Document:

Exhibit
10.1

 

OFFICE LEASE

(Amended and Restated as of August 2, 2004)

 

 

THIS AMENDED AND RESTATED OFFICE LEASE (“Lease”),
dated as of August 2, 2004, is made and entered into by and between PGI EQUITY PARTNERS, L.P.., a Texas limited
partnership, (“Landlord”) and TREATY OAK
BANK, a Texas banking association, with offices located at 101
Westlake Drive, Austin, Texas, 78746 (“Tenant”) upon the following terms and
conditions:

 

WHEREAS,
Landlord and Tenant have previously entered into a lease agreement dated March 8,
2004, for the real property and premises described herein (the “Agreement”);
and

 

WHEREAS, the
parties desire to amend and restate the terms of such Agreement as reflected in
this Lease, to be effective as of June 1, 2004.

 

ARTICLE I – DEFINITIONS

 

Unless the context otherwise specifies or requires,
the following terms shall have the meanings specified herein;

 

1.01                           Building.  The
term “Building” shall mean that certain office building located at 101 Westlake
Drive, Austin, Texas, commonly known as The Treaty Oak Financial Building,
together with any related land, improvements, parking facilities, common areas,
driveways, sidewalks and landscaping, whether classified as real or personal
property.

 

1.02                           Premises.  The
term “Premises” shall mean Suite 110 in the Building, as more particularly
outlined on the drawing attached hereto as Exhibit A and incorporated
herein by reference.  As used herein, “Premises”
shall not include any storage area in the Building, which shall be leased or
rented pursuant to separate agreement.

 

1.03                           Rentable Area of the
Premises.   The term “Rentable Area of the Premises”
shall mean 7,000 square feet, which Landlord and Tenant have stipulated as the
Rentable Area of the Premises.  Tenant
acknowledges that the Rentable Area of the Premises includes the usable area of
the premises, without deduction for columns or projections, multiplied by a
load factor to reflect a share of certain areas, which may include lobbies,
corridors, mechanical, utility, janitorial, boiler and service rooms and
closets, restrooms and other public, common and service areas of the Building.

 

1.04                           Lease Term.  The
term “Lease Term” shall mean the period between the Commencement Date and the
Expiration Date (as such terms are hereinafter defined), unless sooner
terminated as otherwise provided in this Lease.

 

1.05                           Commencement Date.  The “Commencement
Date” shall be June 1, 2004.

 

 

1.06                           Expiration Date.  The
term “Expiration Date” shall mean the last day of the the180th month
following the Commencement Date.

 

1.07                           Base Rent.  The
term “Base Rent” shall mean:

 

	
  Period

  	
   

  	
  Annual

  	
   

  	
  Monthly

  	
   

  	
  Rate Per Square Foot’

  	
   

  
	
  Months 1-24

  	
   

  	
  $

  	
  147,000.00

  	
   

  	
  $

  	
  12,250.00

  	
   

  	
  $

  	
  21.00

  	
   

  
	
  Months 25-48

  	
   

  	
  $

  	
  150,500.00

  	
   

  	
  $

  	
  12,541.67

  	
   

  	
  $

  	
  21.50

  	
   

  
	
  Months 49-60

  	
   

  	
  $

  	
  154,000.00

  	
   

  	
  $

  	
  12,833.33

  	
   

  	
  $

  	
  22.00

  	
   

  
	
  Months
  61-120

  	
   

  	
  $

  	
  161,000.00

  	
   

  	
  $

  	
  13,416.67

  	
   

  	
  $

  	
  23.00

  	
   

  
	
  Months
  121-180

  	
   

  	
  $

  	
  168,000.00

  	
   

  	
  $

  	
  14,000.00

  	
   

  	
  $

  	
  24.00

  	
   

  

 

1.08                           Tenant’s Percentage Share.  The
term “Tenant’s Percentage Share” shall mean 46.67% and shall be used to
calculate Property Taxes, Operating Expenses (as such terms are hereinafter
defined), and other costs payable by Tenant. 
Landlord may reasonably redetermine Tenant’s Percentage Share from time
to time to reflect reconfigurations, additions or modifications to the
Building.

 

1.09                           Security Deposit. $12,250.00

 

1.10                           Tenant’s Permitted Use.  The
term “Tenant’s Permitted Use” shall mean general and executive offices
including the sharing, subletting and/or other similar usage by Tenant’s
subsidiary, affiliate and/or parent companies, and for no other use or purpose
whatsoever.

 

1.11                           Business Hours.  The
term “Business Hours” shall mean the hours of 8:00 A.M. to 6:00 P.M., Monday
through Friday, and 8:00 A.M. to 12:00 P.M., Saturdays (federal and state
holidays excepted).

 

1.12                           Landlord’s Address For
Notices.  The term “Landlord’s Address for Notices”
shall mean P.O. Box 162905, Austin, Texas, 78716, Attention: Terry W. Hamann,
with a copy to the Property Manager, at the Building.

 

1.13                           Tenant’s Address For Notices.  The
term “Tenant’s Address for Notices” shall mean 101 Westlake Drive, Suite 110,
Austin, Texas 78746.  Attention:  Jeffrey L. Nash.

 

2

 

ARTICLE II
– PREMISES

 

2.01                           Lease of Premises. 
Landlord hereby leases the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, upon all of the terms, covenants and conditions
contained in this Lease.  On the
Commencement Date described herein, Landlord shall deliver the Premises to Tenant
in substantial conformance with the Work Letter Agreement attached hereto as

Exhibit B.

 

2.02                           Acceptance of Premises. 
Tenant acknowledges that Landlord has not made any representation or
warranty with respect to the condition of the Premises or the Building or with
respect to the suitability or fitness of either for the conduct of Tenant’s
Permitted Use or for any other purpose. Prior to Tenant’s taking possession of
the Premises, Landlord or its designee and Tenant will walk the Premises for
the purpose of reviewing the condition of the Premises (and the condition of
completion and workmanship of any tenant improvements which Landlord is
required to construct in the Premises pursuant to this Lease); after such
review, Tenant shall execute a Suite Acceptance Letter, in the form of Exhibit
D attached hereto, accepting the Premises. 
Except as is expressly set forth in this Section 2.02 or the Work
Letter Agreement attached hereto, or as may be expressly set forth in the Suite
Acceptance Letter, Tenant agrees to accept the Premises in its “as is” physical
condition without any agreements, representations, understandings or
obligations on the part of Landlord to perform any alterations, repairs or
improvements (or to provide any allowance for same).

 

 

ARTICLE III
– TERM

 

3.01                           Initial Term.  The
Lease Term shall be for the period described in Section 1.04 of this
Lease, commencing on the Commencement Date described in Section 1.05 of
this Lease and ending on the Expiration Date described in Section 1.06 of
this Lease unless Tenant has extended the Lease Term in accordance with Section 3.02
below. Landlord shall not have any liability or suffer any damages for its
failure to deliver possession of the Premises on any date certain.

