EXHIBIT 10.57

LEASE AGREEMENT

BETWEEN

LANTANA OFFICE PROPERTIES I, L.P.

AS LANDLORD,

AND

ARTHROCARE CORPORATION

AS TENANT,

COVERING APPROXIMATELY 36,421 RENTABLE SQUARE FEET

OF THE BUILDING KNOWN AS

7500 RIALTO, BUILDING II

LOCATED AT

7500 RIALTO BOULEVARD AUSTIN, TEXAS 78735

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BASIC LEASE INFORMATION

 

Lease Date:    May 5, 2006 Tenant:    ARTHROCARE CORPORATION, a Delaware
corporation Tenant’s Address:   

111 Congress Avenue, Suite 510

Austin, Texas 78701

Contact:    John Raffle Telephone:    (512) 391-9300 Landlord:   

LANTANA OFFICE PROPERTIES I, L.P.,

a Texas limited partnership, its successors and assigns

Landlord’s

Address:

  

c/o Southwest Property Services, LLC

7500 Rialto Blvd., Building I, Suite 120

Austin, Texas 78735

Contact:    Tim Dalton Telephone:    (512) 479-3434 Premises:    Suite No. 103
containing approximately 36,421 rentable square feet on the first floor of the
Building. The Premises are outlined on the plan attached to the Lease as Exhibit
A-1. The Premises are measured using 1996 BOMA useable standards multiplied by
the Building Factor of 1.0726. Building:    7500 Rialto Boulevard at Lantana –
Building II, which contains an estimated 77,506 rentable square feet and is
located on the land described on Exhibit A attached hereto (the “Land”).
Project:    7500 Rialto Boulevard at Lantana, which includes Building I and
Building II, and related parking facilities and commons areas, as shown on
Exhibit A-2 attached hereto. Term:    One hundred twenty (120) months,
commencing on the Commencement Date (defined below), subject to adjustment and
earlier termination as provided in the Lease.

Basic Rental:

(Triple Net)

  

Months 1 - 24: $53,113.96 based on Annual Basic Rental of $17.50 per rentable
sq. ft.

Months 25 – 48: $54,631.50 based on Annual Basic Rental of $18.00 per rentable
sq. ft.

Months 49 – 72: $56,149.04 based on Annual Basic Rental of $18.50 per rentable
sq. ft.

Months 73 – 96: $57,666.58 based on Annual Basic Rental of $19.00 per rentable
sq. ft.

Months 97 – 120: $59,184.13 based on Annual Basic Rental of $19.50 per rentable
sq. ft.

The term “Month” means the first full calendar month after the Commencement Date
and each calendar month thereafter throughout the Term.

Security Deposit:    $88,017.55 which may be posted in cash or by letter of
credit in accordance with the terms and provisions hereof Rent:    Basic Rental,
Tenant’s Proportionate Share of Basic Costs (Basic Costs being defined on
Exhibit “C”), and all other sums that Tenant may owe to Landlord under the
Lease. Permitted Use:    General office use together with (i) a related shipping
and receiving center that does not exceed 700 square feet of the Premises, and
(ii) an accessory medical device research laboratory that does not exceed 10% of
the Premises. Tenant’s Proportionate Share:    Forty-seven percent (47%), which
is the percentage obtained by dividing (a) the 36,421 rentable square feet in
the Premises by (b) the 77,506 rentable square feet in the Building.

Initial Estimated Basic

Costs:

  

Basic Costs are initially estimated to be $9.50 per rentable square foot per
annum which is equal to a Tenant’s Proportionate Share Payment in the amount of
$28,833.29 per month. Estimated Basic Costs are subject to adjustment pursuant
to the terms of Section 4(c) of the Lease.

.

Initial Liability

Insurance Amount:

   $3,000,000.00 Maximum Allowance:    $34.00 per rentable square foot which is
equal to $1,238,314.00.

 

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Building’s Proportionate Share:    The percentage obtained by dividing (a) the
estimated 77,506 rentable square feet contained within the Building by (b) the
number of completed rentable square feet contained within the Project. Once the
Building is completed, it is estimated that the Building’s Proportionate Share
will equal forty-seven percent (47%). Within thirty (30) days of completion of
the Building, Landlord will (i) cause its architect to verify the rentable
square feet of the completed Building and (ii) notify Tenant in writing of the
architect’s determination of rentable square feet of the Building and the
calculation of the Building’s Proportionate Share. Landlord and Tenant
acknowledge that the Building’s Proportionate Share shall be adjusted as
additional completed rentable square feet are added to or subtracted from the
Project. In such event, Landlord will cause its architect to verify the rentable
square feet added to or subtracted from the Project and Landlord will notify
Tenant in writing of the architect’s determination of rentable square feet added
to or subtracted from the Project and the new calculation of the Building’s
Proportionate Share. The calculations of Landlord’s architect will be final and
binding on the parties absent manifest error and Tenant and Landlord will enter
into an amendment to this Lease to reflect Building’s Proportionate Share as
shown by the architect’s calculations.

The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.

 

LANDLORD: LANTANA OFFICE PROPERTIES I, L.P., a Texas limited partnership By:  
STRS L.L.C., a Delaware limited liability   company, General Partner   By:  
STRATUS PROPERTIES INC., a     Delaware corporation, Sole Member     By:  

/s/ John E. Baker

      John E. Baker, Senior Vice President

 

TENANT:

ARTHROCARE CORPORATION,

a Delaware corporation

By:  

/s/ John T. Raffle

Printed Name:   John T. Raffle Title:   Vice President, Legal

 

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TABLE OF CONTENTS

 

DEFINITIONS

   1

LEASE GRANT

   1

TERM

   1

RENT

   2

(a) Payment

   2

(b) Consumer Price Index to Basic Rental

   2

(c) Payment of Tenant’s Proportionate Share of Basic Costs

   2

(d) Annual Cost Statement

   2

(e) Adjustments

   2

DELINQUENT

   3

SECURITY

   3

LANDLORD’S OBLIGATIONS

   3

(a) Services

   3

(b) Excess Utility Use

   4

(c) Discontinuance

   4

(d) Restoration of Services; Abatement

   4

IMPROVEMENTS; REPAIRS

   5

(a) Improvements; Alterations

   5

(b) Repairs; Maintenance

   5

(c) Performance of Work

   5

(d) Mechanic’s Liens

   6

USE

   6

ASSIGNMENT AND SUBLETTING

   6

(a) Transfers; Consent

   6

(b) Cancellation

   6

INSURANCE; WAIVERS; SUBROGATION; INDEMNITY

   7

(a) Insurance

   7

(b) Waiver of Negligence Claims; No Subrogation

   7

(c) Indemnity

   7

SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD’S MORTGAGEE

   8

(a) Subordination

   8

(b) Attornment

   8

(c) Notice to Landlord’s Mortgagee

   8

RULES AND REGULATIONS

   9

CONDEMNATION

   9

(a) Taking – Landlord’s and Tenant’s Rights

   9

(b) Taking – Landlord’s Rights

   9

(c) Award

   9

FIRE OR OTHER CASUALTY

   9

(a) Repair Estimate

   9

(b) Landlord’s and Tenant’s Rights

   9

(c) Landlord’s Rights

   9

(d) Repair Obligation

   9

TAXES

   9

EVENTS OF DEFAULT

   9

REMEDIES

   10

PAYMENT BY TENANT; NON-WAIVER

   10

(a) Payment by Tenant

   10

(b) No Waiver

   10

SURRENDER OF PREMISES

   11

HOLDING OVER

   11

CERTAIN RIGHTS RESERVED BY LANDLORD

   11

MISCELLANEOUS

   11

(a) Landlord Transfer

   11

(b) Landlord’s Liability

   11

(c) Force Majeure

   11

(d) Brokerage

   12

(e) Estoppel Certificates and Financial Information

   12

(f) Notices

   12

(g) Separability

   12

(h) Amendments and Binding

   12

(i) Quiet Enjoyment

   12

(j) Joint and Several Liability

   12

(k) Captions

   12

(1) No Merger

   12

(m) No Offer

   12

(n) Exhibits

   13

(o) Entire Agreement

   13

HAZARDOUS SUBSTANCES

   13

 

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LIST OF SELECTED DEFINED TERMS

 

Basic Costs

   1

Basic Costs Payment

   2

Basic Lease Information

   1

Basic Rental

   i

Building

   i

Casualty

   9

Commencement Date

   1

Damage Notice

   9

Early Occupancy Date

   1

Effective Date

   1

Environmental Law

   13

Event of Default

   9

Extension Option

   1

First Expansion Option

   5

First Expansion Space

   5

First Option Offer

   5

Hazardous Substances

   13

Initial Liability Insurance Amount

   7

Land

   i

Landlord

   1

Landlord’s Mortgagee

   8

Lease

   1

Loss

   7

Mortgage

   8

MSDS

   13

Normal Business Hours

   3

Normal Usage

   3

Offer Right

   1

Offer Space

   1

Permitted Activities

   13

Permitted Materials

   13

Permitted Use

   i

Premises

   i

Primary Lease

   8

Project

   i

Refusal Right

   3

Refusal Space

   3

ROFO Notice

   1

ROFR Notice

   3

Second Expansion Option

   5

Second Expansion Space

   5

Second Option Offer

   5

Security Deposit

   i

Taking

   8

Taxes

   1

Tenant

   1

Tenant’s Proportionate Share

   i

Term

   i

Transfer

   6

 

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LEASE

THIS LEASE AGREEMENT (this “Lease”) is entered into as of May 5, 2006
(“Effective Date”), between LANTANA OFFICE PROPERTIES I, L.P., a Texas limited
partnership (“Landlord”), and ARTHROCARE CORPORATION, a Delaware corporation
(“Tenant”).

 

DEFINITIONS

AND BASIC

PROVISIONS

   1. The definitions and basic provisions set forth in the Basic Lease
Information (the “Basic Lease Information”) executed by Landlord and Tenant
contemporaneously herewith are incorporated herein by reference for all
purposes. LEASE GRANT            2. Subject to the terms of this Lease, Landlord
leases to Tenant, and Tenant leases from Landlord, the Premises. TERM   

3. If the Commencement Date is not the first day of a calendar month, then the
Term shall be extended by the time between the Commencement Date and the first
day of the next month. This Lease is being executed before the Premises become
available and ready for occupancy by Tenant. Landlord’s Work (as defined in
Exhibit “D”) and Tenant’s Work (as defined in Exhibit “D”) will be performed in
accordance with Exhibit “D”. The Early Occupancy Date (the “Early Occupancy
Date”) means the date that is the later of (i) the date Landlord achieves
substantial completion of Landlord’s Work in accordance with the terms and
provisions of Exhibit “D” or (ii) the date which is ninety (90) days after the
date of Tender of the Premises. The Commencement Date (the “Commencement Date”)
means the date that is six months after the Early Occupancy Date. Tenant agrees
to accept Tender of the Premises (as defined in Exhibit “D”) when Landlord
tenders possession thereof to Tenant in accordance therewith. By acceptance of
the Tender of the Premises, Tenant shall be deemed to have accepted the Premises
in their condition as of the date of Tender of the Premises subject only to any
remaining Landlord’s Work. At anytime after the completion of Tenant’s Work,
Tenant agrees to execute and deliver to Landlord, within ten days after Landlord
has requested same, a letter confirming (1) the Commencement Date, (2) that
Tenant has accepted the Premises, and (3) that Landlord has performed all of the
Landlord’s Work with respect to the Premises (except for punch-list items
specified in such letter).

 

Temporary Space: At anytime between the Effective Date and the date which is
ninety (90) days after the date of Tender of the Premises, upon thirty (30) days
prior written request by Tenant to Landlord, Landlord will provide Tenant with
approximately 3,407 rentable square feet of temporary space in Building I of the
Project (the “Temporary Space”); provided, however, that if Tenant gives
Landlord notice of the need for the Temporary Space after July 1, 2006 then
Landlord is only required to provide 2,445 rentable square feet of Temporary
Space unless Landlord has additional unoccupied and uncommitted space available
as of the date of such notice. The location of the Temporary Space in Building I
will be designated by Landlord in Landlord’s sole discretion. Tenant will accept
the Temporary Space in its “AS IS” and “WITH ALL FAULTS” condition and WITHOUT
ANY REPRESENTATION OR WARRANTY, WHETHER EXPRESSED OR IMPLIED except as expressly
stated in this Lease. Tenant’s occupancy of the Temporary Space will be on all
of the terms and conditions of this Lease except that (i) the term of Tenant’s
occupancy of the Temporary Space will expire on first to occur of the date of
occupancy of the Premises by Tenant, the Commencement Date or the date Tenant
notifies Landlord in writing of the date Tenant no longer requires the Temporary
Space and vacates the Temporary Space on or before such date, (ii) Tenant will
pay Landlord gross rent for the Temporary Space in the monthly amount of $2.00
per rentable square foot monthly in advance on the first day of each calendar
month that Tenant occupies the Temporary Space except that gross rent for any
partial month will be prorated and in the event the Early Occupancy Date has not
occurred on or before July 15, 2006, the Tenant will pay no rent from July 16,
2006 to the Early Occupancy Date for the Temporary Space, and (iii) Tenant will
not be required to pay any Operating Expenses, Taxes or Insurance costs for the
Temporary Space as these amounts are included in the gross rent for the space.

 

Early Occupancy: Upon completion of Tenant’s Work in accordance with Exhibit
“D”, Tenant may occupy the Premises prior to the Commencement Date (“Early
Occupancy”). Tenant acknowledges and agrees that its Early Occupancy will be
subject to and in accordance with all of the terms and provisions of this Lease
except that Rent will be abated for the Early Occupancy Period until the
Commencement Date.

 

Termination Right. Notwithstanding anything to the contrary contained herein, in
the event Landlord fails to secure a shell building certificate of occupancy for
Landlord’s Work (the “Certificate of Occupancy”) on or before January 15, 2007,
then Tenant may, at Tenant’s option, terminate this Lease by written notice to
Landlord prior to Landlord securing the Certificate of Occupancy. If the Lease
is terminated by Tenant pursuant to this paragraph, then Landlord agrees to
reimburse Tenant its actual out of pocket expenses that it has incurred in
connection with Tenant’s Work, including architectural fees, legal fees incurred
in lease negotiation, and third party planning services for occupancy of the
Premises provided that Tenant provides Landlord with commercially reasonable
documentation evidencing those costs.

 

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RENT   

4. (a) Payment. Tenant shall timely pay to Landlord the Basic Rental and all
additional sums to be paid by Tenant to Landlord under this Lease, including
Tenant’s Proportionate Share of Basic Costs, without deduction or set off, at
Landlord’s Address (or such other address as Landlord may from time to time
designate in writing to Tenant). Basic Rental, adjusted as herein provided,
shall be payable monthly in advance. The first monthly installment of Basic
Rental shall be payable contemporaneously with the execution of this Lease (and
will be applied to the first (1st) full calendar month of the Term); thereafter,
monthly installments of Basic Rental shall be due on the first day of each
succeeding calendar month during the Term. Basic Rental for any fractional month
at the beginning of the Term shall be prorated based on 1/365 of the current
annual Basic Rental for each day of such partial month, and shall be due on the
Commencement Date.

 

(b) Consumer Price Index to Basic Rental (Intentionally Omitted).

 

(c) Payment of Tenant’s Proportionate Share of Basic Costs. Tenant shall pay
Tenant’s Proportionate Share of the Basic Costs (the “Basic Costs Payment”) for
each full and partial calendar year during the Term. The Initial Estimated Basic
Costs is set forth above. After the Commencement Date, on or about January 1 of
each calendar year, Landlord shall provide Tenant with a good faith estimate of
the Basic Costs Payment for such ensuing full or partial calendar year during
the Term. On or before the first day of each month, Tenant shall pay to Landlord
a monthly installment equal to one-twelfth (1/12th) of Landlord’s estimate of
the Basic Costs Payment. If Landlord determines that its good faith estimate of
the Basic Costs Payment was incorrect, Landlord may provide Tenant with a
revised estimate, but no more than twice per year. After its receipt of the
revised estimate, Tenant’s monthly payments of the Basic Costs Payment shall be
based upon the revised estimate. If Landlord does not provide Tenant with an
estimate of the Basic Costs Payment by January 1 of a calendar year, Tenant
shall continue to pay monthly installments based on the most recent estimate(s)
until Landlord provides Tenant with the new estimate. Upon delivery of the new
estimate, an adjustment shall be made for any month for which Tenant paid
monthly installments based on the same year’s prior incorrect estimate(s).
Tenant shall pay Landlord the amount of any underpayment within thirty (30) days
after receipt of the new estimate. Any overpayment shall be credited against the
next sums due and owing by Tenant or, if no further Basic Rental is due,
refunded directly to Tenant within thirty (30) days of determination. The
obligation of Tenant to pay the Basic Costs Payment as provided herein shall
survive the expiration or earlier termination of this Lease.

