclohexanone
            .  Deodorizer/Disinfectant Spray & Cleaner (SSS)
            .  Disinfectant Detergent (SSS)
            .  Double Steal
            .  Easy Strip (SSS)
            .  Code 210803
            .  Epo-Tek 353 ND Part A
            .  Epo-Tek 353 ND Part B
            .  Epoxy Resin
            .  Ethylene Glycol
            .  Fast Cure Additive (Dow 2-731)

<PAGE>

            .  Fastbond 30-NF Green Contact Adhesive
            .  Fibermet Polishing Extender
            .  Floor Cleaner
            .  Floor Netralizer/Conditioner
            .  Fluoroglide CP Spray
            .  Flux (Liquid, Amber)
            .  Freon TF Cleansing Agent
            .  Freon 12 Techduster
            .  Formaldehyde
            .  Gentle Wash (SSS)
            .  Glass Cleaner (SSS)
            .  Glass Code 7070
            .  Graphi-Coat 623 Powder
            .  Hastilite Polishing Compound
            .  Heavy Duty Cleaner
            .  Heptane
            .  Hot Springs-Cleaner
            .  Hydrochloric Acid (37%)
            .  Invisible Shield
            .  Isocut Fluid
            .  Isopropyl Alcohol
            .  Isopropyl Myristate
            .  Lemon Twist-Liquid Concentrated Deodorant
            .  Liquid Defoamer (SSS)
            .  Locquic {R} Primer Grade N
            .  Locquic Gen Pur Primer T
            .  Loctite 411
            .  Loctite Black Max
            .  Loctite Prism
            .  Loctite Tak Pak
            .  Look-Glass Cleaner Concentrate
            .  Magic Glass Cleaning & Anti Fogging Fluid
            .  Manganese Dioxide
            .  Manganese Oxide
            .  MDX-4159 Fluid (Dow)
            .  Medical Adhesive Type A
            .  Medical Fluid (Dow 360)

<PAGE>

            .  Medical Device Gap Filling
            .  Mercury
            .  Methanol
            .  Methylene Chloride
            .  Methy Ethyl Ketone
            .  Micromet Cerium Oxide Suspension (40-6355)
            .  Multi-Purpose Cleaner
            .  Neutral Floor Cleaner
            .  Nickel Oxide
            .  Paper Coating (Dow Sly-Off 294)
            .  Pearly-Clinging Heavy Duty Washroom Cleaner
            .  Plastic Wood Cellulose Fiber Filler - Natural
            .  Release Additive (Dow C4-2109)
            .  Removable Thread Locker 242 (Dow)
            .  Royalite ABS/PVC Alloy
            .  Silane (Dow Z-6020)
            .  Silastic {R} Medical Adhesive Type A
            .  Silicone Black Ink (Gem Type S)
            .  Silicone Red Ink (Gem Type S)
            .  Silicone Rubber CA (J-RTV)
            .  Silicone Rubber (RTV) 3112
            .  Silicone Rubber Base JRTV
            .  Silicone Rubber Sealant RTV 108
            .  Small Screw Threadlocker 222
            .  Soda-Lime Glass
            .  Solder
            .  Speedball - Power Cleaner
            .  Stainless Steel Brightener
            .  Superbond 412
            .  Superbond 417
            .  Tile and Grout Cleaner
            .  Trichloroethane (1,1,1)
            .  Trichloroethane (1,1,2)
            .  Ultra Jet
            .  Urinal Block
            .  Yttrium Oxide Patinal
            .  Vydax (Du-Pont)
            .  Walton-March Inc. (letter)