 

Notwithstanding the generality of the foregoing, subject to events of
force majeure set forth in Section 27.04 and Tenant caused delays, in the
event that Landlord fails to deliver the Premises in the condition required by
this Lease by the date which shall be sixty (60) days following full execution
and delivery of this Lease to each party, Tenant shall be entitled to one day
of free Base Rent for every day that Landlord is delayed for failure to deliver
the Premises in the condition required by this Lease.  If Landlord fails to deliver the Premises in
the condition required by this Lease by the date which shall be one hundred
eighty (180) days following full execution and delivery of this Lease
(regardless of force majeure delays but subject to Tenant caused delays),
Tenant shall have the option to terminate this Lease at any time thereafter
(but prior to delivery of the Premises), upon not less than thirty (30) days
written notice to Landlord.  If Tenant
exercises such option, this Lease shall terminate at the end of such thirty
(30) day period (or on such later termination date as may be specified in
Tenant’s notice of exercise)

 

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unless Landlord delivers the Premises in the required condition prior
to such date.  If this Lease is so
terminated, the parties shall be released of all further liability as respects
each to the other.

 

3.02                           Options to Extend Term. 
Tenant is hereby granted options to extend the Term of this Lease for
two (2) successive additional periods of five (5) years each (each such
additional period being herein referred to as an “Extended Term”) by giving
written notice of such extension to Landlord at least nine (9) months prior to
the expiration of the initial Term of this Lease or the first Extended Term, as
the case may be.  Tenant shall have the
right to exercise these options to extend provided that on the date of such
exercise or on any day thereafter on or before the last day of the initial Term
or Extended Term, as the case may be, Tenant is not in material default of this
Lease, which in such case (i) any notice of extension shall be totally
ineffective and (ii) this Lease shall expire on the last day of such initial
Term or Extended Term, as the case may be, if not sooner terminated.  In the event Tenant exercises its options to
extend set forth herein, all the terms and conditions of this Lease shall
continue to apply.

 

3.03                           Extended Term Base Rent.  In
the event Tenant exercises an option to extend, all the terms and conditions of
this Lease shall continue to apply except that the Base Rent payable by Tenant
during each such Extended Term shall be equal to ninety percent (90%) of Fair
Market Rent (as defined below) and as determined in accordance with Section 3.04
below.  “Fair Market Rent” shall mean the
effective rate being charged (including periodic adjustments thereto as
applicable during the period of the Extended Term), for comparable space in
similar buildings in the vicinity (i.e. of a similar age and quality
considering any recent renovations or modernization, and floor plate size) or,
if such comparable space is not available, adjustments shall be made in the
determination of Fair Market Rent to reflect the age and quality of the
Building and Premises as contrasted to other buildings used for comparison
purposes, with similar amenities, taking into consideration: size, location,
floor level, leasehold improvements or allowances provided or to be provided,
term of the lease, extent of services to be provided, the time that the
particular rate under consideration became or is to become effective, and any
other relevant terms or conditions applicable to both new and renewing tenants.

 

3.04                           Determination of Fair Market Rent. 
Within thirty (30) days following Tenant’s delivery of each notice to
exercise its option to extend the Term, Tenant and Landlord shall mutually
agree in writing upon an independent appraiser to determine Fair Market
Rent.  Such designated appraiser shall be
a member of AIA and shall have at least ten (10) years experience in appraising
commercial real property, of similar quality and use as the Building and
Premises, in Austin, Texas.  Within
thirty (30) days following such designation, the appraiser shall submit his or
her good faith determination of Fair Market Rent for the Premises for the
Extended Term, and such determination shall be binding upon Tenant and Landlord
as Fair Market Rent for each applicable Extended Term.

 

4

 

ARTICLE IV
– RENTAL

 

4.01                           Definitions.  As
used herein,

 

(A)                              “Property Taxes” shall mean the aggregate
amount of all real estate taxes, assessments (whether they be general or
special), sewer rents and charges, transit taxes, taxes based upon the receipt
of rent and any other federal, state or local governmental charge, general,
special, ordinary or extraordinary (but not including income or franchise
taxes, capital stock, inheritance, estate, gift, or any other taxes imposed
upon or measured by Landlord’s gross income or profits, unless the same shall
be imposed in lieu of real estate taxes or other ad valorem taxes), which
Landlord shall pay or become obligated to pay in connection with the Building,
or any part thereof.  Property Taxes
shall also include all fees and costs, including attorneys’ fees, appraisals
and consultants’ fees, incurred by Landlord in seeking to obtain a
reassessment, reduction of, or a limit on the increase in, any Property Taxes,
regardless of whether any reduction or limitation is obtained.  Property Taxes for any calendar year shall be
Property Taxes which are due for payment or paid in such year, rather than
Property Taxes which are assessed or become a lien during such year.  Property Taxes shall include any tax,
assessment, levy, imposition or charge imposed upon Landlord and measured by or
based in whole or in part upon the Building or the rents or other income from
the Building, to the extent that such items would be payable if the Building
was the only property of Landlord subject to same and the income received by
Landlord from the Building was the only income of Landlord.  Property Taxes shall also include any personal
property taxes imposed upon the furniture, fixtures, machinery, equipment,
apparatus, systems and appurtenances of Landlord used in connection with the
Building and located in the Building.

 

(B)                                “Operating Expenses” shall mean all costs,
fees, disbursements and expenses paid or incurred by or on behalf of Landlord
in the operation, ownership, maintenance, insurance, management, replacement
and repair of the Building (excluding Property Taxes) including without
limitation:

 

(i)                                     Premiums for property, casualty, liability,
rent interruption or other types of insurance carried by Landlord.

 

(ii)                                  Salaries, wages and other amounts paid or
payable for personnel including the Building manager, superintendent, operation
and maintenance staff, and other employees of Landlord involved in the
maintenance and operation of the Building, including contributions and premiums
towards fringe benefits, unemployment, disability and worker’s compensation
insurance, pension plan contributions and similar premiums and contributions
and the total charges of any independent contractors or property managers
engaged in the operation, repair, care, maintenance and cleaning of any portion
of the Building.

 

(iii)                               Cleaning expenses, including without
limitation janitorial services, window cleaning, and garbage and refuse
removal.

 

5

 

(iv)                              Landscaping expenses, including without
limitation irrigating, trimming, mowing, fertilizing, seeding, and replacing
plants.

 

(v)                                 Heating, ventilating, air conditioning and
steam/utilities expenses, including fuel, gas, electricity, water, sewer,
telephone, and other services.

 

(vi)                              Subject to the provisions of Section 4.01(C)(xii)
below, the cost of maintaining, operating, repairing and replacing components
of equipment or machinery, including without limitation heating, refrigeration,
ventilation, electrical, plumbing, mechanical, elevator, escalator, sprinklers,
fire/life safety, security and energy management systems, including service
contracts, maintenance contracts, supplies and parts.

 

(vii)                           Other items of repair or maintenance of
elements of the Building.

 

(viii)                        The costs of policing, providing security for
and supervising the Building.

 

(ix)                                Fair market rental and other costs with
respect to the management office for the Building.

 

(x)                                   The cost of the rental of any machinery or
equipment and the cost of supplies used in the maintenance and operation of the
Building.

 

(xi)                                Audit fees and the cost of accounting
services incurred in (a) the preparation of statements referred to in this
Lease, financial statements and tax returns, and (b) the computation of the
rents and charges payable by tenants of the Building.

 

(xii)                             Capital expenditures (a) made primarily to
reduce Operating Expenses, or to comply with any laws or other governmental
requirements, or (b) for replacements (as opposed to additions or new
improvements) of non-structural items located in the common areas of the
property required to keep such areas in good condition; provided, all such
permitted capital expenditures (together with reasonable financing charges)
shall be amortized for purposes of this Lease over the shorter of (x) their
useful lives, (y) the period during which the reasonably estimated savings in
Operating Expenses equals the expenditures, or (z) three (3) years.

 

(xiii)                          Legal fees and expenses.