 

(d) Annual Cost Statement. By April 1 of each calendar year, or as soon
thereafter as practicable, Landlord shall furnish to Tenant a statement of
Landlord’s actual Basic Costs (the “Annual Cost Statement”) for the previous
year adjusted as provided in Section 4.(e). If the Annual Cost Statement reveals
that Tenant paid more for Basic Costs than Tenant’s Proportionate Share of Basic
Costs in the year for which such statement was prepared, then Landlord shall
credit Tenant for such excess during the following year (or pay such excess
payments of Tenant to Tenant to the extent there are not sufficient future Rents
available to credit); likewise, if Tenant paid less than Tenant’s Proportionate
Share of Basic Costs, then Tenant shall pay Landlord such deficiency within 30
days after delivery of the Annual Cost Statement in question. The reconciliation
obligations of Landlord and Tenant under this Section 4(d) will survive the
expiration or earlier termination of this Lease.

 

(e) Adjustments. With respect to any calendar year or partial calendar year in
which the Building is not occupied to the extent of ninety-five percent (95%) of
the rentable area thereof, the Operating Expenses that vary due to occupancy,
including but not limited to, utilities and janitorial services for such period
shall, for all purposes under this Lease, be increased to the amount which would
have been incurred had the Building been occupied to the extent of ninety-five
percent (95%) of the rentable area thereof; provided, however, in no event shall
Landlord be entitled to recover more than one hundred percent (100%) of actual
Basic Costs incurred for the entire Building.

 

(f) Audit. Provided there is no uncured Event of Default by Tenant hereunder,
Tenant shall have the right to audit, inspect, and copy the books and records of
Landlord with respect to any costs or items which are passed through to Tenant
for the immediately preceding calendar year only, at Tenant’s expense and in
accordance with the terms hereof, upon thirty (30) days’ advance written notice
by Tenant to Landlord. The audit shall be conducted during Landlord’s normal
business hours at the location in Austin, Texas where Landlord maintains its
books and records and shall not unreasonably interfere with the conduct of
Landlord’s business. Tenant and its auditor shall treat any audit in a
confidential manner and shall each execute Landlord’s confidentiality agreement
for Landlord’s benefit prior to commencing the audit. The auditor’s audit report
shall, at no charge to Landlord, be submitted in draft form for Landlord’s
review and comment before the final approved audit report is delivered to
Landlord, and any reasonable comments by Landlord shall be incorporated into the
final audit report. Such auditor cannot be compensated based on a contingent fee
arrangement and must certify to

 

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   that effect to Landlord. If the audit accurately reflects an overpayment by
Tenant of five percent (5%) or more (taking into consideration any adjustment
under Section 4(e) above), then Tenant shall be entitled to reimbursement for
the reasonable costs of such audit and shall either (i) receive a refund from
Landlord (taking into consideration any adjustment under Section 4(e) above)
within thirty (30) days after receipt of such audit or, in the event Landlord
fails to make such refund, (ii) credit such excess (taking into consideration
any adjustment under Section 4(e) above) against Rent becoming due under this
Lease or any other payment obligations under this Lease. If the audit reflects
an underpayment by Tenant, then Tenant shall pay such deficiency to Landlord
within thirty (30) days after the completion of the audit.

DELINQUENT

PAYMENT;

HANDLING

CHARGES

   5. All payments required of Tenant hereunder that is not paid within five (5)
days of the date due shall bear interest from the date due until paid at a per
annum interest equal to the prime rate of interest as reported by the Wall
Street Journal (or similar business publication chosen by Landlord) on the date
such payment was due plus five percent (5%) per annum (“Interest Charge”).
Alternatively, Landlord may charge Tenant a fee equal to five percent (5%) of
the delinquent payment to reimburse Landlord for its cost and inconvenience
incurred as a consequence of Tenant’s delinquency (“Late Charge”). If Landlord
elects to charge the Late Charge for a delinquent amount and such delinquent
amount remains unpaid for a period of 30 days from the date due, then it shall
thereafter accrue the Interest Charge. In no event, however, shall the charges
permitted under this Section 5 or elsewhere in this Lease, to the extent the
same are considered to be interest under applicable law, exceed the maximum
lawful rate of interest.

SECURITY

DEPOSIT

  

6. Contemporaneously with the execution of this Lease, Tenant shall pay to
Landlord, in immediately available funds, or, at Tenant’s option, in the form of
an irrevocable letter of credit in form and substance reasonably acceptable to
Landlord (the “Letter of Credit”), the Security Deposit, which shall be held by
Landlord without liability for interest and as security for the performance by
Tenant of its obligations under this Lease. The Security Deposit is not an
advance payment of Rent or a measure or limit of Landlord’s damages upon an
Event of Default (defined below). Landlord may, from time to time and without
prejudice to any other remedy, use all or a part of the Security Deposit to
perform any obligation which Tenant was obligated, but failed, to perform
hereunder. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. Within thirty (30) days after the Term ends,
provided Tenant has performed all of its obligations hereunder, Landlord shall
return to Tenant the balance of the Security Deposit not applied to satisfy
Tenant’s obligations. If Landlord transfers its interest in the Premises, then
Landlord may assign the Security Deposit to the transferee and Landlord
thereafter shall have no further liability for the return of the Security
Deposit. Notwithstanding anything to the contrary contained herein, so long as
no Event of Default occurs at any time between the Commencement Date and the
fifth anniversary of the Commencement Date, then the amount of the Security
Deposit required under the Lease will be reduced to the sum of $50,000.

 

The Letter of Credit must be issued by a creditworthy financial institution
reasonably acceptable by Landlord. Tenant will cause the Letter of Credit to be
maintained in full force and effect throughout the Term unless replaced by
Tenant with a cash Security Deposit. If the Letter of Credit is for a term that
is less than the entire Term of the Lease and Tenant does not replace an
expiring Letter of Credit at least 15 days prior to its expiration date, then
Landlord, without notice to Tenant, may draw the full amount of the Letter of
Credit to be held has the Security Deposit hereunder.

LANDLORD’S

OBLIGATIONS

   7. (a) Services. Landlord shall furnish to Tenant all such services that are
customary in a similar class office building in the Austin Southwest office
market including: (1) water (hot and cold) at those points of supply provided
for general use of tenants of the Building; (2) heated and refrigerated air
conditioning as appropriate, during normal business hours, and at such
temperatures and in such amounts as are reasonably considered by Landlord to be
standard; (3) five (5) days per week janitorial service to the Premises on
weekdays other than holidays for Building-standard installations (Landlord
reserves the right to bill Tenant separately for the actual cost of extra
janitorial service required for non-standard installations plus an
administrative fee of Landlord in the amount of 10% of such excess janitorial
service costs) and such window washing as may from time to time in Landlord’s
judgment be reasonably required; (4) an elevator for ingress and egress to the
floor on which the Premises are located, in common with other tenants;
(5) replacement of Building-standard light bulbs and fluorescent tubes; and
(6) electrical current during normal business hours at a power capacity of 4
watts per rentable space foot for lighting and outlets (“Normal Usage”).
Landlord shall maintain the roof and HVAC systems and common areas of the
Building, including electrical and plumbing facilities that are located outside
of the Premises, in reasonably good order and condition, except for damage
occasioned by Tenant, or its employees, agents or invitees. If Tenant desires
any of the services specified in this Section 7.(a) at any time other than times
herein designated, such services shall be supplied to Tenant upon the written
request of Tenant delivered to Landlord before 5:00 p.m. on the business day
preceding

 

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such extra usage, and Tenant shall pay to Landlord the cost of such services (at
the hourly rate equitably charged to other tenants in the Building) within
thirty (30) days after Landlord has delivered to Tenant an invoice therefore.
The current rate for after-hours HVAC is $25/Hr/ 1/2 floor zone, with a 2-hour
minimum. As used herein, the term “normal business hours” shall mean from 7:00
a.m. to 7:00 p.m. Monday through Friday and from 8:00 a.m. to 1:00 p.m. on
Saturdays, except for legal holidays. Tenant shall have access to the Building
24 hours a day, 7 days per week. Landlord will require that its janitorial
service provider provide janitorial services in accordance with the janitorial
specifications set forth on Exhibit “H” attached hereto.

 

In the event that Tenant disputes the hourly rate being charged by Landlord for
after-hours HVAC service pursuant hereto, then Tenant may, at Tenant’s option
and expense, retain an engineer (licensed in the State of Texas) who is
reasonably acceptable to Landlord and Tenant to study and prepare a report
determining the actual cost of Landlord to provide such after hours HVAC service
including the electrical costs, additional operation and maintenance costs, and
excess wear and tear on Building systems to provide such service (the “Report”).
Such engineer will address, and provide, the Report to Landlord and Tenant.
Absent manifest error, the hourly rate determined and certified by such engineer
in the Report will thereafter be used in calculating the hourly rate used for
billing and paying after hours HVAC service hereunder. If the Report reflects
that Landlord’s current hourly rate for HVAC service is more than 10% higher
than the rate certified in the Report, then Landlord will reimburse Tenant the
costs of the Report. After the receipt of any Report hereunder, Landlord may, at
Landlord’s expense, cause the Report to be updated from time to time to adjust
the then current hourly rate for after hours HVAC service hereunder and will
provide Tenant with a copy of such updated Report.

 

(b) Excess Utility Use. Landlord shall use reasonable efforts to furnish
electrical current for special lighting, computers and other equipment whose
electrical energy consumption exceeds Normal Usage through the then-existing
feeders and risers serving the Building and the Premises (not to exceed,
however, 6.5 watts per rentable square foot), and Tenant shall pay to Landlord
the actual cost to provide such service plus an administrative fee of Landlord
equal to ten percent (10%) of the cost of such service within thirty (30) days
after Landlord has delivered to Tenant an invoice therefore. Landlord may
determine the amount of such additional consumption and potential consumption by
causing a separate meter to be installed in the Premises. Such meter will be
installed, maintained, and read by Landlord at Tenant’s expense (which amounts
will be included in the invoice to Tenant). Tenant shall not install any
electrical equipment requiring special wiring or requiring electrical current in
excess of Normal Usage unless approved in advance by Landlord. The use of
electricity in the Premises shall not exceed the capacity of existing feeders
and risers to or wiring in the Premises. Any risers or wiring required to meet
Tenant’s excess electrical requirements shall, upon Tenant’s written request, be
installed by Landlord, at Tenant’s cost, if, in Landlord’s commercially
reasonable judgment taking into consideration the Building as a whole, the same
are necessary and shall not cause permanent damage or injury to the Building or
the Premises, cause or create a dangerous or hazardous condition, entail
excessive or unreasonable alterations, repairs, or expenses, or interfere with
or disturb other tenants of the Building. If Tenant uses machines or equipment
(other than general office machines, personal computers, printers and electronic
data processing equipment) in the Premises which affect the temperature
otherwise maintained by the air conditioning system or otherwise overload any
utility, Landlord or Tenant may install supplemental air conditioning units or
other supplemental equipment in the Premises, and the cost thereof, including
the cost of installation, operation, use, and maintenance, shall be paid by
Tenant to Landlord within thirty (30) days after Landlord has delivered to
Tenant an invoice therefore.

 

(c) Discontinuance. Landlord’s obligation to furnish services under Section
7.(a) shall be subject to the rules and regulations of the supplier of such
services and governmental rules and regulations. Landlord may, upon not less
than thirty (30) days’ prior written notice to Tenant, discontinue any such
service to the Premises, provided Landlord first arranges for a direct
connection thereof through the supplier of such service. Tenant shall, however,
be responsible for contracting with the supplier of such service and for paying
all deposits for, and costs relating to, such service.

 

(d) Restoration of Services; Abatement. Landlord shall use commercially
reasonable efforts to restore any service that becomes unavailable; however,
such unavailability, unless due to the gross negligence or willful misconduct of
Landlord, its employees, agents, invitees or vendors, shall not (i) render
Landlord liable for any damages caused thereby, (ii) be a constructive eviction
of Tenant, (iii) constitute a breach of any implied warranty, or, except as
provided in the next sentence, or (iv) entitle Tenant to any abatement of
Tenant’s obligations hereunder. However, if Tenant is prevented from making
reasonable use of the Premises for more than thirty (30) days (or five (5)
consecutive days if the reason for such unavailability is within the reasonable
control of Landlord) because of the unavailability of any such service, Tenant
shall, as its exclusive remedy therefore, be entitled to a reasonable abatement
of Rent for each consecutive day (after such 20-day or five (5) -day period, as
applicable) from the time of said interruption that Tenant is so prevented from
making reasonable use of the Premises.

 

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IMPROVEMENTS;

REPAIRS

  

8. (a) Improvements; Alterations. Improvements to the Premises shall be
installed at the expense of Tenant only in accordance with plans and
specifications which have been previously submitted to and approved in writing
by Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed. After the initial Tenant improvements are made, no alterations or
physical additions in or to the Premises may be made without Landlord’s prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. Tenant shall not paint or install lighting or decorations, signs,
window or door lettering, or advertising media of any type on or about the
Premises without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, conditioned or delayed. All alterations, additions, or
improvements (whether temporary or permanent in character, and including without
limitation all air-conditioning equipment and all other equipment that is in any
manner connected to the Building’s plumbing system) made in or upon the
Premises, either by Landlord or Tenant, shall be Landlord’s property at the end
of the Term and shall remain on the Premises without compensation to Tenant.
Notwithstanding the foregoing, Tenant shall have the right to make
non-structural alterations to the Premises so long as (i) they do not affect any
Building systems such as mechanical, electrical or plumbing systems (ie movement
of a wall likely affects HVAC systems and would require Landlord approval), (ii)
they do not exceed a cost of $20,000, and (iii) Tenant gives Landlord fifteen
(15) days prior written notice of Tenant’s intention of constructing such
improvements including a description of the improvements to be installed.
Approval by Landlord of any of Tenant’s drawings and plans and specifications
prepared in connection with any improvements in the Premises shall not
constitute a representation or warranty of Landlord as to the adequacy or
sufficiency of such drawings, plans and specifications, or the improvements to
which they relate, for any use, purpose, or condition, but such approval shall
merely be the consent of Landlord as required hereunder. Notwithstanding
anything in this Lease to the contrary, Tenant shall be responsible for the cost
of all work required to comply with the retrofit requirements of the Americans
with Disabilities Act of 1990, and all rules, regulations, and guidelines
promulgated thereunder, as the same may be amended from time to time,
necessitated by any installations, additions, or alterations made in or to the
Premises at the request of or by Tenant or by Tenant’s use of the Premises
(other than retrofit work whose cost has been particularly identified as being
payable by Landlord in an instrument signed by Landlord and Tenant), regardless
of whether such cost is incurred in connection with retrofit work required in
the Premises (including the Work described in Exhibit D) or in other areas of
the Building. Landlord represents that, to Landlord’s knowledge, the Project
complies and/or will comply with all Federal ADA and TAS standards in all
material respects as well as all other current (as of the date hereof)
governmental regulations, in all material respects, that apply to similar office
building projects.

 

(b) Repairs; Maintenance. Subject to Landlord’s obligations under Section 7,
Tenant shall maintain the Premises in a clean, safe, operable attractive
condition, and shall not permit or allow to remain any waste or damage to any
portion of the Premises. Tenant shall repair or replace, subject to Landlord’s
direction and supervision any damage to the Building caused by Tenant or
Tenant’s agents, contractors, or invitees. If Tenant fails to make such repairs
or replacements within thirty (30) days after the occurrence of such damage,
then Landlord may make the same at Tenant’s cost; provided, however, in the
event Tenant’s failure to make such repairs or replacements creates an emergency
situation (where there is imminent threat to persons or property, then Landlord
may immediately make repairs or replacements at Tenant’s cost (without such 30
day opportunity for Tenant to make them) to the extent necessary to alleviate
such emergency. In lieu of having Tenant repair any such damage outside of the
Premises, Landlord may repair such damage at Tenant’s cost. The cost of any
repair or replacement work performed by Landlord under this Section 8 shall be
paid by Tenant to Landlord within thirty (30) days after Landlord has delivered
to Tenant an invoice therefore.

 

(c) Performance of Work. All work described in this Section 8 shall be performed
only by Landlord or by contractors and subcontractors approved in writing by
Landlord, which approval shall not be unreasonably withheld, conditioned or
delayed. In Landlord’s sole discretion, architectural services for the Premises
shall be provided by the Building’s architect, Susman Tisdale Gayle. Costs and
expenses related thereto shall be paid by Tenant out of the Allowance. Tenant
shall cause all contractors and subcontractors to procure and maintain insurance
coverage against risks, in such amounts, and with such companies as Landlord may
reasonably require, and to procure payment and performance bonds reasonably
satisfactory to Landlord covering the cost of the work. All such work shall be
performed in accordance with all legal requirements and in a good and
workmanlike manner so as not to damage the Premises, the primary structure or
structural qualities of the Building, or plumbing, electrical lines, or other
utility transmission facility. All such work which may affect the HVAC,
electrical system, or plumbing must be approved by the Building’s engineer of
record.