 

(xiv)                         Payments under any easement, operating
agreement, declaration, restrictive covenant, or instrument pertaining to the
sharing of costs in any planned development.

 

6

 

(xv)                            A fee for the administration and management
of the Building as reasonably determined by Landlord from time to time.

 

Operating Expenses shall not include costs of alteration of the
premises of tenants of the Building, depreciation charges, interest and
principal payments on mortgages, ground rental payments, real estate brokerage
and leasing commissions, expenses incurred in enforcing obligations of tenants
of the Building, salaries and other compensation of executive officers of the
managing agent of the Building senior to the Building manager, costs of any
special service provided to any one tenant of the Building but not to tenants
of the Building generally, and costs of marketing or advertising the Building.

 

Furthermore, Operating Expenses shall not include expenditures for any
of the following:

 

1.                                       Costs (including permit, license, and
inspection fees) incurred in renovating, improving, decorating, painting or
redecorating vacant space or space for tenants;

 

2.                                       Landlord’s cost of electricity or other
services sold or provided to tenants, other than Tenant, for which Landlord is
to be reimbursed as a charge over the rent and additional rent payable under
the lease with that tenant;

 

3.                                       Costs incurred because another tenant
violated the terms of its lease;

 

4.                                       Overhead and profit paid to subsidiaries or
affiliates of Landlord for management or other services (acknowledging that a
commercially reasonable management fee is part of Operating Expenses) on or to
the Building or for supplies or other materials, to the extent that the costs
of the services, supplies or materials exceed the reasonable and customary
costs of the services, supplies or materials had they not been provided by a
subsidiary or affiliate;

 

5.                                       Repairs or other work needed because of fire,
windstorm, or other casualty or cause insured against by Landlord or to the
extent Landlord’s insurance required under this Lease (if such insurance were
at full replacement cost) would have provided insurance, whichever is the
greater coverage;

 

6.                                       Costs of correcting defects in or inadequacy
of the initial design of the Building;

 

7.                                       Any costs, fines, or penalties incurred
because Landlord violated a governmental rule or authority;

 

8.                                       Penalties incurred because Landlord was late
in making any payment for which Landlord was responsible, such as (but not
limited to) taxes or payments under an equipment lease;

 

9.                                       Advertising and promotional expenses;

 

7

 

10.                                 Expenses in connection with services or other
benefits of a type which are not provided to Tenant but which are provided to
another tenant or occupant;

 

11.                                 Costs of correcting or repairing defects in
the Building and/or any associated parking facilities, and/or equipment or the
replacement of defective equipment, to the extent all of the foregoing costs
are covered by warranties of manufacturers, suppliers or contractors, or are
otherwise borne by parties other than Landlord;

 

12.                                 Compensation paid to clerks, attendants or
other persons in commercial concessions operated by Landlord;

 

13.                                 Contributions to any so-called “reserve” fund
or the like;

 

14.                                 Legal and other expenses incurred in
negotiating or enforcing the terms of any tenant lease other than this Lease;

 

15.                                 Expenses for restoration of the Building
required as a result of condemnation, to the extent Landlord receives
condemnation proceeds or any similar award;

 

16.                                 Costs for sculpture, paintings or other works
of art in excess of $5,000 per year;

 

17.                                 Any expenses for which Landlord receives
reimbursement from any tenant or any other party (other than pursuant to a
general sharing of costs such as Property Taxes or Operating Expenses);

 

18.                                 Legal fees, space planners’ fees, brokers’
commissions, and other related costs incurred by Landlord in connection with
leasing space and negotiating leases in the Building;

 

19.                                 Costs associated with the operation of the
business of the entity which constitutes Landlord (such as Landlord’s general
partnership overhead and general administrative overhead) as the same is
distinguished from the costs of operation of the Building;

 

20.                                 Costs of capital expenses or improvements,
except as expressly permitted in Section 4.01(C)(xii);

 

21.                                 Depreciation on the Building;

 

22.                                 Landlord’s general overhead expenses not
related to the Building;

 

8

 

23.                                 Payment of principal and/or interest on debt
or amortization payments and the costs of expenses associated with obtaining
any mortgage or mortgages executed by Landlord covering the Building or the
Premises (or any portion of either), rental concessions or negative cash flow
guaranties, and rental payments under any ground or underlying leases or lease;

 

24.                                 Contributions to charitable organizations;

 

25.                                 Rentals and other related expenses incurred
in leasing air conditioning systems, elevators, or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in providing
janitorial services and which is not affixed to the Building, and except for
security or emergency HVAC equipment;

 

26.                                 Costs of installing, operating, or
maintaining any specialty service operated by or under Landlord including,
without limitation, cafeterias, clubs, exercise facilities, smoking rooms, day
care centers, or restaurants;

 

27.                                 Costs incurred in removing the property of
former tenants or occupants of the Building;

 

28.                                 Consulting costs and expenses incurred by
Landlord except and to the extent the same relate directly to the management or
operation of the Building;

 

29.                                 Costs or fees relating to the defense of
Landlord’s title to or interest in the Building, or any part thereof;

 

30.                                 Depreciation charges, other “non-cash”
expense items or amortization, except for amortization charges permitted in Section 4.01(C)(xii)
hereof; and

 

31.                                 Any other expense or cost which under
generally accepted accounting principles and practices consistently applied
would not be considered a normal maintenance or operating expense of the
Building.

 

(C)                                If the Building does not have one hundred
percent (100%) occupancy during an entire calendar year, then the variable cost
component of “Property Taxes” and “Operating Expenses” shall be equitably
adjusted so that the total amount of Property Taxes and Operating Expenses
equals the total amount which would have been paid or incurred by Landlord had
the Building been one hundred percent (100%) occupied for the entire calendar
year.  In no event shall Landlord be entitled
to receive from Tenant and any other tenants in the Building an aggregate
amount in excess of actual Operating Expenses as a result of the foregoing
provision.

 

9

 

4.02                           Base Rent. 
During the Lease Term, Tenant shall pay to Landlord as rental for the
Premises the Base Rent described in Section 1.07 above or Section 3.03
above in the case of an Extended Term.

 

4.03                           Triple Net Lease.  This
Lease is what is commonly referred to as a “Triple Net Lease,” it being
understood that Landlord shall receive the Base Rent set forth in Section 4.02
free and clear of any and all expenses, costs, impositions, taxes, assessments,
liens or charges of any nature whatsoever.

 

4.04                           Additional Rent.  In
addition to the Base Rent reserved by Section 4.02, Tenant shall pay, as
Additional Rent (i) Tenant’s Share of all taxes, assessments, fees and other
impositions payable by Tenant in accordance with the provisions of Section 4.05
below, and insurance premiums in accordance with the provisions of Article X;
(ii) Tenant’s Share of Operating Expenses in accordance with the provisions of Section 4.05
below; and (iii) any other charges, costs and expenses (including appropriate
reserves therefore) that are contemplated or that may arise under any provision
of this Lease during the initial Term or any Extended Term.  All of such charges, costs, expenses, and all
other amounts payable by Tenant hereunder shall constitute “Additional Rent”,
and upon the failure of Tenant to pay any of such charges, costs or expenses,
Landlord shall have the same rights and remedies as otherwise provided in this
Lease for the failure of Tenant to pay Base Rent.  Such Additional Rent, together with the Base
Rent shall sometimes be referred to in this Lease as “Rent.”