 

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   (d) Mechanic’s Liens. Tenant shall not permit any mechanic’s liens to be
filed against the Premises or the Building for any work performed, materials
furnished or obligation incurred by Tenant or Tenant’s contractors, vendors or
employees. If such a lien is filed, then Tenant shall, within ten days after
Landlord has delivered notice of the filing to Tenant, either pay the amount of
the lien or diligently contest such lien and deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant fails to timely take
either such action, then Landlord may pay the lien claim without inquiry as to
the validity thereof, and any amounts so paid, including expenses and interest,
shall be paid by Tenant to Landlord within thirty (30) days after Landlord has
delivered to Tenant an invoice therefore. USE    9. Tenant shall occupy and use
the Premises only for the Permitted Use and shall comply with all laws,
ordinances, codes, orders, rules, and regulations relating to the use,
condition, and occupancy of the Premises. The Premises shall not be used for any
use which is disreputable or creates extraordinary fire hazards or results in an
increased rate of insurance on the Building or its contents or the storage of
any hazardous materials or substances, except as expressly allowed pursuant to
the terms of this Lease. If, because of Tenant’s acts, the rate of insurance on
the Building or its contents increases, then Tenant shall pay to Landlord the
amount of such increase on demand, and acceptance of such payment shall not
constitute a waiver of any of Landlord’s other rights. Tenant shall conduct its
business and control its agents, employees, and invitees in such a manner as not
to create any nuisance or interfere with other tenants or Landlord in its
management of the Building.

ASSIGNMENT AND

SUBLETTING

  

10. (a) Transfers; Consent. Tenant shall not, without the prior written consent
of Landlord (which consent shall not be unreasonably withheld, conditioned or
delayed), (1) assign, transfer, or encumber this Lease or any estate or interest
herein, whether directly or by operation of law, (2) permit any other entity to
become Tenant hereunder by merger, consolidation, or other reorganization unless
the resulting entity is also a publicly traded entity that is of equal or
greater financial status as Tenant, (3) if Tenant is an entity other than a
corporation whose stock is publicly traded, permit the transfer of an ownership
interest in Tenant so as to result in a change in the current control of Tenant,
(4) sublet any portion of the Premises, (5) grant any license, concession, or
other right of occupancy of any portion of the Premises, or (6) permit the use
of the Premises by any parties other than Tenant (any of the events listed in
Sections 10.(a)(1) through 10.(a)(6) being a “Transfer”). If Tenant requests
Landlord’s consent to a Transfer, then Tenant shall provide Landlord with a
written description of all terms and conditions of the proposed Transfer, copies
of the proposed documentation, and the following information about the proposed
transferee: name and address; commercially reasonable information about its
business and business history; its proposed use of the Premises; credit
information; and general references sufficient to enable Landlord to determine
the proposed transferee’s creditworthiness and character. It is understood and
agreed that it is reasonable for Landlord to withhold its consent hereunder to a
proposed Transfer based upon, among other factors, the following factors: (i)
the reputation and experience of the proposed transferee is in keeping with
tenants in similar class buildings in the City of Austin Southwest office
market, (ii) the creditworthiness of the proposed transferee, and (iii) the
operations and use of the proposed transferee considering, among other things,
the parking requirements of the proposed transferee and any existing exclusive
use restriction. Tenant shall reimburse Landlord for its reasonable attorneys’
fees and other expenses incurred in connection with considering any request for
its consent to a Transfer. If Landlord consents to a proposed Transfer, then the
proposed transferee shall deliver to Landlord a written agreement whereby it
expressly assumes the Tenant’s obligations hereunder; however, any transferee of
less than all of the space in the Premises shall be liable only for obligations
under this Lease that are properly allocable to the space subject to the
Transfer, and only to the extent of the rent it has agreed to pay Tenant
therefore. Landlord’s consent to a Transfer shall not release Tenant from
performing its obligations under this Lease, but rather Tenant and its
transferee shall be jointly and severally liable therefore. Landlord’s consent
to any Transfer shall not waive Landlord’s rights as to any subsequent
Transfers. If an Event of Default occurs while the Premises or any part thereof
are subject to a Transfer, then Landlord, in addition to its other remedies, may
collect directly from such transferee all rents becoming due to Tenant and apply
such rents against Rent. Tenant authorizes its transferees to make payments of
rent directly to Landlord upon receipt of notice from Landlord to do so.

 

(b) Cancellation Landlord may, within thirty (30) days after submission of
Tenant’s written request for Landlord’s consent to a Transfer involving the
assignment of more than 50% of Tenant’s interest in the Lease or the sublease of
more then 50% of the Premises, notify Tenant that Landlord intends to cancel
this Lease (or, as to a subletting or assignment, cancel as to the portion of
the Premises proposed to be sublet or assigned) as of the date the proposed
Transfer was to be effective. If Landlord notifies Tenant that Landlord intends
to cancel this Lease (or a portion thereof), Tenant may withdraw, by written
notice to Landlord, Tenant’s request that Tenant consent to such a Transfer in
which event such cancellation will be void. Otherwise, if Landlord cancels this
Lease as to any portion of the Premises, then this Lease shall cease for such
portion of the Premises and Tenant shall pay to Landlord all Rent accrued
through the cancellation date relating to the portion of the Premises covered by
the proposed Transfer. Thereafter, Landlord may lease such portion of the
Premises to the prospective transferee (or to any other person) without
liability to Tenant.

 

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   (c) Additional Compensation. Tenant shall pay to Landlord, within 30 days of
receipt thereof, one-half (1/2) of all compensation received by Tenant for a
Transfer that exceeds the Basic Rental and Tenant’s share of Operating Expenses
allocable to the portion of the Premises covered thereby after deducting the
reasonable costs incurred by Tenant with regard to such Transfer, including, but
not limited to, broker commissions, legal fees, lease concessions, and
improvement allowances.

INSURANCE;

WAIVERS;

SUBROGATION;

INDEMNITY

  

11. (a) Insurance. Tenant shall at its expense procure and maintain throughout
the Term the following insurance policies: (1) comprehensive general liability
insurance in amounts of not less than a combined single limit of $3,000,000.00
(the “Initial Liability Insurance Amount”), insuring Tenant, Landlord,
Landlord’s agents and their respective affiliates, against all liability for
injury to or death of a person or persons or damage to property arising from the
use and occupancy of the Premises, (2) contractual liability insurance coverage
to the extent commercially reasonable and available to cover Tenant’s indemnity
obligations hereunder, (3) insurance covering the full value of Tenant’s
property and improvements, and other property (including property of others), in
the Premises including the improvements constructed as Tenant’s Work by or on
behalf of Tenant, (4) workman’s compensation insurance, and (5) business
interruption insurance. The Initial Liability Insurance Amount will be increased
in an amount reasonably determined by Landlord which will not exceed the amount
of $5,000,000.00 unless there is any change in the use of the Premises
hereunder. Landlord will notify Tenant in writing thirty (30) days prior to the
effective date of any increase in the Initial Liability Insurance Amount.
Landlord shall maintain “All-Risk” property insurance coverage on the Project,
including the Building, for its full replacement value and loss of rents
coverage, together with commercial general liability insurance coverage which
policies shall contain such terms, endorsements and conditions as are
customarily carried by reasonably prudent owners of properties similar to the
Project. Tenant’s insurance shall provide primary coverage to Landlord when any
policy issued to Landlord provides duplicate or similar coverage, and in such
circumstance Landlord’s policy will be excess over Tenant’s policy. The
insurance currently carried by Landlord with regard to the existing building at
the Project has a deductible of $10,000. Landlord agrees, to the extent
reasonably available, all insurance required to be carried by Landlord hereunder
will have a deductible amount that does not exceed a sum equal to one percent
(1%) of the primary coverage amount of such insurance. Tenant shall furnish
certificates of such insurance and such other evidence satisfactory to Landlord
of the maintenance of all insurance coverages required hereunder, and Tenant
shall obtain a written obligation on the part of each insurance company to
notify Landlord at least thirty (30) days before cancellation or a material
change of any such insurance. All such insurance policies shall be in form, and
issued by companies, reasonably satisfactory to Landlord.

 

(b) Waiver of Negligence Claims; No Subrogation. Landlord shall not be liable to
Tenant or those claiming by, through, or under Tenant for any injury to or death
of any person or persons or the damage to or theft, destruction, loss, or loss
of use of any property or inconvenience (a “Loss”) caused by casualty, theft,
fire, third parties, or any other matter (including Losses arising through
repair or alteration of any part of the Building, or failure to make repairs, or
from any other cause), REGARDLESS OF WHETHER THE NEGLIGENCE OF ANY PARTY CAUSED
SUCH LOSS IN WHOLE OR IN PART. Landlord and Tenant each waives any claim it
might have against the other for any damage to or theft, destruction, loss, or
loss of use of any property, to the extent the same is insured against under any
insurance policy that covers the Building, the Premises, Landlord’s or Tenant’s
fixtures, personal property, leasehold improvements, or business, or, is
required to be insured against under the terms hereof, REGARDLESS OF WHETHER THE
NEGLIGENCE OR FAULT OF THE OTHER PARTY CAUSED SUCH LOSS; HOWEVER, LANDLORD’S
WAIVER SHALL NOT INCLUDE ANY DEDUCTIBLE AMOUNTS ON INSURANCE POLICIES CARRIED BY
LANDLORD. Each party shall cause its insurance carrier to endorse all applicable
policies waiving the carrier’s rights of recovery under subrogation or otherwise
against the other party.

 

(c) Indemnity. Subject to Section 11.(b), Tenant shall defend, indemnify, and
hold harmless Landlord and its agents from and against all claims, demands,
liabilities, causes of action, suits, judgments, and expenses (including
attorneys’ fees) for any Loss arising from any occurrence on the Premises or
from Tenant’s failure to perform its obligations under this Lease (other than a
Loss arising from the sole or gross negligence or willful misconduct of Landlord
or its agents), even though caused or alleged to be caused by the joint,
comparative, or concurrent negligence or fault of Landlord or its agents, and
even though any such claim, cause of action, or suit is based upon or alleged to
be based upon the strict liability of Landlord or its agents. THIS INDEMNITY
PROVISION IS INTENDED TO INDEMNIFY LANDLORD AND ITS AGENTS AGAINST THE
CONSEQUENCES OF THEIR OWN NEGLIGENCE OR FAULT AS PROVIDED ABOVE WHEN LANDLORD OR
ITS AGENTS ARE JOINTLY, COMPARATIVELY, OR CONCURRENTLY NEGLIGENT WITH TENANT.
This indemnity provision shall survive termination or expiration of this Lease,
but shall only apply to a claim or loss that arises during the Term of this
Lease.

 

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SUBORDINATION

ATTORNMENT;

NOTICE TO

LANDLORD’S

MORTGAGEE

  

12. (a) Subordination. Subject to Tenant’s receipt of a non-disturbance
agreement in form and substance reasonably acceptable to Tenant, as evidenced by
Tenant’s execution thereof at or prior to the date this Lease is executed, this
Lease is subordinate to any deed of trust, mortgage, or other security
instrument (a “Mortgage”) or any ground lease, master lease, or primary lease (a
“Primary Lease”), that now or hereafter covers all or any part of the Premises
(the mortgagee under any Mortgage or the lessor under any Primary Lease is
referred to herein as “Landlord’s Mortgagee”). The provisions of this Section
12(a) shall be self-operative, and no further instrument shall be required to
effect such subordination; however, Landlord shall deliver to Tenant, and Tenant
shall execute from time to time within ten (10) days after delivery to Tenant,
an instrument from each Landlord’s Mortgagee evidencing the subordination of
this Lease to any such Mortgage or Primary Lease which instrument shall include
a non-disturbance provision in favor of Tenant and shall be on the form attached
as Exhibit F hereto in all material respects (referred to herein as the “SNDA”).
Tenant will execute (i) the SNDA with such reasonable changes as Landlord’s
Mortgagee may require and Tenant reasonably accepts, and/or (ii) a SNDA an
alternative form reasonably required by Landlord’s Mortgagee and reasonably
accepted by Tenant. Tenant will diligently and in good faith negotiate any
disagreement with Landlord’s Mortgagee with regard to the SNDA to be executed by
Tenant and Landlord’s Mortgagee.

 

(b) Attornment. Tenant shall attorn to any party succeeding to Landlord’s
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, termination of lease, or otherwise, upon such
party’s request, and shall execute such agreements confirming such attornment as
such party may reasonably request.

 

(c) Notice to Landlord’s Mortgagee. Tenant shall not seek to enforce any remedy
it may have for any default on the part of the Landlord without first giving
written notice by certified mail, return receipt requested, specifying the
default in reasonable detail, to any Landlord’s Mortgagee whose address has been
given to Tenant, and affording such Landlord’s Mortgagee a reasonable
opportunity to perform Landlord’s obligations hereunder.

RULES AND

REGULATIONS

   13. Tenant shall comply with the rules and regulations of the Building which
are attached hereto as Exhibit B. Landlord may, from time to time, change such
rules and regulations for the safety, care, or cleanliness of the Building and
related facilities, provided that such changes are reasonable, applicable to all
tenants of the Building and will not unreasonably interfere with Tenant’s use of
the Premises. Tenant shall be responsible for the compliance with such rules and
regulations by its employees, agents, and invitees. CONDEMNATION   

14. (a) Taking – Landlord’s and Tenant’s Rights. If any part of the Building is
taken by right of eminent domain or conveyed in lieu thereof (a “Taking”), and
such Taking prevents Tenant from conducting its business in the Premises in a
manner reasonably comparable that conducted immediately before such Taking, then
Landlord may, at its expense, relocate Tenant to office space within the Project
reasonably comparable to or better than the Premises, provided that Landlord
notifies Tenant of its intention to do so and completes such relocation prior to
the effective date of the Taking. Such relocation shall be for a portion of the
remaining Term or the entire Term. Landlord shall complete any such relocation
within one hundred eighty (180) days after Landlord has notified Tenant of its
intention to relocate Tenant. If Landlord does not elect to relocate Tenant
prior to such Taking, then Tenant may terminate this Lease as of the date of
such Taking by giving written notice to Landlord within sixty (60) days after
the Taking, and Rent shall be apportioned as of the date of such Taking. If
Landlord does not relocate Tenant and Tenant does not terminate this Lease, then
Rent shall be adjusted on a reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.

 

(b) Taking – Landlord’s Rights. If any material portion, but less than all, of
the Building becomes subject to a Taking, or if Landlord is required to pay more
than $250,000.00 of the proceeds received for a Taking to Landlord’s Mortgagee,
then this Lease, at the option of Landlord, exercised by written notice to
Tenant within thirty (30) days after such Taking, shall terminate and Rent shall
be apportioned as of the date of such Taking. If Landlord does not so terminate
this Lease and does not elect to relocate Tenant, then this Lease will continue,
but if any portion of the Premises has been taken, Basic Rental shall adjust as
provided in the last sentence of Section 14.(a).

 

(c) Award. If any Taking occurs, then Landlord shall receive the entire award or
other compensation for the Land, the Building, and other improvements taken
except for the Depreciated Amount of Tenant Improvements, and Tenant may
separately pursue a claim against the condemnor for the value of Tenant’s
personal property which Tenant is not entitled to remove under this Lease, the
Depreciated Amount of Tenant Improvements, moving costs, loss of business, and
other claims it may have. The term “Depreciated

 

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   Amount of Tenant Improvements” means the value of Tenant’s investment in
fixtures installed in connection Tenant’s Work to the extent such improvements
must remain with the Premises and have not been reimbursed by the Allowance
after depreciation of such fixtures in accordance with generally accepted
accounting principles.

FIRE OR OTHER

CASUALTY

  

15. (a) Repair Estimate. If the Premises or the Building are damaged by fire or
other casualty (a “Casualty”), Landlord shall, within sixty (60) days after such
Casualty, deliver to Tenant a good faith estimate (the “Damage Notice”) of the
time needed to repair the damage caused by such Casualty.

(b) Landlord’s and Tenant’s Rights. If a material portion of the Premises or the
Building is damaged by Casualty such that Tenant is prevented from conducting
its business in the Premises in a manner reasonably comparable to that conducted
immediately before such Casualty and Landlord estimates that the damage caused
thereby cannot be repaired within one hundred eighty (180) days after the
commencement of repair, then Tenant may terminate this Lease by delivering
written notice to Landlord of its election to terminate within thirty (30) days
after the Damage Notice has been delivered to Tenant effective as of the date of
the damage. If Tenant does not terminate this Lease, then, subject to Landlord’s
rights under Section 15.(c), Landlord shall repair the Building or the Premises,
as the case may be, as provided below, and Rent for the portion of the Premises
rendered untenantable by the damage shall be adjusted on a reasonable basis from
the date of damage until the completion of the repairs.

 

(c) Landlord’s Rights. If a Casualty damages a material portion of the Building,
and Landlord makes a good faith determination that restoring the Premises would
be uneconomical, or if Landlord is required to pay more than $250,000.00 of
insurance proceeds arising out of the Casualty to Landlord’s Mortgagee, then
Landlord may terminate this Lease by giving written notice of its election to
terminate within thirty (30) days after the Damage Notice has been delivered to
Tenant, and Basic Rental hereunder shall be abated as of the date of the
Casualty.

 

(d) Repair Obligation. If neither party elects to terminate this Lease following
a Casualty, then Landlord shall, within a reasonable time after such Casualty,
commence to repair the Building and the Premises and shall proceed with
reasonable diligence to restore the Building and Premises to substantially the
same or better condition as they existed immediately before such Casualty;
however, Landlord shall not be required to repair or replace any part of the
furniture, equipment, fixtures, and other improvements which may have been
placed by, or at the request of, Tenant or other occupants in the Building or
the Premises (including the improvements constructed as part of Tenant’s Work),
and Landlord’s obligation to repair or restore the Building or Premises shall be
limited to the extent of the insurance proceeds actually received by Landlord
for the Casualty in question. In any event, Tenant shall be entitled to retain
all of its insurance proceeds for Tenant’s trade fixtures, furniture, equipment,
personal property and improvements made by Tenant, recovered by Tenant under its
insurance policies.