 

4.05                           Operating Expenses; Property
Taxes; Estimates.  The Additional Rent specified in Section 4.04
above shall be determined and paid as follows:

 

(A)                              During each calendar year, Landlord shall
give Tenant written notice of its estimate of any amounts payable under Section 4.04
for that calendar year.  On or before the
first day of each calendar month during the calendar year, Tenant shall pay to
Landlord one-twelfth (1/l2th) of such estimated amounts; provided, however,
that, not more often than quarterly, Landlord may, by written notice to Tenant,
revise its estimate for such year, and subsequent payments by Tenant for such
year shall be based upon such revised estimate.

 

(B)                                Within one hundred twenty (120) days after
the close of each calendar year or as soon thereafter as is practicable,
Landlord shall deliver to Tenant a statement of that year’s Property Taxes,
Operating Expenses and other costs (“Landlord’s Statement”), and the actual
Additional Rent due pursuant to Section 4.04 for such calendar year.  If the amount of the actual Additional Rent
is more than the estimated payments for such calendar year made by Tenant,
Tenant shall pay the deficiency to Landlord upon receipt of Landlord’s
Statement.  If the amount of the actual
Additional Rent is less than the estimated payments for such calendar year made
by Tenant, any excess shall be credited against Rent (as hereinafter defined)
next payable by Tenant under this Lease or, if the Lease Term has expired, any
excess shall be paid to Tenant.  No delay
in providing the statement described in this subparagraph (B) shall act as a
waiver of Landlord’s right to payment under Section 4.04 above.

 

10

 

(C)                                If this Lease shall terminate on a day other
than the end of a calendar year, the amount of the Additional Rent to be paid
pursuant to Section 4.04 that is applicable to the calendar year in which
such termination occurs shall be prorated on the basis of the number of days
from January 1 of the calendar year to the termination date bears to
365.  The termination of this Lease shall
not affect the obligations of Landlord and Tenant pursuant to Section 4.05(B)
to be performed after such termination.

 

4.06                           Review of Landlord’s
Statement.  Provided that Tenant is not then in default
beyond any applicable cure period of its obligations to pay Base Rent or any
other payments required to be made by it under this Lease and provided further
that Tenant strictly complies with the provisions of this Section 4.06,
Tenant shall have the right, once each calendar year, to reasonably review
supporting data for any portion of a Landlord’s Statement (provided, however,
Tenant may not have an audit right to all documentation relating to Building
operations as this would far exceed the relevant information necessary to
properly document a pass-through billing statement, but real estate tax
statements, and information on utilities, repairs, maintenance and insurance
will be available), in accordance with the following procedure:

 

(A)                              Tenant shall, within ten (10) business days
after any such Landlord’s Statement is delivered, deliver a written notice to
Landlord specifying the portions of the Landlord’s Statement that are claimed
to be incorrect, and Tenant shall simultaneously pay to Landlord all amounts
due from Tenant to Landlord as specified in the Landlord’s Statement.  Except as expressly set forth in subsection (C)
below, in no event shall Tenant be entitled to withhold, deduct, or offset any
monetary obligation of Tenant to Landlord under the Lease (including, without
limitation, Tenant’s obligation to make all payments of Base Rent and all
payments of Additional Rent) pending the completion of and regardless of the
results of any review of records under this Section 4.06.  The right of Tenant under this Section 4.06
may only be exercised once for any Landlord’s Statement, and if Tenant fails to
meet any of the above conditions as a prerequisite to the exercise of such
right, the right of Tenant under this Section 4.06 for a particular
Landlord’s Statement shall be deemed waived.

 

(B)                                Tenant acknowledges that Landlord maintains
its records for the Building at Landlord’s manager’s corporate offices
presently located at 101 Westlake Drive, Austin, Texas 78746, and Tenant agrees
that any review of records under this Section 4.06 shall be at the sole
expense of Tenant and shall be conducted by an independent firm of certified
public accountants.  Tenant acknowledges
and agrees that any records reviewed under this Section 4.06 constitute
confidential information of Landlord, which shall not be disclosed to anyone
other than the accountants performing the review and the principals of Tenant
who receive the results of the review. 
The disclosure of such information to any other person, whether or not
caused by the conduct of Tenant, shall constitute a material breach of this
Lease.

 

(C)                                Any errors disclosed by the review shall be
promptly corrected by Landlord, provided, however, that if Landlord disagrees
with any such claimed errors, Landlord shall have the right to cause another
review to be made by an independent firm of certified public accountants of
national standing.  In the event of a
disagreement

 

11

 

between the two accounting firms, the review that discloses the least
amount of deviation from the Landlord’s Statement shall be deemed to be
correct.  In the event that the results
of the review of records (taking into account, if applicable, the results of
any additional review caused by Landlord) reveal that Tenant has overpaid
obligations for a preceding period, the amount of such overpayment shall be
credited against Tenant’s subsequent installment obligations to pay Additional
Rent.  In the event that such results
show that Tenant has underpaid its obligations for a preceding period, Tenant
shall be liable for Landlord’s actual accounting fees, and the amount of such
underpayment shall be paid by Tenant to Landlord with the next succeeding
installment obligation of Additional Rent.

 

4.07                           Payment. 
Concurrently with the execution hereof, Tenant shall pay Landlord Base
Rent for the first calendar month of the Lease Term.  Thereafter the Base Rent described in Section 1.07
shall be payable in advance on the first day of each calendar month.  If the Commencement Date is other than the
first day of a calendar month, the prepaid Base Rent for such partial month
shall be prorated in the proportion that the number of days this Lease is in
effect during such partial month bears to the total number of days in the
calendar month.  All Rent, and all other
amounts payable to Landlord by Tenant pursuant to the provisions of this Lease,
shall be paid to Landlord, without notice, demand, abatement, deduction or
offset, in lawful money of the United States at Landlord’s office in the
Building or to such other person or at such other place as Landlord may
designate from time to time by written notice given to Tenant.  No payment by Tenant or receipt by Landlord
of a lesser amount than the correct Rent due hereunder shall be deemed to be
other than a payment on account; nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed to effect or
evidence an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord’s right to recover the balance or pursue
any other remedy in this Lease or at law or in equity provided.

 

4.08                           Late Charge; Interest. 
Tenant acknowledges that the late payment of Base Rent or any other amounts
payable by Tenant to Landlord hereunder (all of which shall constitute
additional rental to the same extent as Base Rent) will cause Landlord to incur
administrative costs and other damages, the exact amount of which would be
impracticable or extremely difficult to ascertain.  Landlord and Tenant agree that if Landlord
does not receive any such payment on or before five (5) days after the date the
payment is due, Tenant shall pay to Landlord, as additional rent, (a) a late
charge equal to five percent (5%) of the overdue amount to cover such
additional administrative costs; and (b) interest on the delinquent amounts at
the lesser of the maximum rate permitted by law if any or twelve percent (12%)
per annum from the date due to the date paid.

 

4.09                           Rent Taxes. 
Notwithstanding anything in the Lease to the contrary, Tenant shall pay
any rent, sales, service, transfer or value added tax, or any other applicable
tax on the Rent or services herein or otherwise respecting this Lease (and such
taxes shall not be included in Property Taxes).