TAXES    16. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture, or fixtures placed by Tenant in the Premises. If
any taxes for which Tenant is liable are levied or assessed against Landlord or
Landlord’s property and Landlord elects to pay the same, or if the assessed
value of Landlord’s property is increased by inclusion of such personal
property, furniture or fixtures and Landlord elects to pay the taxes based on
such increase, then Tenant shall pay to Landlord, within thirty (30) days of
demand, that part of such taxes for which Tenant is primarily liable hereunder.

EVENTS OF

DEFAULT

  

17. Each of the following occurrences shall constitute an “Event of Default”:

(a) Tenant’s failure to pay Rent, or any other sums due from Tenant to Landlord
under the Lease when due, and such failure to pay is not cured within ten (10)
days of the date written notice of such event is received by Tenant (provided
Tenant shall not be entitled to more than two (2) such notices during any
calendar year);

 

(b) Tenant’s failure to perform, comply with, or observe any agreement or
obligation of Tenant under this Lease (other than a payment obligation) on or
before the thirtieth (30th) day following written notice of such failure;

 

(c) the filing of a petition by or against Tenant (the term “Tenant” shall
include, for the purpose of this Section 17.(c), any guarantor of the Tenant’s
obligations hereunder) (1) in any bankruptcy or other insolvency proceeding;
(2) seeking any relief under any state or federal debtor relief law; (3) for the
appointment of a liquidator or receiver for all or substantially all of Tenant’s
property or for Tenant’s interest in this Lease; or (4) for the reorganization
or modification of Tenant’s capital structure; provided that Tenant shall have
sixty (60) days following the commencement of an involuntary proceeding to have
such proceeding dismissed before such proceeding shall constitute an Event of
Default; and

 

(d) the written or published admission by Tenant that it cannot meet its
obligations as they become due or the making by Tenant of an assignment for the
benefit of its creditors.

 

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   Landlord shall be in default under this Lease if Landlord fails to perform
any of its obligations hereunder and such failure continues for a period of
thirty (30) days after Tenant delivers written notice of such failure to
Landlord and to the holder(s) of any indebtedness or other obligations secured
by any mortgage or deed of trust affecting the Premises, the name and address of
which have been provided to Tenant in writing; provided that if such failure
cannot reasonably be cured within such thirty (30) day period, Landlord shall
not be in default hereunder as long as Landlord or such holder(s) commences the
remedying of such failure within such thirty (30) day period and diligently
prosecutes the same to completion, during which time the Landlord and such
holder(s) or either of them, their agents or employees, shall be entitled to
enter upon the Premises and do whatever may be necessary to remedy such failure.
REMEDIES   

18. Upon any Event of Default (which is not cured within an applicable grace or
cure period set forth in Section 17 above), Landlord may, in addition to all
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions:

 

(a) Terminate this Lease by giving Tenant written notice thereof, in which
event, Tenant shall pay to Landlord the sum of (1) all Rent accrued hereunder
through the date of termination, (2) all amounts due under Section 19.(a), and
(3) an amount equal to (A) the total Rent that Tenant would have been required
to pay for the remainder of the Term discounted to present value at a per annum
rate equal to the “Prime Rate” as published on the date this Lease is terminated
by The Wall Street Journal, Southwest Edition, in its listing of “Money Rates”,
minus (B) the then present fair rental value of the Premises for such period,
similarly discounted; or

 

(b) Terminate Tenant’s right to possession of the Premises without terminating
this Lease by giving written notice thereof to Tenant, in which event Tenant
shall pay to Landlord (1) all Rent and other amounts accrued hereunder to the
date of termination of possession, (2) all amounts due from time to time under
Section 19.(a), and (3) all Rent and other sums required hereunder to be paid by
Tenant during the remainder of the Term, diminished by any net sums thereafter
received by Landlord through reletting the Premises during such period. Landlord
shall use reasonable efforts to relet the Premises on such terms and conditions
as Landlord in its sole discretion may determine (including a term different
from the Term, rental concessions, and alterations to, and improvement of, the
Premises); however, Landlord shall not be obligated to relet the Premises before
leasing other portions of the Building. So long as Landlord makes reasonable
efforts to relet the Premises as contemplated above, Landlord shall not be
liable for, nor shall Tenant’s obligations hereunder be diminished because of,
Landlord’s failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant’s obligations hereunder for the unexpired Term;
rather, Landlord may, from time to time, bring action against Tenant to collect
amounts due by Tenant, without the necessity of Landlord’s waiting until the
expiration of the Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this Lease, all actions taken
by Landlord to exclude or dispossess Tenant of the Premises shall be deemed to
be taken under this Section 18.(b). If Landlord elects to proceed under this
Section 18.(b), it may at any time elect to terminate this Lease under Section
18.(a).

 

Additionally, without notice, Landlord may alter locks or other security devices
at the Premises to deprive Tenant of access thereto, and Landlord shall not be
required to provide a new key or right of access to Tenant.

PAYMENT BY

TENANT;

NON-WAIVER

  

19. (a) Payment by Tenant. Upon any Event of Default, Tenant shall pay to
Landlord all costs incurred by Landlord (including court costs and reasonable
attorneys’ fees and expenses) in (1) obtaining possession of the Premises,
(2) removing and storing Tenant’s or any other occupant’s property,
(3) repairing, restoring, altering, remodeling, or otherwise putting the
Premises into condition acceptable to a new tenant, (4) if Tenant is
dispossessed of the Premises and this Lease is not terminated, reletting all or
any part of the Premises (including brokerage commissions, cost of tenant finish
work, and other costs incidental to such reletting to be apportioned between
Tenant’s remaining term and any extended term for which Tenant shall have no
liability), (5) performing Tenant’s obligations which Tenant failed to perform,
and (6) enforcing, or advising Landlord of, its rights, remedies, and recourses
arising out of the Event of Default.

 

(b) No Waiver. Landlord’s acceptance of Rent following an Event of Default shall
not waive Landlord’s rights regarding such Event of Default. No waiver by
Landlord or Tenant of any violation or breach of any of the terms contained
herein shall waive Landlord’s or Tenant’s rights regarding any future violation
of such term or violation of any other term.

 

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SURRENDER OF

PREMISES

   20. No act by Landlord shall be deemed an acceptance or a surrender of the
Premises, and no agreement to accept a surrender of the Premises shall be valid
unless the same is made in writing and signed by Landlord. At the expiration or
termination of this Lease, Tenant shall deliver to Landlord the Premises with
all improvements located thereon in good repair and condition, reasonable wear
and tear (and condemnation and fire or other casualty damage not caused by
Tenant, as to which Sections 14 and 15 shall control) excepted, and shall
deliver to Landlord all keys to the Premises. Provided that Tenant has performed
all of its obligations hereunder, Tenant may remove all unattached trade
fixtures, furniture, and personal property placed in the Premises by Tenant (but
Tenant shall not remove any such item which was paid for, in whole or in part,
by Landlord). Additionally, Tenant shall remove such alterations, additions,
improvements, trade fixtures, equipment, wiring, and furniture that is installed
or placed in the Premises by Tenant as Landlord may request. Tenant shall repair
all damage caused by such removal. All items not so removed shall be deemed to
have been abandoned by Tenant and may be appropriated, sold, stored, destroyed,
or otherwise disposed of by Landlord without notice to Tenant and without any
obligation to account for such items. The provisions of this Section 20 shall
survive the end of the Term. HOLDING OVER    21. If Tenant fails to vacate the
Premises at the end of the Term, then Tenant shall be a tenant at will and, in
addition to all other damages and remedies to which Landlord may be entitled for
such holding over, Tenant shall pay, in addition to the other Rent, a daily
Basic Rental equal to one hundred fifty percent (150%) of the daily Basic Rental
payable during the last month of the Term.

CERTAIN RIGHTS

RESERVED BY

LANDLORD

  

22. Provided that the exercise of such rights does not unreasonably interfere
with Tenant’s occupancy or use of the Premises, Landlord shall have the
following rights:

 

(a) to decorate and to make inspections, repairs, alterations, additions,
changes, or improvements, whether structural or otherwise, in and about the
Building, or any part thereof; for such purposes, to enter upon the Premises,
during the continuance of any such work, to temporarily close doors, entryways,
public space, and corridors in the Building; to interrupt or temporarily suspend
Building services and facilities; and to change the arrangement and location of
entrances or passageways, doors, and doorways, corridors, elevators, stairs,
restrooms, or other public parts of the Building;

 

(b) to take such reasonable measures as Landlord deems advisable for the
security of the Building and its occupants, including without limitation
searching all persons entering or leaving the Building; evacuating the Building
for cause, suspected cause, or for drill purposes; temporarily denying access to
the Building; and closing the Building after normal business hours and on
Saturdays, Sundays, and holidays, subject, however, to Tenant’s right to enter
when the Building is closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time which may include by way
of example, but not of limitation, that persons entering or leaving the
Building, whether or not during normal business hours, identify themselves to a
security officer by registration or otherwise and that such persons establish
their right to enter or leave the Building;

 

(c) to change the name by which the Building is designated with not less than
ninety (90) days prior notice to Tenant; and

 

(d) to enter the Premises at all reasonable hours and upon giving Tenant
reasonable notice (except in the case of any emergency) to show the Premises to
prospective purchasers, lenders, or, in the case of prospective tenants, within
six (6) months of the end of the Term.

SUBSTITUTION

SPACE

   23. [INTENTIONALLY DELETED] MISCELLANEOUS   

24. (a) Landlord Transfer. Landlord may transfer, in whole or in part, the
Building and any of its rights under this Lease. If Landlord assigns its rights
under this Lease, then Landlord shall thereby be released from any obligations
hereunder that accrue after the date of such transfer.

 

(b) Landlord’s Liability. The liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease shall be limited to Tenant’s actual
direct, but not consequential, damages therefore and shall be recoverable only
from the interest of Landlord in the Building and the Land, and Landlord shall
not be personally liable for any deficiency. This section shall not be deemed to
limit or deny any remedies which Tenant may have in the event of default by
Landlord hereunder which do not involve the personal liability of Landlord.

 

(c) Force Majeure. Other than for Tenant’s monetary obligations under this Lease
and obligations which can be cured by the payment of money (e.g., maintaining
insurance), whenever a period of time is herein prescribed for action to be
taken by either party hereto, such party shall not be liable or responsible for,
and there shall be excluded from the computation for any such period of time,
any delays due to strikes, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations, or restrictions, or any other causes of any
kind whatsoever which are beyond the control of such party.

 

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(d) Brokerage. Landlord shall pay to Commercial Texas, L.L.C. (“Commercial
Texas”), a real estate commission pursuant to the terms of a separate agreement
between Landlord and Commercial Texas. Additionally, Landlord shall pay to CB
Richard Ellis, Inc. (“CBRE”), a real estate commission pursuant to the terms of
a separate agreement between Landlord and CBRE. Tenant and Landlord shall each
indemnify the other against all costs, expenses, attorneys’ fees, and other
liability for commissions or other compensation claimed by any broker or agent
claiming the same by, through, or under the indemnifying party other than
Commercial Texas and CBRE.

 

(e) Estoppel Certificates and Financial Information. From time to time, Tenant
shall furnish to any party designated by Landlord, within fifteen days after
Landlord has made a request therefore, a certificate signed by Tenant confirming
and containing such factual certifications and representations as to this Lease
as Landlord may reasonably request. Further, from time to time (but not more
often than once in any given six (6) month period), within twenty (20) days
after Landlord’s request therefore, Tenant shall furnish to Landlord or
Landlord’s Mortgagee the most recent annual financial statements for Tenant.

 

(f) Notices. All notices and other communications given pursuant to this Lease
shall be in writing and shall be (1) mailed by first class, United States Mail,
postage prepaid, certified, with return receipt requested, and addressed to the
parties hereto at the address specified in the Basic Lease Information, (2) hand
delivered or delivered by overnight delivery service to the intended address, or
(3) sent by prepaid telegram, cable, facsimile transmission, or telex followed
by a confirmatory letter. Notice sent by certified mail, postage prepaid, shall
be effective three (3) business days after being deposited in the United States
Mail; all other notices shall be effective upon delivery to the address of the
addressee. The parties hereto may change their addresses by giving notice
thereof to the other in conformity with this provision.

 

(g) Separability. If any clause or provision of this Lease is illegal, invalid,
or unenforceable under present or future laws, then the remainder of this Lease
shall not be affected thereby and in lieu of such clause or provision, there
shall be added as a part of this Lease a clause or provision as similar in terms
to such illegal, invalid, or unenforceable clause or provision as may be
possible and be legal, valid, and enforceable.

 

(h) Amendments and Binding Effect. This Lease may not be amended except by
instrument in writing signed by Landlord and Tenant. No provision of this Lease
shall be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord, and no custom or practice which may evolve between the
parties in the administration of the terms hereof shall waive or diminish the
right of Landlord to insist upon the performance by Tenant in strict accordance
with the terms hereof. The terms and conditions contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto, and upon their
respective successors in interest and legal representatives, except as otherwise
herein expressly provided. This Lease is for the sole benefit of Landlord and
Tenant, and, other than Landlord’s Mortgagee, no third party shall be deemed a
third party beneficiary hereof.

 

(i) Quiet Enjoyment. Provided Tenant has performed all of the material terms and
conditions of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the Premises for the Term, without hindrance from
Landlord or any party claiming by, through, or under Landlord, subject to the
terms and conditions of this Lease.

 

(j) Joint and Several Liability. If there is more than one Tenant, then the
obligations hereunder imposed upon Tenant shall be joint and several. If there
is a guarantor of Tenant’s obligations hereunder, then the obligations hereunder
imposed upon Tenant shall be the joint and several obligations of Tenant and
such guarantor, and Landlord need not first proceed against Tenant before
proceeding against such guarantor nor shall any such guarantor be released from
its guaranty for any reason whatsoever.

 

(k) Captions. The captions contained in this Lease are for conveniences of
reference only, and do not limit or enlarge the terms and conditions of this
Lease.

 

(1) No Merger. There shall be no merger of the leasehold estate hereby created
with the fee estate in the Premises or any part thereof if the same person
acquires or holds, directly or indirectly, this Lease or any interest in this
Lease and the fee estate in the leasehold Premises or any interest in such
estate.

 

(m) No Offer. The submission of this Lease to Tenant shall not be construed as
an offer, nor shall Tenant have any right under this Lease unless Landlord
executes a copy of this Lease and delivers it to Tenant.

 

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   (n) Exhibits. All addenda and exhibits hereto are incorporated herein by this
reference.    Addendum I    - Right of First Offer    Addendum II    - Right of
First Refusal    Addendum III    - Expansion Option    Addendum IV    -
Extension Option    Exhibit A    - Land    Exhibit A-1    - Outline of Premises
   Exhibit A-2    - Project    Exhibit B    - Building Rules and Regulations   
Exhibit C    - Basic Costs    Exhibit D    - Leasehold Improvements Agreement   
Exhibit D-1    - Base Building Improvements    Exhibit E    - Parking    Exhibit
F    - SNDA    Exhibit G    - Permitted Materials    Exhibit H    - Janitorial
Specifications    Exhibit I    - Approved Laboratory Equipment    (o) Entire
Agreement. This Lease constitutes the entire agreement between Landlord and
Tenant regarding the subject matter hereof and supersedes all oral statements
and prior writings relating thereto. Except for those set forth in this Lease,
no representations, warranties, or agreements have been made by Landlord or
Tenant to the other with respect to this Lease or the obligations of Landlord or
Tenant in connection therewith.    (p) Laboratory Equipment. Landlord hereby
approves the use by Tenant of the laboratory equipment described on Exhibit I
attached hereto (“Laboratory Equipment”) so long as (i) no special ventilating
or drainage is required for use of any of the Laboratory Equipment, (ii) the
Laboratory Equipment does not generate any noise or odors that emanate from the
Premises into the lobby of the Building or other tenant space in the Building
and does not generate any excessive heat, (iii) use of the Laboratory Equipment
does not generate any Hazardous Substances (defined below), (iv) the Laboratory
Equipment will not cause any vibration on the floor, walls or ceiling of the
Premises that emanates from the Premises into the lobby of the Building or other
tenant space in the Building, (v) any compressor that is part of the Laboratory
Equipment is in a sound suppressing enclosure, and (vi) all Laboratory Equipment
will be owned, operated and maintained in compliance with all applicable laws,
rules, regulations, codes, guidelines and ordinances.

 

HAZARDOUS

SUBSTANCES

   25. The term “Hazardous Substances.” as used in this Lease shall mean
pollutants, contaminants, toxic or hazardous wastes, or any other substances,
the removal of which is required or the use of which is restricted, prohibited
or penalized by any “Environmental Law,” which term shall mean any Law relating
to health, pollution, or protection of the environment. Tenant hereby agrees
that (a) no activity will be conducted on the Premises that will produce any
Hazardous Substances, except for such activities that are part of the ordinary
course of Tenant’s business activities (the “Permitted Activities”) provided
such Permitted Activities are conducted in accordance with all Environmental
Laws and have been approved in advance in writing by Landlord; (b) the Premises
will not be used in any manner for the storage of any Hazardous Substances
except for any temporary storage of such materials that are used in the ordinary
course of Tenant’s business (the “Permitted Materials”) provided such Permitted
Materials are properly stored in a manner and location satisfying all
Environmental Laws and approved in advance in writing by Landlord; (c) no
portion of the Premises will be used as a landfill or a dump; (d) Tenant will
not install any underground tanks of any type; (e) Tenant will not cause and
will not allow any of Tenant’s representatives, employees, contractors, invitees
or agents to cause any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute a public
or private nuisance; (f) Tenant will not permit any Hazardous Substances to be
brought onto the Premises, except for the Permitted Materials, and if so brought
or found located thereon, the same shall be immediately removed by Tenant, with
proper disposal, and all required cleanup procedures shall be diligently
undertaken pursuant to all Environmental Laws; (g) Tenant will maintain on the
Premises a list of all materials stored at the Premises for which a material
safety data sheet (an “MSDS”) was issued by the producers or manufacturers
thereof, together with copies of the MSDS’s for such materials, and shall
deliver such list and MSDS copies to Landlord upon Landlord’s request therefor;
and (h) Tenant shall remove all Permitted Materials from the Premises in a
manner acceptable to Landlord before Tenant’s right to possess the Premises is
terminated. If at any time during or after the Term, the Premises are found to
be so contaminated or subject to such conditions, Tenant shall defend, indemnify
and hold Landlord harmless from all claims, demands, actions, liabilities,
costs, expenses, damages and obligations of any nature arising from or as a
result of the use of the Premises by Tenant, except for any conditions or
contamination caused by Landlord. The foregoing indemnity shall survive
termination or expiration of this Lease. Unless expressly identified on an
addendum to this Lease, as of the date hereof there are no “Permitted
Activities” or “Permitted Materials” for purposes of the foregoing provision and
none shall exist unless and until approved in writing by the Landlord. Landlord
may enter the Premises and conduct environmental inspections

 

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   and tests therein as it may reasonably require from time to time, provided
that Landlord shall use reasonable efforts to minimize the interference with
Tenant’s business. Such inspections and tests shall be conducted at Landlord’s
expense, unless they reveal the presence of Hazardous Substances (other than
Permitted Materials or those placed in the Premises by Landlord) or that Tenant
has not complied with the requirements set forth in this Section 25, in which
case Tenant shall reimburse Landlord for the cost thereof within ten (10) days
after Landlord’s request therefore. LANDLORD’S LIEN    26. [INTENTIONALLY
DELETED].

LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT’S INTENDED COMMERCIAL PURPOSE, AND TENANT’S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE
PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN OR BY APPLICABLE LAW OR COURT ORDER, TENANT SHALL
CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, SETOFF, OR DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER,
WHETHER EXPRESS OR IMPLIED.

DATED as of the date first written above.

 

LANDLORD: LANTANA OFFICE PROPERTIES I, L.P., a Texas limited partnership By:  
STRS L.L.C., a Delaware limited liability   company, its General Partner   By:  
STRATUS PROPERTIES INC., a     Delaware corporation, its Sole Member     By:  

/s/ John E. Baker

      John E. Baker, Senior Vice President TENANT:

ARTHROCARE CORPORATION,

a Delaware corporation

By  

/s/ John T. Raffle

Name:   John T. Raffle Title:   Vice President, Legal

 

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ADDENDUM I

RIGHT OF FIRST OFFER

Landlord intends to enter into initial leases for the second floor of the
Building after completion of Landlord’s Work (the “Initial Leases”) and will be
entitled to do so free from any right or option of Tenant to lease any space on
the second floor of the Building. Subject to the terms and provisions of this
Right of First Offer, as set forth below, as each of the Initial Leases expires
or is otherwise terminated prior to expiration (referred to herein as the “Offer
Space”), Landlord shall not enter into a new lease of such Offer Space (except
with Tenant) unless and until Landlord has complied with the following
procedures:

1. Defined Terms. For purposes of this Right of First Offer, all terms defined
in the Lease will be utilized herein without further definition. Terms
specifically applicable to this Right of First Offer shall have the meanings
specified in this Right of First Offer and shall be delineated by initial
capital letters.

2. Grant of Right of First Offer. Landlord hereby grants to Tenant a one-time
right of first offer (“Offer Right”) with respect to the Offer Space during the
initial Term under the Lease.

3. Conditions. Notwithstanding any other provisions herein to the contrary,
Tenant’s Offer Right is subject to and/or conditioned upon the following:

 

  (a) the Offer Space must not have been covered by a prior ROFO Notice (defined
below);

 

  (b) the lease term (as it may be renewed or extended from time to time) of the
Initial Lease for the Offer Space has expired or has otherwise terminated prior
to expiration; and

 

  (c) the Offer Right shall not be applicable during any time when there is an
uncured event of default under the Lease.

4. Exercise of Offer. Landlord shall give written notice to Tenant that Landlord
desires to lease all or part of the Offer Space (“ROFO Notice”), setting out the
location and configuration of the available space, the date of availability of
such space, Landlord’s determination of Market Base Rent Rate for such space and
any construction allowance Landlord is willing to grant for any tenant finish
out for such Offer Space. Tenant shall then have five (5) business days from
receipt of the ROFO Notice from Landlord within which to elect by written notice
to Landlord to include such space under this Lease upon the date such space
becomes available pursuant to the terms and conditions set forth in the ROFO
Notice. If Tenant elects to lease such space, Tenant’s obligation to pay rent
for such space shall commence upon the date of Tenant’s possession of such
space, but in no event later than ninety (90) days following the date of the
execution of the ROFO expansion lease amendment, and shall continue for the then
unexpired Term. Notwithstanding any provision herein to the contrary, if Tenant
fails to exercise Tenant’s preferential rights under this Right of First Offer
with respect to any space within the five (5) business day period applicable to
Tenant’s exercise rights, then Landlord will thereafter be free to lease such
space to any third party and shall not be obligated to offer such space to
Tenant under this Right of First Offer prior to entering into a lease with a
third party, subject, however, to Tenant’s Right of First Refusal set forth on
Addendum II to the Lease.

5. Delivery of Offer Space. Any Offer Space shall be delivered to Tenant vacant
and unoccupied and “as is” without benefit of improvements other than the
applicable construction allowance. In the event that any improvements or
restoration work is to be incorporated into the new premises, the amendment
shall contain provisions reflecting the agreement of Landlord and Tenant with
respect thereto. Landlord shall use reasonable diligence to deliver the subject
Offer Space on the date specified in Landlord’s notice of its availability, but
in no event shall any such failure impair the validity of the Lease, extend the
Term (except with respect to the subject Offer Space, which shall be the term
specified in Landlord’s notice irrespective of the Term as amended herein), or
impair any obligations of Tenant under the Lease. If Landlord is unable to
provide such ROFO space as offered and accepted by Tenant within ninety
(90) days after the agreed possession date, Landlord will provide the equivalent
rental abatement (Basic Rental only for an equivalent square footage of space)
under Tenant’s existing lease from the expiration of said 90 day period until
such time as Tenant reasonably takes possession of said space for the conduct of
its business.

6. Amendment. If Tenant elects to lease any space under the terms of this Right
of First Offer, then an amendment of this Lease, which includes the terms and
conditions of the ROFO Notice, shall be executed by Landlord and Tenant not
later than thirty (30) days after Landlord submits to Tenant such amendment for
execution purposes.

 

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7. Assignment or Subletting Rights. The rights granted to Tenant under this
Right of First Offer are personal to Tenant. Any assignment or subletting by
Tenant of more than 50% of the Premises shall automatically terminate the rights
of Tenant under this Right of First Offer.

 

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ADDENDUM II

RIGHT OF FIRST REFUSAL

This Right of First Refusal describes and specifies the right of first refusal
hereby granted by Landlord to Tenant with respect to the space within the
Building described below, which right of first refusal is being granted upon the
following terms and conditions: Subject to the terms and provisions of this
Right of First Refusal, as set forth below, as each of the Initial Leases (as
defined in Addendum I to the Lease) expires or is otherwise terminated prior to
expiration, Landlord shall not enter into a new lease of such space (except with
Tenant) unless and until Landlord has complied with the following procedures:

1. Defined Terms. For purposes of this Right of First Refusal, all terms defined
in the Lease will be utilized herein without further definition. Terms
specifically applicable to this Right of First Refusal shall have the meanings
specified in this Right of First Refusal and shall be delineated by initial
capital letters.

2. Grant of Right of First Refusal. Landlord hereby grants to Tenant a
continuing right of first refusal (“Refusal Right”) applicable to any of the
space on the second floor of the Building (“Refusal Space”) only after the
expiration or earlier termination of the Initial Leases applicable to the
Refusal Space. Tenant has no Refusal Right with regard to Landlord entering into
the Initial Leases.

3. Conditions. Notwithstanding any other provisions herein to the contrary,
Tenant’s Refusal Right is subject in and/or conditioned upon the following:

 

  (a) the term of the applicable Initial Lease for the Refusal Space has expired
or has otherwise been terminated;

 

  (b) the unconditioned right of Landlord to extend or renew an Initial Lease of
any of the Refusal Space if such renewal or extension right is contained in the
original terms of such Initial Lease; and

 

  (c) the Refusal Right shall not be applicable during any time when there is an
uncured event of default under the Lease.

4. Exercise of Refusal Right. In the event that Landlord receives a bona fide
offer from a third party (the “Prospective Tenant”) to lease all or a part of
the Refusal Space which Landlord desires to accept, Landlord shall so notify
Tenant in writing (“ROFR Notice”) and shall include in the ROFR Notice, as
applicable, the rental rate for the subject Refusal Space, term of the proposed
lease (together with any renewal rights being granted), any construction
allowance for the Refusal Space, any lease concessions to be granted, and any
other material terms of such offer evidenced in a signed letter of intent from
the Prospective Tenant. Tenant shall have five (5) business days from the date
of the ROFR Notice to notify Landlord in writing of the exercise by Tenant of
Tenant’s Refusal Right with respect to the subject Refusal Space, which shall be
on the same terms and with respect to the entire space specified in the ROFR
Notice. In the event that Tenant fails to so notify Landlord within such five
(5) business day period, Tenant shall be deemed to have waived its Refusal Right
with respect to the subject Refusal Space. In the event that Tenant elects to
exercise its Refusal Right, with respect to the subject Refusal Space and does
in fact exercise such Refusal Right in the manner and within the time period
specified herein, Landlord and Tenant shall, within thirty (30) days after
Tenant delivers to Landlord notice of its election, enter into a written
amendment modifying and supplementing the Lease and containing such other terms
and provisions as Landlord may determines are reasonably appropriate to reflect
the addition of such Refusal Space and any other terms that Landlord and Tenant
may mutually agree upon. In the event that Tenant fails to enter into said
amendment within such thirty (30) day period, Tenant shall be deemed to have
irrevocably waived its Refusal Right with respect to the subject Refusal Space;
and Landlord shall have the right to enter into a lease with the Prospective
Tenant on terms set forth in the ROFR Notice in all material respects. Except as
may be specifically modified in such amendment and except with respect to the
rental, lease term, construction allowance, and lease concessions applicable to
the subject Refusal Space, as applicable, the terms and provisions of the Lease
shall apply to the Refusal Space, on the earlier of the day of possession of the
subject Refusal Space by Tenant or ninety (90) days from the execution date of
the Refusal Right lease expansion amendment (the “Refusal Space Commencement
Date”), and the subject Refusal Space, as of Refusal Space Commencement Date,
shall become and be deemed to be a part of the Premises. Effective as of Refusal
Space Commencement Date, the rentable area within the subject Refusal Space
shall be included within the determination of Tenant’s Proportionate Share.
Notwithstanding the foregoing, should Landlord and the Prospective Tenant either
(i) materially change the terms set forth in the ROFR Notice, or (ii) fail to
enter into an executed lease in accordance with the terms of the ROFR Notice
within one hundred eighty (180) days of Tenant’s receipt of the ROFR Notice,
then Tenant’s Refusal Right as to such space shall be automatically reinstated.

 

3

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5. Delivery of Refusal Space. Any Refusal Space shall be delivered to Tenant
vacant and unoccupied and “as is” without benefit of improvements unless the
ROFR Notice specifies that a construction allowance is to be granted for the
improvement or refurbishment of the subject Refusal Space. In the event that any
improvements or restoration work is to be incorporated into the Refusal Space,
the amendment shall contain provisions reflecting the agreement of Landlord and
Tenant with respect thereto. Landlord shall use reasonable diligence to deliver
the subject Refusal Space on the date specified in Landlord’s notice of its
availability, but in no event shall any such failure impair the validity of the
Lease, extend the Term (except with respect to the subject Refusal Space, which
shall be the term specified in Landlord’s ROFR Notice irrespective of the Term
under the Lease for the Premises), or impair any obligations of Tenant under the
Lease. If Landlord is unable to provide such Refusal Space as offered and
accepted by Tenant within ninety (90) days after the agreed possession date,
Landlord will provide the equivalent rental abatement (Rent for an equivalent
square footage of space (to the Refusal Space) in the Premises) under Tenant’s
existing lease from the expiration of said ninety (90) day period until such
time as Landlord is able to provide such Refusal Space to Tenant.

6. Termination of Refusal Right. The Refusal Right shall automatically terminate
upon (a) the termination of the Term, whether by Landlord upon the occurrence of
an Event of Default or otherwise, and (b) the failure of Tenant to exercise the
Refusal Right with respect to any Refusal Space as and within the time period in
Paragraph 4 above, but only with respect to the subject Refusal Space.

7. Assignment or Subletting Rights. The rights granted to Tenant under this
Right of First Refusal are personal to Tenant. Any assignment or subletting by
Tenant of more than 50% of the Premises shall automatically terminate the rights
of Tenant under this Right of First Refusal.

 

4

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ADDENDUM III

EXPANSION OPTIONS

1. Subject to the condition that Tenant shall not, at the time of exercise of
any expansion option hereunder or at the time of delivery of any expansion space
hereunder, be in default of any of the terms or provisions of this Lease, Tenant
shall have options to lease additional space in the Project as hereinafter set
forth:

 

  (a) First Expansion Option. Tenant shall have the option (the “First Expansion
Option”) to lease between 4,250 and 5,750 rentable square feet of the Building
with a commencement date of between the 66th and 81st calendar months after the
Early Occupancy Date of the Lease. Landlord will determine the number of net
rentable square feet of such expansion space (provided that it consists of at
least 4,250 rentable square feet and no more than 5,750 rentable square feet)
and the location of such expansion space provided that it is located within the
Building (the “First Expansion Space”). Landlord will give Tenant written notice
between the 62nd and 77th calendar months after the Early Occupancy Date of the
Lease of the option to take the First Expansion Space (the “First Option Offer”)
provided that the First Option Offer will be made to Tenant at least four
(4) months prior to the commencement date of the First Expansion Space. In the
First Option Offer, Landlord shall either notify Tenant (i) of the size and
location of the First Expansion Space together with a commencement date for the
First Expansion Space (all of which must be in compliance with the parameters
set forth above); or (ii) that Landlord is unable to provide Tenant with the
First Expansion Space. Tenant will have a period of thirty (30) days to notify
Landlord in writing that Tenant has elected to exercise the First Expansion
Option based on the First Option Offer. If Tenant fails to exercise the First
Expansion Option within such thirty (30) day period by written notice to
Landlord or if Tenant notifies Landlord in writing that Tenant has elected not
to exercise the First Expansion Option, then Tenant will be deemed to have
waived its right to exercise the First Expansion Option hereunder. If Tenant
timely exercises the First Expansion Option and if Landlord is able to satisfy
the First Expansion Option pursuant to the First Option Offer, then the First
Expansion Space, as identified in the First Option Offer, shall become part of
the Premises and shall be subject to the terms of this Lease for the remainder
of the Term subject to the Market Base Rental Rate and construction allowance
determinations set forth in Paragraph 2 below. If Landlord notifies Tenant that
Landlord is unable to satisfy the First Expansion Option in the First Option
Offer, then Tenant, as its sole remedy, will have the termination option set
forth in Paragraph 4 below.

 

  (b) Second Expansion Option. If Tenant exercises the First Expansion Option,
then Tenant shall have the option (the “Second Expansion Option”) to lease
approximately 8,000 rentable square feet (plus or minus 20% at Landlord’s
discretion) in either the Building or Building I of the Project (as determined
by Landlord) (the “Second Expansion Space”) with a commencement date that is
between (i) two (2) years after the date Tenant exercises the First Expansion
Option and (ii) the first day of the 105th calendar month after the Early
Occupancy Date (but no later than the 105th calendar month after the Early
Occupancy Date). Landlord will give Tenant written notice between the 86th and
101st months after the Early Occupancy Date of the Lease of the option to take
the Second Expansion Space (the “Second Option Offer”) provided that the Second
Option Offer will be made to Tenant at least four (4) months prior to the
commencement date of the Second Expansion Space. In the Second Option Offer
Landlord shall either notify Tenant (i) of the size and location of the Second
Expansion Space together with a commencement date for the Second Expansion Space
(all of which must be in compliance with the parameters set forth above); or
(ii) that Landlord is unable to provide Tenant with the Second Expansion Space.
Tenant will have a period of thirty (30) days to notify Landlord in writing that
Tenant has elected to exercise the Second Expansion Option based on the Second
Option Offer. If Tenant fails to exercise the Second Expansion Option within
such thirty (30) day period by written notice to Landlord or if Tenant notifies
Landlord in writing that Tenant has elected not to exercise the Second Expansion
Option, then Tenant will be deemed to have waived its right to exercise the
Second Expansion Option hereunder. If Tenant timely exercises the Second
Expansion Option and if Landlord is able to satisfy the Second Expansion Option
pursuant to the Second Option Offer, then the Second Expansion Space shall
become part of the Premises and shall be subject

 

5

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       to the terms of this Lease for the remainder of the Term subject to the
Market Base Rental Rate and construction allowance determinations set forth in
Paragraph 2 below. If Landlord notifies Tenant that Landlord is unable to
satisfy the Second Expansion Option in the Second Option Offer, then Tenant, as
its sole remedy, will have the termination option set forth in Paragraph 4
below.