 

12

 

ARTICLE V
– SECURITY DEPOSIT

 

5.01                           Upon
the execution of this Lease, Tenant shall deposit with Landlord the Security
Deposit described in Section 1.09 above. 
The Security Deposit is made by Tenant to secure the faithful
performance of all the terms, covenants and conditions of this Lease to be
performed by Tenant.  If Tenant shall
default with respect to any covenant or provision hereof, Landlord may use,
apply or retain all or any portion of the Security Deposit to cure such default
or to compensate Landlord for any loss or damage which Landlord may suffer
thereby.  If Landlord so uses or applies
all or any portion of the Security Deposit, Tenant shall immediately upon written
demand deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount hereinabove stated.  Landlord shall not be required to keep the
Security Deposit separate from its general accounts and Tenant shall not be entitled
to interest on the Security Deposit. 
Within thirty (30) days after the expiration of the Lease Term and the
vacation of the Premises by Tenant, the Security Deposit, or such part as has
not been applied to cure the default, shall be returned to Tenant.

 

ARTICLE VI
– USE OF PREMISES

 

6.01                           Tenant’s Permitted Use. 
Tenant shall use the Premises only for Tenant’s Permitted Use as set
forth in Section 1.10 above and shall not use or permit the Premises to be
used for any other purpose.  Tenant
shall, at its sole cost and expense, obtain all governmental licenses and
permits required to allow Tenant to conduct Tenant’s Permitted Use.  Landlord disclaims any warranty that the
Premises are suitable for Tenant’s use and Tenant acknowledges that it has had
a full opportunity to make its own determination in this regard.

 

6.02                           Compliance With Laws and
Other Requirements.

 

(A)                              Tenant shall cause the Premises to comply in
all material respects with all laws, ordinances, regulations and directives of
any governmental authority having jurisdiction including, without limitation,
any certificate of occupancy and any law, ordinance, regulation, covenant,
condition or restriction affecting the Building or the Premises which in the
future may become applicable to the Premises (collectively “Applicable Laws”).

 

Notwithstanding anything to the contrary contained in this Lease,
Tenant shall not be required to comply with such Applicable Laws unless
compliance is required (i) solely due to Tenant’s manner of use of the Premises
(as distinguished from the use permitted in Section 1.09 hereof) or (ii)
from improvements, alterations or installations at the Premises made by or at
the request of Tenant or (iii) any breach by Tenant of any material term or
condition hereof.  Except as aforesaid,
Landlord shall be responsible for ensuring that the Premises and the common
areas of the Building are in compliance with all Applicable Laws.

 

13

 

(B)                                Tenant shall not use the Premises, or permit the
Premises to be used, in any manner which: (a) violates any Applicable Law; (b)
causes or is reasonably likely to cause damage to the Building or the Premises;
(c) violates a requirement or condition of any fire and extended insurance
policy covering the Building and/or the Premises, or increases the cost of such
policy; (d) constitutes or is reasonably likely to constitute a nuisance,
annoyance or inconvenience to other tenants or occupants of the Building or its
equipment, facilities or systems; (e) interferes with, or is reasonably likely
to interfere with, the transmission or reception of microwave, television,
radio, telephone or other communication signals by antennae or other facilities
located in the Building; or (f) violates the Rules and Regulations described in
Article XIX.

 

6.03                           Hazardous Materials.

 

(A)                              No Hazardous Materials, as defined herein,
shall be Handled, as also defined herein, upon, about, above or beneath the
Premises or any portion of the Building by or on behalf of Tenant, its subtenants
or its assignees, or their respective contractors, clients, officers,
directors, employees, agents, or invitees. 
Any such Hazardous Materials so Handled shall be known as Tenant’s
Hazardous Materials.  Notwithstanding the
foregoing, normal quantities of Tenant’s Hazardous Materials customarily used
in the conduct of general administrative and executive office activities (e.g.,
copier fluids and cleaning supplies only) may be Handled at the Premises
without Landlord’s prior written consent. Tenant’s Hazardous Materials shall be
Handled at all times in compliance with the manufacturer’s instructions
therefor and all applicable Environmental Laws, as defined herein.

 

(B)                                Notwithstanding the obligation of Tenant to
indemnify Landlord pursuant to this Lease, Tenant shall, at its sole cost and
expense, promptly take all actions required by any Regulatory Authority, as
defined herein, or necessary for Landlord to make full economic use of the
Premises or any portion of the Building, which requirements or necessity arises
from the Handling of Tenant’s Hazardous Materials upon, about, above or beneath
the Premises or any portion of the Building. 
Such actions shall include, but not be limited to, the investigation of
the environmental condition of the Premises or any portion of the Building, the
preparation of any feasibility studies or reports and the performance of any
cleanup, remedial, removal or restoration work. 
Tenant shall take all actions necessary to restore the Premises or any
portion of the Building to the condition existing prior to the introduction of
Tenant’s Hazardous Materials, notwithstanding any less stringent standards or
remediation allowable under applicable Environmental Laws.  Tenant shall nevertheless obtain Landlord’s
written approval prior to undertaking any actions required by this Section,
which approval shall not be unreasonably withheld so long as such actions would
not potentially have a material adverse long-term or short-term effect on the
Premises, any portion of the Building or any other tenants of the Building.

 

(C)                                Tenant agrees to execute affidavits,
representations, and the like from time to time at Landlord’s request stating
Tenant’s best knowledge and belief regarding the presence of Hazardous
Materials on the Premises.

 

14

 

(D)                               “Environmental Laws” means and includes all
now and hereafter existing statutes, laws, ordinances, codes, regulations,
rules, rulings, orders, decrees, directives, policies and requirements of any
Regulatory Authority regulating, relating to, or imposing liability or
standards of conduct concerning public health and safety or the environment.

 

(E)                                 “Hazardous Materials” means: (a) any material
or substance: (i) which is defined or becomes defined as a “hazardous substance”,
“hazardous waste,” “infectious waste,” “chemical mixture or substance,” or “air
pollutant” under Environmental Laws; (ii) containing petroleum, crude oil or
any fraction thereof; (iii) containing polychlorinated biphenyls (PCB’s); (iv)
containing asbestos; (v) which is radioactive; (vi) which is infectious; or (b)
any other material or substance displaying toxic, reactive, ignitable or
corrosive characteristics, as all such terms are used in their broadest sense,
and are defined, or become defined by Environmental Laws; or (c) materials
which cause a nuisance upon or waste to the Premises or any portion of the
Building.

 

(F)                                 “Handle,” “handle,” “Handled,” “handled,” “Handling,”
or “handling” shall mean any installation, handling, generation, storage,
treatment, use, disposal, discharge, release, manufacture, refinement,
presence, migration, emission, abatement, removal, transportation, or any other
activity of any type in connection with or involving Hazardous Materials.

 

(G)                                “Regulatory
Authority” shall mean any federal, state or local governmental agency,
commission, board or political subdivision.

 

ARTICLE VII
– UTILITIES AND SERVICES

 

7.01                           Building Services.  At
Tenant’s expense, as long as Tenant is not in monetary default under this
Lease, Landlord agrees to furnish or cause to be furnished the following
utilities and services, subject to the conditions and standards set forth
herein:

 

(A)                              Non-attended automatic elevator service (if
the Building has such equipment serving the Premises), in common with Landlord
and other tenants and occupants and their agents and invitees.

 

(B)                                During Business Hours, such air conditioning,
heating and ventilation as, in Landlord’s reasonable judgment, are required for
the comfortable use and occupancy of the Premises; provided, however, that if
Tenant shall require heating, ventilation or air conditioning in excess of that
which Landlord shall be required to provide hereunder, Landlord may provide
such additional heating, ventilation or air conditioning at such rates and upon
such additional conditions as shall be determined by Landlord from time to
time.