2. The Basic Rental rate for the First Expansion Space and Second Expansion
Space, as applicable, will each be at the then Market Base Rent Rate (as defined
in Addendum IV). In each of the First Option Offer and the Second Option Offer,
Landlord will notify Tenant of Landlord’s determination of the Market Base Rent
Rate for such expansion space. If Tenant disagrees with Landlord’s determination
of Market Base Rent Rate for either of the First Expansion Space or the Second
Expansion Space, as applicable, within thirty (30) days of the date of the First
Option Offer or the Second Option Offer, as applicable, Tenant must notify
Landlord in writing that it desires to have the Market Base Rent Rate determined
in accordance with the arbitration procedure set forth in Section 4 of Addendum
IV of the Lease; otherwise, the Market Base Rent Rate will be the Market Base
Rent Rate specified in the applicable First Option Offer or Second Option Offer.
If for any reason, the Market Base Rent Rate hereunder is not determined prior
to the date of Tenant’s obligation to start paying rent on the First Expansion
Space or the Second Expansion Space, then Tenant will commence paying rent at
the then existing monthly per rentable square foot rate of Basic Rental that
Tenant is paying for the Premises, and, within 30 days of final determination of
the Market Base Rent Rate hereunder, Landlord and Tenant will reconcile the
Market Base Rate with the amount of actual Basic Rental paid during the period
when Basic Rental for such space should have been paid at the Market Base Rent
Rate.

Landlord agrees to provide Tenant a construction allowance (“Expansion Space
Allowance”) for each of the First Expansion Space and the Second Expansion
Space, as such options are exercised by Tenant. Any tenant finish out work
performed by Tenant in either of the First Expansion Space or the Second
Expansion Space will be performed pursuant to a leasehold improvements agreement
substantially in the form of the leasehold improvements agreement attached
hereto as Exhibit “D”, which will provide Tenant with a period of ninety
(90) days to perform such tenant finishout work from the date of the execution
of the Expansion Option (though the commencement date will remain as set forth
in the First Option Offer or the Second Option Offer, as applicable). The
Expansion Space Allowance will be based upon the number of months remaining in
the Term as of the commencement date for such expansion space multiplied by
(i) $0.125 per month per rentable square foot for space that has been previously
finished out, and (ii) $0.283 per month per rentable square foot for unfinished
shell space.

(For example: If the First Expansion Space has a commencement date of 70 months
after the Commencement Date of the Lease, 50 months will remain on the original
120 month Term of the Lease. Supposing 2,000 rentable square feet have already
been finished out and 3,000 rentable square feet are shell space, the Expansion
Space Allowance for the Second Expansion Space will be determined as follows:

(a) 50 months x 2,000 sq. feet x 0.125 discount = $12,500.00 Expansion Space
Allowance for finished space PLUS

(b) 50 months x 3,000 sq. feet x 0.283 discount = $42,450.00 Expansion Space
Allowance for shell space

Total Construction Allowance of $54,950.00

Tenant agrees to accept the First Expansion Space and the Second Expansion
Space, as applicable in its “AS IS,” “WHERE IS,” and “WITH ALL FAULTS” subject
to that applicable Expansion Space Allowance.

3. Tenant’s Proportionate Share will be increased simultaneously with the
commencement date for each expansion of the Premises in accordance with the
terms of this Expansion Option. Tenant will pay additional Basic Rental and
Tenant’s Proportionate Share of Basic Costs with respect to any expansion space
added to the Premises in the same manner as is set forth in the Lease with
respect to the initial Premises. Within ten (10) days Tenant’s exercises the
First Expansion Option or the Second Expansion Option, as applicable, the Lease
will be amended by Landlord and Tenant to incorporate such expansion space in
accordance with the terms and provisions of this Addendum III. Unless the Market
Base Rent Rate is agreed upon by Landlord and Tenant and incorporated into the
amendment that adds expansion space to the Lease, within ten (10) days after the
determination of the Market Base Rent Rate for the First Expansion Space and/or
the Second Expansion Space, as applicable, the Lease will be further amended by
Landlord and Tenant to incorporate the Market Base Rent Rate applicable to such
expansion space.

4. In the event Landlord notifies Tenant in the First Option Offer or the Second
Option Offer that Landlord is unable to accommodate the First Expansion Option
or the Second Expansion Option, as applicable, then Tenant may by written notice
to Landlord terminate the Lease (the “Termination Notice”) provided that Tenant
is not in default of the Lease either as of the date of the Termination Notice
or on the effective date of termination and Tenant pays Landlord the Termination
Fee (defined below) as of the

 

6

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date of such termination. With regard to the First Expansion Option, Tenant must
send the Termination Notice on or before the first day of the 82nd calendar
month after the Early Occupancy Date in which event termination of the Lease
will be effective the first day of the 91st month after the Early Occupancy Date
(“First Termination Date”). With regard to the Second Expansion Option, Tenant
must send the Termination Notice on or before the first day of the 106th month
after the Early Occupancy Date in which event termination of the Lease will be
effective the first day of the 112th month after the Early Occupancy Date
(“Second Termination Date”). Contemporaneously with the First Termination Date
or the Second Termination Date, as applicable, Tenant must cure any default of
Tenant under the Lease, In addition, contemporaneously with the Termination
Notice, Tenant must pay Landlord the Termination Fee. The “Termination Fee” will
be calculated as follows:

Landlord will calculate the monthly amount that would be necessary to fully
amortize the costs of the Allowance (and any Expansion Space Allowance)
previously paid by Landlord and all broker’s commissions incurred by Landlord,
for the Landlord’s agent only, in connection with this Lease and any amendment
of this Lease (the “Lease Expenses”) over the original Term in monthly payments
at 10% annual interest (the principal portion of such amortization, is referred
to as the “Monthly Credit Amount”). The Termination Fee will be equal to (a) the
Lease Expenses minus (b) the Monthly Credit Amount paid by Tenant as of the
First Termination Date or the Second Termination Date, as applicable.

In the event Tenant fails to timely send a Termination Notice, cure any default
on the First Termination Date or the Second Termination Date, as applicable, or
timely pay the applicable Termination Fee, then Tenant’s right to such
termination, and the applicable Termination Notice, will be null and void and
the Lease will otherwise remain in full force and effect.

5. Tenant shall commence paying Rent for expansion space on later of (i) ninety
(90) days after the date of delivery of such expansion space by Landlord to
Tenant or (ii) the commencement date specified in the First Option Offer or the
Second Option Offer as applicable.

6. Landlord will not be liable for the failure to give possession of any space
covered by this Expansion Option to Tenant by reason of the unauthorized holding
over or retention of possession of any other tenant, tenants or occupants
thereof, nor shall such failure impair the validity of this Lease, nor extend
the Term; provided, however, that in the case of the First Expansion Space and
Second Expansion Space, should Landlord fail to give possession of such space
covered by these Expansion Options within thirty (30) days of the agreed
possession date, Tenant may, as its sole and exclusive remedy, exercise its
cancellation right specified in Section 4 above at any time prior to delivery of
possession of such space and terminate the Lease as of a date six (6) months
hence upon payment of the Termination Fee.

7. The rights granted to Tenant under this Expansion Option are personal to
Tenant. Any assignment or subletting by Tenant of more than 50% of the Premises
shall automatically terminate the rights of Tenant under this Expansion Option.

 

7

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ADDENDUM IV

EXTENSION OPTION

Provided no Event of Default exists and Tenant is occupying not less than fifty
percent (50%) of the Premises at the time of such election, Tenant may renew
this Lease for one (1) additional period of five (5) years on the same terms
provided in this Lease (except as set forth below), by delivering written notice
of the exercise thereof to Landlord not later than nine (9) months before the
expiration of the Term (“Extension Option”). On or before the commencement date
of the extended Term in question, Landlord and Tenant shall execute an amendment
to this Lease extending the Term on the same terms provided in this Lease,
except as follows:

 

  1. The Basic Rental payable for each month during each such extended Term
shall be the prevailing market rental rate in the Building at the commencement
of such extended Term, for space of equivalent quality, size, utility and
location, with the condition of the Premises, length of the extended Term and
the credit standing of Tenant to be taken into account;

 

  2. Tenant shall have no further renewal options unless expressly granted by
Landlord in writing; and

 

  3. Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant inducements.

 

  4. If Tenant exercises an Extension Option hereunder, Landlord shall, within
thirty (30) days thereafter, deliver to Tenant written notice of Landlord’s
determination of the Market Base Rent Rate as of the applicable rental
adjustment date (the “Rent Adjustment Notice”). Within thirty (30) days after
Landlord’s delivery to Tenant of the Rent Adjustment Notice, Tenant will either:
(i) notify Landlord in writing that it accepts Landlord’s determination of the
Market Base Rent Rate; or (ii) request arbitration of such determination in
accordance with the following appraisal procedure which shall be binding upon
both parties. If Tenant fails to deliver to Landlord written notice within such
thirty day period, then Tenant will be deemed to have elected to have accepted
Landlord’s determination of the Market Base Rent Rate. If Tenant does request
arbitration of the determination of the Market Base Rent Rate, then the date of
Tenant’s notice to Landlord requesting such arbitration shall be referred to
herein as the “Arbitration Commencement Date”. The procedures for arbitration
hereunder are as follows:

 

  (a) Tenant shall deliver to Landlord, within fifteen (15) days after the
Arbitration Commencement Date, a written notice (the “Objection Notice”) which
(i) states Tenant’s objection to Landlord’s determination of the Market Base
Rent Rate, and (ii) appoints one Qualified Appraiser (as hereinafter defined) to
serve in the appraisal procedure hereunder. If Tenant fails to deliver the
Objection Notice to Landlord within such fifteen (15) day period, then
Landlord’s prior determination of the Market Base Rent Rate shall be final and
binding for the purpose of establishing the Market Base Rent Rate hereunder.

 

  (b) If Tenant timely delivers the Objection Notice, Landlord shall thereafter
appoint a second Qualified Appraiser by delivering written notice of such
appointment to Tenant within fifteen (15) days after the Arbitration
Commencement Date.

 

  (c) Thereafter, the two Qualified Appraisers shall appoint a third Qualified
Appraiser (the “Third Qualified Appraiser”) by mutual agreement within thirty
(30) days after the Arbitration Commencement Date.

 

  (d) Within thirty (30) days after the Arbitration Commencement Date, the
Qualified Appraiser appointed by Tenant and the Qualified Appraiser appointed by
Landlord will each submit their respective determinations of Market Base Rent
Rate to the Third Qualified Appraiser. The Third Qualified Appraiser will then
be required to approve either the Market Base Rent Rate determination of the
Qualified Appraiser appointed by Tenant or the Qualified Appraiser appointed by
Landlord that the Third Qualified Appraiser determines is closest to its
determination of the Market Base Rent Rate. The determination selected by the
Third Qualified Appraiser shall be final and binding for the purpose of
establishing the Market Base Rent Rate hereunder.

 

  (e) For purposes hereof, “Qualified Appraiser(s)” shall mean and refer to
appraiser(s) who: (i) regularly appraise office buildings in Travis County,
Texas; (ii) are disinterested; and (iii) have at least ten (10) years experience
appraising commercial office buildings in the Suburban Office market of Austin,
Texas. The cost of all appraisals hereunder shall be borne equally by Landlord
and Tenant.

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  (f) If, for any reason, the Market Base Rent Rate hereunder is not determined
prior to any applicable rental adjustment date hereunder, then Tenant shall
continue to pay rent at the then existing rate, and, within 30 days of final
determination of the Market Base Rent Rate hereunder, Landlord and Tenant will
reconcile the Market Base Rent Rate with the amount of actual Basic Rental paid
during the period when Basic Rental should have been paid at the Market Base
Rent Rate.

Tenant’s rights under this Exhibit shall terminate if (a) this Lease or Tenant’s
right to possession of the Premises is terminated, (b) Tenant assigns more than
50% of its interest in this Lease or sublets more than 50% of the Premises, or
(c) Tenant fails to timely exercise its option under this Exhibit, time being of
the essence with respect to Tenant’s exercise thereof.

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EXHIBIT A

LAND

Lot 2, Block P of Lantana, Phase 1, Section 2 Subdivision recorded in Document
No. 200000150 of the Official Public Records of Travis County, Texas.

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EXHIBIT A-1

OUTLINE OF PREMISES

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EXHIBIT A-2

PROJECT

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EXHIBIT B

BUILDING RULES AND REGULATIONS

The following rules and regulations shall apply to the Premises, the Building,
the parking facilities associated therewith, the Land and the appurtenances
thereto:

 

1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas
shall not be obstructed by tenants or used by any tenant for purposes other than
ingress and egress to and from their respective leased premises and for going
from one to another part of the Building.

 

2. Plumbing, fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.

 

3. No signs, advertisements or notices shall be painted or affixed on or to any
windows or doors or other part of the Building without the prior written consent
of Landlord. No nails, hooks or screws shall be driven or inserted in any part
of the Building except by Building maintenance personnel. No curtains or other
window treatments shall be placed between the glass and the Building standard
window treatments.

 

4. Landlord shall provide and maintain an alphabetical directory for all tenants
in the main lobby of the Building.

 

5. Landlord shall provide all door locks in each tenant’s leased premises, at
Tenant’s cost, and no tenant shall place any additional door locks in its leased
premises without Landlord’s prior written consent. Additional door locks shall
be at Tenant’s expense. Landlord shall furnish to each tenant the number of keys
required to such Tenant’s leased premises, at such Tenant’s cost, and no tenant
shall make a duplicate thereof. The foregoing notwithstanding, Landlord will pay
for the door locks to be initially installed on two exterior doors to Tenant’s
Premises.

 

6. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted under Landlord’s supervision at such times
and in such a manner as Landlord may reasonably require. Each tenant assumes all
risks of and shall be liable for all damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property and personnel of Landlord if damaged or injured as a result of acts in
connection with carrying out this service for such tenant.

 

7. Landlord may prescribe weight limitations and determine the locations for
safes and other heavy equipment or items, which shall in all cases be placed in
the Building so as to distribute weight in a manner acceptable to Landlord which
may include the use of such supporting devices as Landlord may require. All
damages to the Building caused by the installation or removal of any property of
a tenant, or done by a tenant’s property while in the Building, shall be
repaired at the expense of such tenant.

 

8. Corridor doors, when not in use, shall be kept closed. Nothing shall be swept
or thrown into the corridors, halls, elevator shafts or stairways. No birds or
animals shall be brought into or kept in, on or about any tenant’s leased
premises. No portion of any tenant’s leased premises shall at any time be used
or occupied as sleeping or lodging quarters.

 

9. Tenant shall cooperate with Landlord’s employees in keeping its leased
premises neat and clean. Tenants shall not employ any person for the purpose of
such cleaning other than the Building’s cleaning and maintenance personnel.

 

10. To ensure orderly operation of the Building, no ice, mineral or other water,
towels, newspapers, etc. shall be delivered to any leased area except by persons
approved by Landlord.

 

11. Tenant shall not make or permit any improper, objectionable or unpleasant
noises or odors in the Building or otherwise interfere in any way with other
tenants or persons having business with them.

 

12. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord’s prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.

 

13. Landlord will not be responsible for lost or stolen personal property, money
or jewelry from tenant’s leased premises or public or common areas regardless of
whether such loss occurs when the area is locked against entry or not.

 

14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord, which consent
shall not be unreasonably withheld, conditions or delayed.

 

15. All mail chutes located in the Building shall be available for use by
Landlord and all tenants of the Building according to the rules of the United
States Postal Service.

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EXHIBIT C

BASIC COSTS

The term “Basic Costs” shall mean all expenses and disbursements of every kind
which are customary for similar class buildings in the southwest office market
for the City of Austin (subject to the limitations set forth below) and which
Landlord incurs, pays or becomes obligated to pay in connection with the
ownership, operation, and maintenance of the Building (including the associated
parking facilities), determined in accordance with generally accepted federal
income tax basis accounting principles consistently applied, specifically
including but not limited to the following:

 

  1. Wages and salaries (including management fees, which management fees will
in no event exceed three percent (3%) of gross rents) of all employees engaged
in the operation, repair, replacement, maintenance, and security of the
Building, including taxes, insurance and benefits relating thereto;

 

  2. All supplies and materials used in the operation, maintenance, repair,
replacement, and security of the Building;

 

  3. Annual cost of all capital improvements made to the Building which although
capital in nature can reasonably be expected to reduce the normal operating
costs of the Building, as well as all capital improvements made in order to
comply with any law hereafter promulgated by any governmental authority, as
amortized over the useful economic life of such improvements as determined by
Landlord in its reasonable discretion (without regard to the period over which
such improvements may be depreciated or amortized for federal income tax
purposes);

 

  4. Cost of all utilities, equally and equitably apportioned, other than the
cost of utilities actually reimbursed to Landlord by the Building’s tenants
(including Tenant under Section 7.(b) of this Lease);

 

  5. Cost of any insurance or insurance related expense applicable to the
Building and Landlord’s personal property used in connection therewith, less any
deductible;

 

  6. Cost of repairs, replacements, and general maintenance of the Building; and

 

  7. Cost of service or maintenance contracts with independent contractors for
the operation, maintenance, repair, replacement, or security of the Building
(including, without limitation, alarm service, window cleaning, and elevator
maintenance).

The term “Basic Cost” shall also mean the Building’s Proportionate Share of
Taxes (described below) and all expenses and disbursements of every kind which
are customary for similar class buildings in the southwest office market for the
City of Austin (subject to the limitations set forth below) and which Landlord
incurs, pays or becomes obligated to pay in connection with the ownership,
operation and maintenance of the common areas of the Project (including the
associated parking facilities, driveways and landscaped areas), determined in
accordance with generally accepted accounting principles consistently applied,
specifically including but not limited to the following:

 

  (1) Annual cost of all capital improvements made to the common areas which
although capital in nature can reasonably be expected to reduce the normal
operating costs of the Project, as well as all capital improvements made in
order to comply with any law hereafter promulgated by any governmental
authority, as amortized over the useful economic life of such improvements as
determined by Landlord in its reasonable discretion (without regard to the
period over which such improvements may be depreciated or amortized for federal
income tax purposes);

 

  (2) Cost of all utilities, equally and equitably apportioned, for the common
areas of the Project (including, without limitation, landscape irrigation and
parking lot lighting), other than the costs of utilities actually reimbursed to
Landlord by the tenants of the Project;

 

  (3) Cost of any insurance or insurance related expense applicable less any
deductibles to the common areas of the Project and Landlord’s personal property
used in connection therewith;

 

  (4) Cost of repairs, replacements and general maintenance of the common areas
of the Project; and

 

  (5) Cost of service or maintenance contracts with independent contractors for
the operation, maintenance, repair and replacement of the common area
improvements.

As used herein the term “Taxes” shall mean all taxes and assessments (including
assessments of any commercial owners’ association or similar assessments) and
governmental charges whether federal, state, county or municipal and whether
they be by taxing or management districts or authorities presently taxing or by
others, subsequently created or otherwise, and any other taxes and assessments
attributable to the Project (or its revenues or operation), including the
buildings and the grounds, parking areas, driveways and alleys around the
buildings, excluding, however, federal and state taxes on income (except for any
state tax on income or rents to the extent such tax alleviates or specifically
replaces a portion of the ad valorem taxes that would otherwise be applicable to
the

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Project, including, without limitation, any new tax imposed on Landlord or the
Project under Chapter 171 of the Tax Code of the State of Texas currently being
promulgated). If the present method of taxation changes so that in lieu of the
whole or any part of any Taxes levied on the Project, there is levied on
Landlord a capital tax directly on the rents received therefrom or a franchise
tax, assessment, or charge based directly upon such rents, then all such taxes,
assessments, or charges, or the part thereof so based, shall be deemed to be
included within the term “Taxes” for the purposes hereof.

There are specifically excluded from the definition of the term “Basic Costs”
costs for capital improvements made to the Building, other than capital
improvements described in subparagraphs 3 and (1) above of this Exhibit and
except for items which, though capital for accounting purposes, are properly
considered maintenance and repair items, such as painting of common areas,
replacement of carpet in elevator lobbies, and the like; for repair,
replacements and general maintenance paid by proceeds of insurance or by Tenant
or other third parties, and alterations attributable solely to tenants of the
Building other than Tenant; for interest, amortization or other payments on
loans to Landlord; for depreciation of the Building; for leasing commissions;
for legal expenses, other than those incurred for the general benefit of the
Building’s tenants (e.g., tax disputes); for renovating or otherwise improving
space for occupants of the Building or vacant space in the Building; for
overtime or other expenses of Landlord in curing defaults or performing work
expressly provided in this Lease to be borne at Landlord’s expense; and for
federal and state income taxes imposed on or measured by the income of Landlord
from the operation of the Building. Furthermore, Basic Costs shall not include:

 

  (1) leasing commissions, attorneys’ fees, costs, disbursements and other
expenses incurred in connection with leasing, renovating or improving space
occupied by tenants or prospective tenants of the Building;

 

  (2) costs incurred by Landlord in the discharge of its obligations under the
Landlord Improvements Agreement;

 

  (3) costs (including permit, license and inspection fee) incurred in
renovating or otherwise improving or decorating, painting or redecorating space
occupied by tenants or vacant space intended for lease;

 

  (4) Landlord’s cost of any services sold to tenants for which Landlord is
reimbursed by such tenants as an additional charge or rental over and above the
Basic Rental and Basic Costs payable under the lease with such tenant or other
occupant;

 

  (5) any depreciation and amortization on the Building except as expressly
permitted herein;

 

  (6) Legal fees, fines, penalties, and similar costs incurred due to violation
by Landlord of any of the terms and conditions of this Lease or any other lease
relating to the Building;

 

  (7) interest on debt or principal/amortization payments on any mortgages or
deeds of trust or rental payments on any ground lease of the Project, or any
other debt for borrowed money;

 

  (8) all items and services for which Tenant reimburses Landlord outside of
Basic Costs by insurance proceeds or otherwise or which Landlord provides
exclusively to one or more tenants or occupants of the Building (other than
Tenant) without reimbursement;

 

  (9) cost of tenant concessions incurred by Landlord in securing new tenants of
the Building or retaining existing tenants including advertising and promotional
expenditures;

 

  (10) costs of repairs or replacements incurred by reason of fire, windstorm,
other insured casualty or condemnation (except to the extent of any deductible
or not covered by insurance or condemnation proceeds);

 

  (11) repairs resulting from any defect in the original design or construction
of the Building or the Building equipment, which become apparent during the
first year after Substantial Completion of the Building;

 

  (12) the cost of installing, operating and maintaining any specialty service,
such as an observatory, broadcasting facilities, luncheon club, athletic or
recreational club, except to the extent provided to all tenants at no charge and
for which rent is not collected from any occupant thereof;

 

  (13) general corporate overhead and administrative expenses of Landlord
(including salaries, fringe benefits and other compensation paid to partners,
officers and executive of Landlord) not incurred in the operation of the
Building, unless otherwise provided herein, except for allocated overhead costs
to cover accounting, audit, management and related costs (including rental for
any on-site or off-site management office) all of which shall be included in
Basic Costs (other than costs incurred by Landlord to audit any tenant in the
Building or audit costs incurred by Landlord from being audited by a tenant of
the Building, which audit costs shall be excluded from Basic Costs);

 

  (14) the cost of after-hours HVAC provided to space in the Building that is
paid for separately by a tenant;

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  (15) the cost of any work or service performed for any facility other than the
Project except to the extent of any commercial owners association assessments
for off-site facilities that serve the Project or for landscape services for
rights of way near the Project;

 

  (16) the cost of capital improvements except as otherwise provided herein;

 

  (17) insurance premiums to the extent Landlord is specifically reimbursed
therefore by another tenant other than as part of Basic Costs;

 

  (18) rental under any ground lease or other underlying lease except as
provided herein;

 

  (19) any costs included in Basic Costs representing an amount paid to any
person or entity related to Landlord which is in excess of the amount which
would have been paid in the absence of such relationship;

 

  (20) rentals and other related expenses incurred in leasing air conditioning
systems, elevators or other Building equipment ordinarily considered to be of a
capital nature, except equipment not affixed to the Building which is used in
providing janitorial or similar services, the cost of which equipment would not
constitute an expense under generally accepted accounting principles
consistently applied if the equipment were purchased;

 

  (21) any expense for repairs or maintenance to the extent such costs are
recovered under warranties or service contracts;

 

  (22) franchise or income taxes imposed upon Landlord, except to the extent
imposed in lieu of all or any part of Taxes;

 

  (23) legal and auditing fees which are strictly for the benefit of Landlord
such as collecting delinquent rents, preparing tax returns and other financial
statements, and audits other than those incurred in connection with (i) the
preparation of reports required by the Lease, (ii) collecting delinquent rents
under this Lease, or (iii) for protesting the property tax valuation for the
Project;

 

  (24) the wages of any employee to the extent the employee is providing
services that are not reasonably related to the management, maintenance,
operation and repair of the Project;

 

  (25) charitable contributions;

 

  (26) costs of removal, abatement or treatment of any Hazardous Substances in
or under the Building or land associated therewith (other than in the normal
course of business of operating, maintaining and repairing the Project and
equipment therein) but only to the extent such costs of are incurred as a result
of any gross negligence or willful misconduct of Landlord or its agents,
employees or contractors;

 

  (27) electrical power costs above normal consumption for which any tenant is
separately metered or directly contracts with the local public service company;

 

  (28) overhead and profit increment paid to Landlord or to subsidiaries or
affiliates of Landlord for services or materials in the Building to the extent
the same unreasonably exceeds the market costs of such services or materials of
similar quality rendered by comparable unaffiliated third parties on a
competitive basis;

 

  (29) costs of purchasing paintings, sculptures or other art work for display
in the Building;

 

  (30) costs incurred primarily in connection with the sale, financing,
refinancing, mortgaging, selling or change of ownership of Landlord, the
Building or the land associated therewith;

 

  (31) moving expense costs of tenants of the Building;

 

  (32) late charges, fines, penalties and interest incurred by Landlord for its
failure to pay timely mortgage installment, Basic Costs or Taxes;

 

  (33) rent for any on-site or off-site management office and salaries or other
compensation paid by Landlord to persons who are engaged directly in the
management, repair, maintenance or operation of the Building shall be included
as Basic Costs, but not any office furniture, equipment or any other articles or
fixtures to the extent utilized by Landlord in its business generally, provided
that such management office rent and salary or other compensation shall be
allocated equitably to the Building based upon the square footage of the
Building and the total square footage of all other buildings to which such
persons provide management, repair, maintenance or operational services; and

 

  (34) bad debt loss, rent loss, or reserves for either of these, and any other
reserves for repairs, maintenance or replacements unless pursuant to generally
accepted accounting principles or good and customary commercial property
practices.

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EXHIBIT “D”

LEASEHOLD IMPROVEMENTS AGREEMENT

This Leasehold Improvements Agreement is attached to and forms a part of that
certain Lease Agreement (“Lease”) dated May 5, 2006, between Lantana Office
Properties I, L.P., as “Landlord” and Arthrocare Corporation, as “Tenant”. All
terms used herein shall have the same meanings as are given to such terms in the
Lease, unless the context herein clearly requires otherwise.

Section 1.01

A. CONDITIONS PRECEDENT. Landlord hereby consents to Tenant’s construction of
improvements at the Premises upon the following four (4) conditions precedent:
(i) that Landlord and Tenant shall have mutually agreed in writing upon plans
and specifications for such construction utilizing the procedure hereinafter set
forth; (ii) that Landlord and Tenant shall have mutually agreed in writing upon
one or more general contractors to be utilized by Tenant in constructing such
improvements; the parties having agreed to DPR, Spaw Maxwell and Trimbuilt as
each being acceptable as of this date; (iii) that Tenant has tendered to
Landlord true copies of all building permits necessary for the work of Tenant
and its contractors to be performed under the Lease, together with all
certificates of all insurance required to be obtained by Tenant pursuant to the
Lease; and (iv) that the Lease has not been terminated for any reason permitted
under the Lease.

B. APPROVAL OF PLANS AND SPECIFICATIONS AND CONTRACTOR. If Landlord and Tenant
have not prior to (or contemporaneous with) the execution of the Lease by
Landlord and Tenant agreed in writing upon plans and specifications or have not
agreed in writing upon one or more general contractors to be utilized by Tenant
in constructing such improvements, then within 90 days after the date of the
Lease, Tenant shall cause complete plans and specifications to be prepared by
Susman Tisdale and Gayle Architects (or other architectural firm reasonably
approved in advance by Landlord) and submitted to Landlord for examination along
with a list of general contractors, any of which Tenant would be willing to
enter into a contract with for the construction of such improvements, provided
that the bid of such contractor or price negotiated with such contractor is
satisfactory to Tenant. Such plans and specifications shall include the
partition layout, ceiling plan, electrical outlets and switches, telephone
outlets, Tenant’s signage for the Premises (including color, type, material and
location), and drawings for any modifications to the mechanical and plumbing
systems of the Building. Such plans and specifications must be in accordance
with all applicable government laws, codes, rules, and regulations. Further, if
any of Tenant’s proposed construction work will affect the Building’s HVAC,
electrical, mechanical, or plumbing systems, then the working drawings
pertaining thereto shall be prepared by the Building’s engineer of record, or
MEJ and Associates, whom Tenant shall at its cost engage for such purpose.
Landlord shall examine the aforesaid plans and specifications and list of
contractors submitted by Tenant and notify Tenant as to any changes desired by
Landlord in such plans and specifications and as to whether Landlord approves or
disapproves of each contractor named on such list of contractors. Tenant shall
have no obligation to modify the plans and specifications in the manner
indicated by Landlord, but Tenant shall have no right to construct improvements
unless Landlord and Tenant shall have mutually agreed in writing upon the plans
and specifications therefore (as evidenced by Landlord’s and Tenant’s signing
and dating such plans and specifications) and unless Landlord and Tenant further
shall have mutually agreed in writing upon the contractor to be utilized by
Tenant. The plans and specifications approved by Landlord in accordance with the
terms and provisions hereof are referred to herein as the “Approved Plans”, and
the work to be performed in accordance with the Approved Plans is referred to
herein as “Tenant’s Work”. The contractor approved by Landlord is referred to as
the “Approved Contractor.” Notwithstanding the foregoing, Landlord shall not
unreasonably withhold, condition or delay changes or comments to Tenant’s
proposed plans and specifications.

C. BUILDING PERMIT AND OTHER REQUIRED PERMITS. Tenant will fulfill the
requirements of item (iii) of subparagraph A of this Section 1.01 within sixty
(60) days of the date of the latter of (i) Tender of the Premises (defined
below) or (ii) Landlord’s approval of Tenant’s plans and specifications and
provide Landlord with copies of such permits.

D. LANDLORD’S WORK. Landlord, at its sole cost and expense, shall construct
(i) the Building of the Project in which the Premises will be located as
generally described on Exhibit “D-1” attached hereto (sometimes referred to as
the “Base Building Improvements”), and (ii) V A V tenant boxes installed and
operational on each floor with perimeter fan-powered boxes installed and
operational along with perimeter slot diffusers and related ductwork. The
foregoing work to be constructed by Landlord is collectively referred to as
“Landlord’s Work.” Landlord’s Work shall be completed by Landlord in a good and
workmanlike manner and in accordance with all applicable laws and regulations
(including all handicap accessibility laws) in all material respects. It is
estimated that Landlord will achieve substantial completion of Landlord’s Work
on or before July 16, 2006 subject to extension for, among other things, items
of force mejeure (the “Estimated Completion Date”). To the extent that the
design in such construction of the Landlord’s Work must be changed or added to
in order to

 

F-1

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accommodate the special needs of Tenant in the Premises, such changes or
additions will be considered part of the Tenant’s Work and any increased cost
shall be paid for by Tenant in accordance with this Leasehold Improvements
Agreement. The Landlord’s Work will not include any of the Tenant’s Work (as
defined herein) and, without limiting the generality of the foregoing, the
Landlord’s Work will exclude the following: (a) Tenant’s ceiling and lighting;
(b) floor finish in the Premises; (c) interior finishes of any kind in the
Premises; (d) interior partitions, doors, and hardware within the Premises;
(e) Tenant’s furnishing, fixtures and equipment; (f) plumbing fixtures within
the Premises; (g) distribution of plumbing and electrical services; and (h) any
and all signs for the Tenant and the power therefore; (i) electrical panel
distribution wiring and fixtures throughout the Premises. Except for Landlord’s
agreement to provide the Landlord’s Work, and copies of the shell building
drawings and any changes thereto during construction that may affect Tenant’s
plans and specifications, Landlord has made no warranties or representations as
to the condition of the Premises of any kind or nature, express, implied, or
otherwise of any covenants of any kind or nature in connection with the
condition of the Premises, and Landlord has made no commitments to remodel,
repair, re-decorate, or improve the Premises. Tenant acknowledges and agrees
that Tenant has taken the Premised, including, but not limited to, all
mechanical and electrical improvements therein or thereto in an “AS IS”
condition and will be responsible for all finish-out work which may be necessary
in connection with such Premises, other than the Landlord’s Work. Landlord will
notify Tenant from time to time of any extensions to the Estimated Completion
Date but will diligently pursue completion of Landlord’s Work. Landlord will
tender possession of the Premises to Tenant and Tenant will accept tender of
possession of the Premises when Landlord’s contractor for Landlord’s Work has
secured an “above the ceiling inspection” on the first floor of the Building by
the City of Austin that such inspectors determines to be acceptable and Landlord
gives Tenant notice of such satisfactory inspection (“Tender of the Premises”).
The “above ceiling inspection” is the standard City of Austin inspection
consisting generally of electrical, plumbing and mechanical above ceiling rough
in inspection and above ceiling Fire Department visual and flow inspection of
the sprinkler system. Landlord anticipates that Tender of the Premises will
occur by approximately June 1, 2006 by written notice from Landlord to Tenant
which will allow for Tenant to cause the commencement of construction of the
Tenant’s Work. If the “above ceiling inspection” reveals certain remaining items
to be completed or corrected that are within the scope of that inspection,
Landlord and Tenant may nevertheless, by mutual agreement, agree to Tender of
the Premises prior to the final “above the ceiling inspection.” Landlord will be
deemed to have achieved substantial completion of Landlord’s Work upon the
latter of (i) the issuance of a certificate of substantial completion of
Landlord’s Work by Landlord’s architect, and (ii) the issuance of a temporary
certificate of occupancy for the shell building by the City of Austin (sometimes
referred to as a shell certificate of occupancy). Landlord will notify Tenant in
writing (along with a copy of such certificate of substantial completion and
such certificate of occupancy) within forty-eight (48) hours of when Landlord
achieves substantial completion of the Landlord’s Work. The foregoing
notwithstanding, it is understood and agreed that Tender of the Premises will
occur prior to Landlord achieving substantial completion of Landlord’s Work.