 

(C)                                Water for rest room purposes in the common
areas of the Building.

 

15

 

(D)                               Reasonable janitorial and cleaning services,
provided that the Premises are used exclusively for office purposes and are
kept reasonably in order by Tenant.  If
the Premises are not used exclusively as offices, Landlord, at Landlord’s sole
discretion, may require that the Premises be kept clean and in order by Tenant,
at Tenant’s expense, to the satisfaction of Landlord and by persons approved by
Landlord; and, in all events, Tenant shall pay to Landlord the cost of removal
of Tenant’s refuse and rubbish, to the extent that the same exceeds the refuse
and rubbish attendant to normal office usage.

 

(E)                                 Parking shall be provided at no cost to
Tenant.  Tenant acknowledges and agrees
that all such parking shall be conducted on a “first come, first serve” basis
(i.e., there shall be no reserved parking spaces specifically designated for
Tenant’s sole use, and there are no assurances that such spaces will be
protected from the elements by a roof or other overhead cover).

 

F)                                     At all reasonable times, electric current as
required for building standard lighting and fractional horsepower office
machines; provided, however, that: (i) without Landlord’s consent, Tenant shall
not install, or permit the installation, in the Premises of any computers, word
processors, electronic data processing equipment or other type of equipment or
machines which will increase Tenant’s use of electric current in excess of that
which Landlord is obligated to provide hereunder (provided, however, that the
foregoing shall not preclude the use of personal computers or similar office
equipment); (ii) if Tenant shall require electric current which may disrupt the
provision of electrical service to other tenants, Landlord may refuse to grant
its consent or may condition its consent upon Tenant’s payment of the cost of
installing and providing any additional facilities required to furnish such
excess power to the Premises and upon the installation in the Premises of
electric current meters to measure the amount of electric current consumed, in
which latter event Tenant shall pay for the cost of such meter(s) and the cost
of installation, maintenance and repair thereof, as well as for all excess
electric current consumed at the rates charged by the applicable local public
utility, plus a reasonable amount to cover the additional expenses incurred by
Landlord in keeping account of the electric current so consumed; and (iii) if
Tenant’s increased electrical requirements will materially affect the
temperature level in the Premises or the Building, Landlord’s consent may be
conditioned upon Tenant’s requirement to pay such amounts as will be incurred
by Landlord to install and operate any machinery or equipment necessary to
restore the temperature level to that otherwise required to be provided by
Landlord, including but not limited to the cost of modifications to the air
conditioning system.  Landlord shall not,
in any way, be liable or responsible to Tenant for any loss or damage or
expense which Tenant may incur or sustain if, for any reasons beyond Landlord’s
reasonable control, either the quantity or character of electric service is
changed or is no longer available or suitable for Tenant’s requirements.  Tenant covenants that at all times its use of
electric current shall never exceed the capacity of the feeders, risers or electrical
installations of the Building.  If
submetering of electricity in the Building is not permitted under future laws
or regulations or if Landlord elects, in its sole discretion, not to allow
submetering, the Rent will then be equitably and periodically

 

16

 

adjusted to include an additional payment to Landlord reflecting the
cost to Landlord for furnishing electricity to Tenant in the Premises.

 

Any amounts which Tenant is required to pay to Landlord pursuant to
this Section 7.01 shall be payable upon demand by Landlord and shall
constitute Additional Rent.

 

7.02                           Interruption of Services. 
Landlord shall not be liable for any failure to furnish, stoppage of, or
interruption in furnishing any of the services or utilities described in Section 7.01,
when such failure is caused by accident, breakage, repairs, strikes, lockouts,
labor disputes, labor disturbances, governmental regulation, civil
disturbances, acts of war, moratorium or other governmental action, or any
other cause beyond Landlord’s reasonable control, and, in such event, Tenant
shall not be entitled to any damages nor shall any failure or interruption
abate or suspend Tenant’s obligation to pay Base Rent and additional rent
required under this Lease or constitute or be construed as a constructive or
other eviction of Tenant.  Further, in
the event any governmental authority or public utility promulgates or revises
any law, ordinance, rule or regulation, or issues mandatory controls or
voluntary controls relating to the use or conservation of energy, water, gas,
light or electricity, the reduction of automobile or other emissions, or the
provision of any other utility or service, Landlord may take any reasonably
appropriate action to comply with such law, ordinance, rule, regulation,
mandatory control or voluntary guideline and Tenant’s obligations hereunder
shall not be affected by any such action of Landlord.  The parties acknowledge that safety and
security devices, services and programs provided by Landlord, if any, while
intended to deter crime and ensure safety, may not in given instances prevent
theft or other criminal acts, or ensure safety of persons or property.  The risk that any safety or security device,
service or program may not be effective, or may malfunction, or be circumvented
by a criminal, is assumed by Tenant with respect to Tenant’s property and
interests, and Tenant shall obtain insurance coverage to the extent Tenant
desires protection against such criminal acts and other losses, as further
described in this Lease.  Tenant agrees
to cooperate in any reasonable safety or security program developed by Landlord
or required by Law.

 

Notwithstanding the generality of the foregoing, in the event that the
negligent actions or willful misconduct of Landlord or its agents, employees or
contractors cause the utilities servicing the Premises to be interrupted,
impaired or terminated, or Landlord fails to provide any of the other services
set forth in this ARTICLE VII for any reason except as above set forth in
this Section 7.02, and such interruption, impairment, termination or
failure prevents Tenant from using all or any material portion of the Premises
(and Tenant in fact closes for business from such affected portion of the
Premises) for a period in excess of three (3) consecutive days, then in such
event, Tenant shall be entitled to an abatement of all Rent for the period
thereafter until Tenant is able to open for business upon the Premises or the
utility or other service is substantially restored, whichever is the
sooner.  If a portion of the Premises
remains usable during such period, then the Rent shall be abated in proportion
to the degree of interference with Tenant’s use of the Premises.  In no event, however, shall Tenant be entitled
to any abatement of Rent if such interruption, impairment, termination or
failure is attributable in any way to Tenant, its employees, contractors or
agents or to factors beyond the reasonable control of Landlord.

 

17

 

ARTICLE VIII
– MAINTENANCE AND REPAIRS

 

8.01                           Landlord’s Obligations. 
Except as provided in Sections 8.02 and 8.03 below, Landlord shall
maintain the Building in reasonable order and repair throughout the Lease Term;
provided, however, that Landlord shall not be liable for any failure to make
any repairs or to perform any maintenance unless such failure shall persist for
an unreasonable time after written notice of the need for such repairs or
maintenance is given to Landlord by Tenant. 
Except as provided in Article XI, there shall be no abatement of
Rent, nor shall there be any liability of Landlord, by reason of any injury or
inconvenience to, or interference with, Tenant’s business or operations arising
from the performing of, or failure to perform, any maintenance or repairs in or
to any portion of the Building.

 

8.02                           Tenant’s Obligations. 
During the Lease Term, Tenant shall, at its sole cost and expense,
maintain the Premises in good order and repair (including, without limitation,
the carpet, wall-covering, doors, plumbing and other fixtures, equipment,
alterations and improvements, whether installed by Landlord or Tenant).  Further, Tenant shall be responsible for, and
upon demand by Landlord shall promptly reimburse Landlord for, any damage to
any portion of the Building or the Premises caused by (a) Tenant’s activities
in the Building or the Premises; (b) the performance or existence of any
alterations, additions or improvements made by Tenant in or to the Premises
whether or not same have been approved by Landlord; (c) the installation, use,
operation or movement of Tenant’s property in or about the Building or the
Premises; or (d) any act or omission by Tenant or its officers, partners,
employees, agents, contractors or invitees.

 

8.03                           Landlord’s Rights.  Landlord and its contractors shall have the
right, at all reasonable times and upon prior oral or telephonic notice to
Tenant at the Premises, other than in the case of any emergency in which case
no notice shall be required, to enter upon the Premises to make any repairs to
the Premises or the Building reasonably required or deemed reasonably necessary
by Landlord and to erect such equipment, including scaffolding, as is
reasonably necessary to effect such repairs.

 

ARTICLE IX
– ALTERATIONS,
ADDITIONS AND IMPROVEMENTS

 

9.01                           Landlord’s Consent;
Conditions.  Tenant shall not make or permit to be made
any alterations, additions, or improvements in or to the Premises (“Alterations”)
without the prior written consent of Landlord, which consent, with respect to
non-structural alterations, shall not be unreasonably withheld.  Landlord may impose as a condition to making
any Alterations such requirements as Landlord in its sole discretion deems
necessary or desirable including without limitation:  Tenant’s submission to Landlord, for Landlord’s
prior written approval, of all plans and specifications relating to the
Alterations; Landlord’s prior written approval of the time or times when the
Alterations are to be performed; Landlord’s prior written approval of the
contractors and subcontractors performing work in connection with the
Alterations; employment of union contractors and subcontractors who shall not
cause labor disharmony; Tenant’s receipt of all necessary permits and approvals
from all governmental authorities having jurisdiction over the Premises prior
to the construction of the Alterations; Tenant’s delivery to Landlord of such

 

18

 

bonds and insurance as Landlord shall reasonably require; and Tenant’s
payment to Landlord of all costs and expenses incurred by Landlord because of
Tenant’s Alterations, including but not limited to costs incurred in reviewing
the plans and specifications for, and the progress of, the Alterations.  Tenant is required to provide Landlord
written notice of whether the Alterations include the Handling of any Hazardous
Materials and whether these materials are of a customary and typical nature for
industry practices.  Upon completion of
the Alterations, Tenant shall provide Landlord with copies of as-built
plans.  Neither the approval by Landlord
of plans and specifications relating to any Alterations nor Landlord’s
supervision or monitoring of any Alterations shall constitute any warranty by
Landlord to Tenant of the adequacy of the design for Tenant’s intended use or
the proper performance of the Alterations.

 

9.02                           Performance of Alterations
Work.  All
work relating to the Alterations shall be performed in compliance with the
plans and specifications approved by Landlord, all applicable laws, ordinances,
rules, regulations and directives of all governmental authorities having
jurisdiction and the requirements of all carriers of insurance on the Premises
and the Building, the Board of Underwriters, Fire Rating Bureau, or similar
organization.  All work shall be
performed in a diligent, first class manner and so as not to unreasonably
interfere with any other tenants or occupants of the Building.  All costs incurred by Landlord relating to
the Alterations shall be payable to Landlord by Tenant as additional rent upon
demand.  No asbestos-containing materials
shall be used or incorporated in the Alterations.  No lead-containing surfacing material,
solder, or other construction materials or fixtures where the presence of lead
might create a condition of exposure not in compliance with Environmental Laws
shall be incorporated in the Alterations.

 

9.03                           Liens. 
Tenant shall pay when due all costs for work performed and materials
supplied to the Premises.  Tenant shall
keep Landlord, the Premises and the Building free from all liens, stop notices
and violation notices relating to the Alterations or any other work performed
for, materials furnished to or obligations incurred by or for Tenant and Tenant
shall protect, indemnify, hold harmless and defend Landlord, the Premises and
the Building of and from any and all loss, cost, damage, liability and expense,
including attorneys’ fees, arising out of or related to any such liens or
notices.  Further, Tenant shall give
Landlord not less than seven (7) business day’s prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of non-responsibility. 
Tenant shall also secure, prior to commencing any Alterations, at Tenant’s
sole expense, a completion and lien indemnity bond satisfactory to Landlord for
such work.  During the progress of such
work, Tenant shall, upon Landlord’s request, furnish Landlord with sworn
contractor’s statements and lien waivers covering all work theretofore
performed.  Tenant shall satisfy or
otherwise discharge all liens, stop notices or other claims or encumbrances
within ten (10) days after Landlord notifies Tenant in writing that any such
lien, stop notice, claim or encumbrance has been filed.  If Tenant fails to pay and remove such lien,
claim or encumbrance within such ten (10) days, Landlord, at its election, may
pay and satisfy the same and in such event the sums so paid by Landlord, with
interest from the date of payment at the rate set forth in Section 4.08
hereof for amounts owed Landlord by Tenant shall be deemed to be additional
rent due and payable by Tenant at once without notice or demand.

 

19

 

9.04                           Lease Termination. 
Except as provided in this Section 9.04, upon expiration or earlier
termination of this Lease Tenant shall surrender the Premises to Landlord in
the same condition as existed on the date Tenant first occupied the Premises
(whether pursuant to this Lease or an earlier lease), subject to reasonable
wear and tear.  All Alterations shall
become a part of the Premises and shall become the property of Landlord upon
the expiration or earlier termination of this Lease, unless Landlord shall, by
written notice given to Tenant, require Tenant to remove some or all of Tenant’s
Alterations, in which event Tenant shall promptly remove the designated
Alterations and shall promptly repair any resulting damage, all at Tenant’s
sole expense.  All business and trade
fixtures, machinery and equipment, furniture, movable partitions and items of
personal property owned by Tenant or installed by Tenant at its expense in the
Premises shall be and remain the property of Tenant; upon the expiration or
earlier termination of this Lease, Tenant shall, at its sole expense, remove
all such items and repair any damage to the Premises or the Building caused by
such removal.  If Tenant fails to remove
any such items or repair such damage promptly after the expiration or earlier
termination of the Lease, Landlord may, but need not, do so with no liability
to Tenant, and Tenant shall pay Landlord the cost thereof upon demand.  Notwithstanding the foregoing to the
contrary, in the event that Landlord gives its consent, pursuant to the
provisions of Section 9.01 of this Lease, to allow Tenant to make an
Alteration in the Premises, Landlord agrees, upon Tenant’s written request, to
notify Tenant in writing at the time of the giving of such consent whether
Landlord will require Tenant, at Tenant’s cost, to remove such Alteration at
the end of the Lease Term.

 

ARTICLE X – INDEMNIFICATION AND INSURANCE

 

10.01                     Indemnification.

 

(A)                              Tenant agrees to protect, indemnify, hold
harmless and defend Landlord and any Mortgagee, as defined herein, and each of
their respective partners, directors, officers, agents and employees,
successors and assigns, (except to the extent of the losses described below are
caused by the gross negligence of Landlord, its agents and employees), from and
against:

 

(i)                                     any and all loss, cost, damage, liability or
expense as incurred (including but not limited to reasonable attorneys’ fees
and legal costs) arising out of or related to any claim, suit or judgment
brought by or in favor of any person or persons for damage, loss or expense due
to, but not limited to, bodily injury, including death, or property damage
sustained by such person or persons which arises out of, is occasioned by or is
in any way attributable to the use or occupancy of the Premises or any portion
of the Building by Tenant or the acts or omissions of Tenant or its agents,
employees, contractors, clients, invitees or subtenants except that caused by
the sole active negligence or willful misconduct of Landlord or its agents or
employees.  Such loss or damage shall
include, but not be limited to, any injury or damage to, or death of, Landlord’s
employees or agents or damage to the Premises or any portion of the Building.