E. TENANT’S WORK. Upon the Tender of the Premises by Landlord to Tenant, Tenant
shall enter the Premises and Tenant will cause the Approved Contractor to
perform Tenant’s Work diligently and complete such work in a timely and good and
workmanlike manner and in accordance with Section F below. Tenant will also
provide and install all other interior work, trade equipment, furniture,
fixtures, and effects of every description necessary or appropriate for Tenant’s
business and all such items to be provided and installed by Tenant shall be of a
quality consistent with similar class buildings in the southwest office market
of the City of Austin and in accordance with the plans and specifications
approved by Landlord. Landlord or its agent shall have access to the Premises at
all times for ongoing inspections of Tenant’s Work and Landlord’s contractor
shall have access to the Premises at all times to coordinate Tenant’s Work with
the completion of Landlord’s Work and to perform work necessary to achieve
substantial completion of Landlord’s Work. Tenant will provide Landlord’s agent
and Landlord’s contractor the opportunity to be involved in construction
progress meetings with the Approved Contractor.

F. NO INTERFERENCE OF COMPLETION OF LANDLORD’S WORK OR OF BUSINESS OF PROJECT.
At all times while Tenant is completing Tenant’s Work at the Premises and
installing its trade equipment, furniture and fixtures, Tenant shall (i) ensure
that the Approved Contractor will coordinate its performance of the Tenant’s
Work with, and pursuant to the reasonable, good faith instructions of,
Landlord’s contractor performing Landlord’s Work so that in no event does the
performance of Tenant’s Work interfere with the performance of Landlord’s Work,
and (ii) ensure that the Approved Contractor will perform Tenant’s Work in a
manner that does not interfere with the conduct of business at the Project.
Landlord’s contractor will coordinate its work on the Building with the Approved
Contractor’s performance of Tenant’s Work provided that (i) Landlord’s
contractor’s work in completing the Building will take precedence over Tenant’s
Work but Landlord’s contractor will make reasonable efforts to avoid any
unreasonable delay of Tenant’s Work, and (ii) Landlord’s contractor will have
authority over final decisions of work coordination. Tenant shall comply with
all reasonable written requests as Landlord might make for the purpose of
avoiding such interference.

 

F-2

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G. TENANT’S SIGNAGE. Landlord shall have the right to approve Tenant’s proposed
signage as part of the Approved Plans, which approval shall not be unreasonably
withheld, conditioned or delayed so long as it is compliance with the Lease and
any applicable ordinances and restrictions. Tenant shall be granted building
standard suite signage and a listing on the Building’s lobby directory.
Additionally, Tenant shall be granted one non-exclusive listing in the topmost
available space on the Building’s monument sign. Such monument listing shall be
at Tenant’s sole cost and expense; subject to reimbursement out of the
Allowance. No other tenant in the Building will have more prominent signage at
the Building than Tenant unless such other tenant leases more space from
Landlord (or any entity under common ownership or common control as Landlord)
than Tenant in the Lantana Development of which the Project is a part.

Section 1.02

A. TENANT RESPONSIBLE FOR APPROVED CONTRACTOR AND CONSTRUCTION. With respect to
any labor performed or materials furnished by Tenant at the Premises, the
following shall apply: All such labor shall be performed and materials furnished
at Tenant’s own cost, expense, and risk. Labor and materials used in the
installation of Tenant’s furniture and fixtures, and in any other work on the
Premises performed by Tenant, will be subject to Landlord’s prior written
approval which shall not be unreasonably withheld, conditioned or delayed. With
respect to any contract of any such labor or materials, Tenant shall act as a
principal and not as the agent of Landlord. Tenant agrees to indemnify and hold
Landlord harmless from all claims (including costs and expenses of defending
against such claims) arising or alleged to arise from any act or omission of
Tenant or Tenant’s agents, employees, contractors, subcontractors, laborers,
materialmen, or invitees, or arising from any bodily injury or property damage
occurring or alleged to have occurred incident to Tenant’s work at the Premises.
Tenant shall have no authority to place any lien upon the Premises or any
interest therein nor in any way to bind Landlord; and any attempt to do so shall
be void and of no effect. Landlord expressly disclaims liability for the cost of
labor performed or materials furnished by Tenant. If, because of any actual or
alleged act or omission of Tenant, any lien, affidavit, charge, or order for the
payment of money shall be filed against Landlord, the Premises, or any portion
thereof or interest therein, whether or not such lien, affidavit, charge, or
order is valid or enforceable, Tenant shall, at its own cost and expense, cause
same to be discharged of record by payment, bonding, or otherwise, no later than
thirty (30) days after notice to Tenant of the filing thereof, but in all
events, prior to the foreclosure thereof. All of Tenant’s construction at the
Premises shall be performed in a good and workmanlike manner satisfactory to
Landlord’s agent in accordance with applicable building codes, regulations, and
all other legal requirements.

Section 1.03

A. COMPLETION OF TENANT IMPROVEMENTS. Tenant agrees that its construction of
Tenant’s Work will be completed in accordance with the Approved Plans and a
certificate of occupancy to be issued by the City of Austin for the Premises
within one hundred fifty (150) days after the Tender of the Premises to Tenant
by Landlord (the “Completion Deadline”). The Completion Deadline will be
extended for delays due to items of force mejuere so long as Tenant notifies
Landlord in writing prior to the Completion Deadline of the items of force
mejuere that are causing delays and Tenant is diligently prosecuting the
completion of Tenant’s Work.

Prior to the installation of floor covering in the Premises as part of Tenant’s
Work, Tenant will cause that portion of the concrete slab of the Building to be
tested for moisture content to ensure that it does not exceed 5 pounds of
moisture within an area of 1,000 square feet over a 24 hour period (referred to
herein as “Moisture Content”). If the Moisture Content exceeds 5 pounds of
moisture on the later of (i) the date that Tenant intends to install such floor
coverings, or (ii) 60 days after the date of Tender of the Premises, then
(a) Tenant will provide such test results together with backup documentation to
Landlord, (b) Tenant will cause that portion of the slab to be treated with a
two coat barrier/inhibitor to cause the Moisture Content to be reduced to
acceptable levels (the “Barrier/Inhibitor Application”), and (c) upon completion
of the Barrier/Inhibitor Application, Tenant will submit invoices reflecting all
costs incurred by Tenant with regard to the Barrier/Inhibitor Application and
within thirty (30) days of receipt of such documentation, Landlord will
reimburse Tenant for  1/2 of all such costs incurred by Tenant up to a maximum
amount of $23,000.

Section 1.04

A. PAYMENT OF ALLOWANCE. Provided that Tenant is not in material default
hereunder, Landlord shall pay to Tenant as an “Allowance” the lesser of:
(i) Tenant’s actual “Building Improvement Costs” (as hereinafter defined); or
(ii) the sum equal to the product of the net rentable square feet of the
Premises multiplied by $34.00 toward Building Improvement Costs with respect to
the Premises. The Allowance will be payable in three (3) installments when
Tenant’s Work is 25% complete, 50% complete and finally complete, respectively.
When construction of Tenant’s Work is 25% and 50%

 

F-3

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complete, respectively, and Tenant is making an application for an installment
payment of the Allowance, Tenant must first furnish Landlord the following:

 

  (1) A copy of Tenant’s contract with the Approved Contractor performing
Tenant’s Work together with all executed change orders and a current schedule of
values;

 

  (2) Tenant’s affidavit, generally in the form as Schedule 1 hereto, that such
construction has been completed to the specified percentage of completion to its
satisfaction and in strict accordance with the Approved Plans, which affidavit
shall also state the total Building Improvement Costs itemized in reasonable
detail incurred to the specified percentage of completion;

 

  (3) General Contractor’s Affidavit and Lien Waiver with respect to the
Premises and Building, generally in the form as Schedule 2 hereto, executed by
the general contractor(s) performing such work stating that construction has
been fully completed to the specified percentage of completion in accordance
with the Approved Plans and that all subcontractors, laborers, and material
suppliers engaged in or supplying materials for such work have been paid in full
to the specified percentage of completion;

 

  (4) Subcontractors Lien Waiver with respect to the Premises and Building,
generally in the form Schedule 3 hereto, executed by all subcontractors and
materialmen who shall have furnished labor and/or materials for the work with a
value in excess of $25,000.00;

 

  (5) Certificate of completion from Tenant’s architect, certifying that such
construction work has been fully completed to the specified percentage of
completion in accordance with the Approved Plans.

 

  (6) Delivery by Tenant to Landlord of all certificates of insurance and other
items required under the Lease.

Once Tenant has achieved completion of 25% of Tenant’s Work and satisfaction of
items 1 – 6 above, then Landlord will pay to Tenant an amount equal to the
lesser of 25% of the Building Improvement Costs incurred in achieving 25%
completion or 25% of the Allowance within 30 days of written application by
Tenant for such payment. Likewise, once Tenant has achieved completion of 50% of
the Tenant’s Work and satisfaction of items 1 – 6 above for such additional
work, then Landlord will increase the payment of Allowance to Tenant in a total
amount equal to the lesser of 50% of the Building Improvement Costs incurred in
achieving 50% completion or 50% of the Allowance (taking credit for the payment
of the first installment of the Allowance) within 30 days of written application
by Tenant for such payment. Tenant acknowledges and agrees that prior to the 25%
Allowance payment and/or the 50% Allowance payment, Landlord, or Landlord’s
agent, may inspect the Premises and the Tenant’s Work to ensure that the
applicable percentage of completion has been achieved in accordance with the
Approved Plans.

Upon full completion of construction of Tenant’s Work and installation of
Tenant’s fixtures and equipment in the Premises (and after all applicable
governmental inspections and the receipt of a certificate of occupancy issued by
the City of Austin), Tenant shall notify Landlord in writing to inspect such
construction and installation. Upon such notice, Landlord’s agent on Landlord’s
behalf shall inspect the Premises for completion in accordance with the Approved
Plans and other requirements in the Lease to the satisfaction of Landlord’s
agent and give written notice to the Tenant of Landlord’s acceptance of or
rejection of Tenant’s construction and installation. Upon full and final
completion of construction of the Tenant’s Work in accordance with the Approved
Plans and installation of Tenant’s fixtures and equipment, and upon receipt of
the written approval of completion of such construction and installation from
the Landlord or Landlord’s agent, and provided Tenant is not in material default
hereunder, Landlord shall pay to Tenant the lesser of (i) Tenant’s remaining
actual Building Improvement Costs (after crediting prior amounts of the
Allowance paid by Landlord), or (ii) the remaining Allowance (after crediting
prior amounts of the Allowance paid by Landlord), toward Building Improvement
Costs with respect to the Premises, provided that Tenant has furnished to
Landlord the following:

(1) A certificate of occupancy (or other certificates) evidencing inspection and
acceptance of all of Tenant’s Work by appropriate government authorities;

(2) A copy of Tenant’s contract with the Approved Contractor performing Tenant’s
Work;

(3) A copy of the Approved Plans marked in red on a reproducible set of drawings
to show as-built conditions;

 

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(4) Tenant’s affidavit, in the form attached hereto as Schedule 1, that such
construction has been completed to its satisfaction and in strict accordance
with the Approved Plans, which affidavit shall also state the total Building
Improvement Costs itemized in reasonable detail;

(5) General Contractor’s Affidavit and Lien Waiver with respect to the Premises
and Project, in the form attached hereto as Schedule 2, executed by the general
contractor(s) performing such work stating that construction has been fully
completed in accordance with the Approved Plans and that all subcontractors,
laborers, and material suppliers engaged in or supplying materials for such work
have been paid in full;

(6) Subcontractors Lien Waiver with respect to the Premises and Project, in the
form attached hereto as Schedule 3, executed by all subcontractors and
materialmen who shall have furnished labor and/or materials for the work with a
value in excess of $25,000.00;

(7) Certificate of substantial completion from Tenant’s architect certifying
that such construction work has been fully completed in accordance with the
Approved Plans; and

(8) Delivery by Tenant to Landlord of all certificates of insurance and other
items required under the Lease, and payment by Tenant to Landlord of all rentals
and other sums as shall have come due between the Commencement Date of the Lease
and the date upon which Tenant makes application for payment of its Allowance.

B. BUILDING IMPROVEMENT COSTS. The phrase “Building Improvement Costs”, as used
herein, means the total reasonable costs paid by Tenant to all contractors
furnishing labor and material for erection and improvement of Tenant’s Work, as
well as for soft costs associated with the preparation of Tenant’s plans and
specifications or other aspects of Tenant’s Work; and costs to wire the Leased
Premises for voice, data, audio visual and security services. The phrase
“Building Improvement Costs”, as used herein, shall not include any sum paid or
liability incurred by Tenant for: (i) any brokerage or finder’s fee or similar
fee; (ii) except for allowed soft costs, any sum which is paid pursuant to a
liability incurred prior to the date of the Lease; or (iii) any removable trade
fixtures, equipment, or furniture.

C. RETAINAGE. Landlord may, if Landlord elects, withhold ten percent (10%) of
the sum payable by Landlord to Tenant pursuant to Section 1.04.A. hereof for a
period of thirty (30) days following the satisfaction of all requirements of
Section 1.04.A. If Landlord itself shall have constructed for Tenant any
improvements at the Premises beyond the improvements heretofore provided to be
constructed by Landlord, Landlord may withhold from the sum payable by Landlord
to Tenant pursuant to Section 1.04.A. hereof the amount owing to Landlord by
Tenant for all such work. Landlord may likewise withhold from the sum payable by
Landlord pursuant to Section 1.04.A. hereof any other amount then due from
Tenant.

Section 1.05

A. INSURANCE REQUIREMENTS. In connection with any construction of improvements
at the Premises by Tenant, Tenant shall take out and maintain (or cause the
contractor under its construction contract(s) to take out and maintain) all risk
public liability insurance in a minimum amount of $2,000,000.00 combined single
limit. Said liability insurance shall name Landlord as an additional insured
with Tenant (and shall contain a cross-liability endorsement) and shall be
non-cancelable with respect to Landlord except upon thirty (30) days’ notice to
Landlord (given in the same manner as provided in the Lease). Tenant shall also
take out and maintain (or cause the contractor under its construction
contract(s) to take out and maintain) all builder’s risk insurance to the full
insurable value of improvements constructed and materials stored at the
Premises. Said builder’s risk insurance shall name Landlord as an additional
insured and shall be non-cancelable with respect to Landlord. Certificates of
all such insurance shall be delivered by Tenant to Landlord within five (5) days
following Tenant’s entering into any such construction contract(s) (but in all
events prior to Tenant or Tenant’s general contractor commencing construction).

Section 1.06

A. FIXTURES. All improvements constructed by Tenant at the Premises (excepting
only removable trade fixtures, furniture, and equipment installed by Tenant)
shall, immediately upon such construction, become and remain the property of
Landlord; and Tenant shall have no right, title, or interest (including lien
interest) therein, except only as Tenant under the provisions of the Lease. The
aforesaid improvements, if constructed by Tenant, are not intended as any nature
of rent or compensation to Landlord.

 

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Section 1.07

A. LANDLORD APPROVAL NOT A WARRANTY. Landlord assumes no responsibility with
respect to any plans and specifications for construction work to be performed by
Tenant, the selection of general contractors and subcontractors, and/or the
performance of any construction work for which Tenant is responsible under the
terms of this Leasehold Improvements Agreement. By accepting, consenting to, or
approving any item, person, or matter which is delivered or presented to
Landlord or which is required to be accepted, consented to, or approved by
Landlord pursuant to this Lease, including, without limitation, the approval of
any plans and specifications for leasehold improvements and/or the approval of
any general contractors or subcontractors, Landlord shall not be deemed to have
warranted or represented the sufficiency, effectiveness, or any other
characteristics of the same, or of any term, provision, or condition thereof,
and such acceptance, consent to, or approval thereof shall not be or constitute
any warranty or representation of any kind or nature with respect thereto by
Landlord. No inspection or approval is a substitute for any applicable
governmental approval, review, inspection, permit, or certificate, all of which
are Tenant’s responsibility.

 

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