 

20

 

(ii)                                  any and all environmental damages which arise
from:  (a) the Handling of any Tenant’s
Hazardous Materials, as defined in Section 6.03 or (b) the breach of any
of the provisions of this Lease.  For the
purpose of this Lease, “environmental damages” shall mean (x) all claims,
judgments, damages, penalties, fines, costs, liabilities, and losses (including
without limitation, diminution in the value of the Premises or any portion of
the Building, damages for the loss of or restriction on use of rentable or
usable space or of any amenity of the Premises or any portion of the Building,
and from any adverse impact of Landlord’s marketing of space); (y) all
reasonable sums paid for settlement of claims, attorneys’ fees, consultants’
fees and experts’ fees; and (z) all costs incurred by Landlord in connection
with investigation or remediation relating to the Handling of Tenant’s
Hazardous Materials, whether or not required by Environmental Laws, necessary
for Landlord to make full economic use of the Premises or any portion of the
Building, or otherwise required under this Lease.  To the extent that Landlord is held strictly
liable by a court or other governmental agency of competent jurisdiction under
any Environmental Laws, Tenant’s obligation to Landlord and the other
indemnities under the foregoing indemnification shall likewise be without
regard to fault on Tenant’s part with respect to the violation of any
Environmental Law which results in liability to the indemnitee.  Tenant’s obligations and liabilities pursuant
to this Section 10.01 shall survive the expiration or earlier termination
of this Lease.

 

(B)                                Landlord agrees to protect, indemnify, hold
harmless and defend Tenant from and against any and all loss, cost, damage,
liability or expense, including reasonable attorneys’ fees, with respect to any
claim of damage or injury to persons or property at the Premises, caused by the
gross negligence of Landlord or its authorized agents or employees.

 

(C)                                Notwithstanding anything to the contrary
contained herein, nothing shall be interpreted or used to in any way affect,
limit, reduce or abrogate any insurance coverage provided by any insurers to
either Tenant or Landlord.

 

(D)                               Notwithstanding anything to the contrary
contained in this Lease, nothing herein shall be construed to infer or imply
that Tenant is a partner, joint venturer, agent, employee, or otherwise acting
by or at the direction of Landlord.

 

10.02                     Property Insurance.

 

(A)                              At all times during the Lease Term, Tenant
shall procure and maintain, at its sole expense, “all-risk” property insurance,
for damage or other loss caused by fire or other casualty or cause including,
but not limited to, vandalism and malicious mischief, theft, water damage of
any type, including sprinkler leakage, bursting of pipes, explosion, in an
amount not less than one hundred percent (100%) of the replacement cost
covering (i) all Alterations made by or for Tenant in the Premises; and (ii)
Tenant’s trade fixtures, equipment and other personal property from time to
time situated in the Premises.  The
proceeds of such insurance shall be used for the repair or replacement of the
property so

 

21

 

insured, except that if not so applied or if this Lease is terminated
following a casualty, the proceeds applicable to the leasehold improvements
shall be paid to Landlord and the proceeds applicable to Tenant’s personal
property shall be paid to Tenant.

 

(B)                                At all times during the Lease Term, Tenant
shall procure and maintain business interruption insurance in such amount as
will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils insured against in Section 10.02(A).

 

(C)                                Landlord shall, at all times during the Lease
Term, procure and maintain “all-risk” property insurance in the amount not less
than ninety percent (90%) of the insurable replacement cost covering the
Building in which the Premises are located and such other insurance as may be
required by a Mortgagee or otherwise desired by Landlord.

 

10.03                     Liability Insurance.

 

(A)                              At all times during the Lease Term, Tenant
shall procure and maintain, at its sole expense, commercial general liability
insurance applying to the use and occupancy of the Premises and the business
operated by Tenant.  Such insurance shall
have a minimum combined single limit of liability of at least One Million
Dollars ($1,000,000) per occurrence and a general aggregate limit of at least
One Million Dollars ($1,000,000).  All
such policies shall be written to apply to all bodily injury, property damage,
personal injury losses and shall be endorsed to include Landlord and its
agents, beneficiaries, partners, employees, and any deed of trust holder or
mortgagee of Landlord or any ground lessor as additional insureds.  Such liability insurance shall be written as
primary policies, not excess or contributing with or secondary to any other
insurance as may be available to the additional insureds.

 

(B)                                If
Landlord consents to the sale, storage, use or dispensing of alcoholic
beverages, then prior to the sale, storage, use or giving away of alcoholic
beverages on or from the Premises by Tenant or another person, Tenant, at its
own expense, shall obtain a policy or policies of insurance issued by a
responsible insurance company and in a form acceptable to Landlord saving
harmless and protecting Landlord and the Premises against any and all damages,
claims, liens, judgments, expenses and costs, including actual attorneys’ fees,
arising under any present or future law, statute, or ordinance of the State of
Texas or other governmental authority having jurisdiction of the Premises, by
reason of any storage, sale, use or giving away of alcoholic beverages on or
from the Premises.  Such policy or
policies of insurance shall have a minimum combined single limit of One Million
Dollars ($1,000,000) per occurrence and shall apply to bodily injury, fatal or
nonfatal; injury to means of support; and injury to property of any
person.  Such policy or policies of
insurance shall name Landlord and its agents, beneficiaries, partners, employees
and any mortgagee of Landlord or any ground lessor of Landlord as additional
insureds.

 

(C)                                Landlord shall, at all times during the Lease
Term, procure and maintain commercial general liability insurance for the
Building in which the Premises are located.

 

22

 

Such insurance shall have minimum combined single limit of liability of
at least Two Million Dollars ($2,000,000) per occurrence, and a general
aggregate limit of at least Two Million Dollars ($2,000,000).

 

10.04                     Workers’ Compensation Insurance.  At
all times during the Lease Term, Tenant shall procure and maintain Workers’
Compensation Insurance in accordance with the laws of the State of Texas, and
Employer’s Liability insurance with a limit not less than One Million Dollars
($1,000,000) Bodily Injury Each Accident; One Million Dollars ($1,000,000)
Bodily Injury By Disease - Each Person; and One Million Dollars ($1,000,000)
Bodily Injury to Disease - Policy Limit.

 

10.05                     Policy Requirements.  All
insurance required to be maintained by Tenant shall be issued by insurance
companies authorized to do insurance business in the State of Texas and rated
not less than A-VIII in Best’s Insurance Guide. 
A certificate of insurance (or, at Landlord’s option, copies of the
applicable policies) evidencing the insurance required under this Article X
shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date.  No such policy shall
be subject to cancellation or modification without thirty (30) days prior
written notice to Landlord and to any deed of trust holder, mortgagee or ground
lessor designated by Landlord to Tenant. 
Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy.  Tenant shall have
the right to provide the insurance required by this Article X pursuant to
blanket policies, but only if such blanket policies expressly provide coverage
to the Premises and Landlord as required by this Lease.

 

10.06                     Waiver of Subrogation.  Each
party hereby waives any right of recovery against the other for injury or loss
due to hazards covered by insurance or required to be covered, to the extent of
the injury or loss covered thereby.  Any
policy of insurance to be provided by Tenant or Landlord pursuant to this Article X
shall contain a clause denying the applicable insurer any right of subrogation
against the other party.

 

10.07                     Failure to Insure.  If
Tenant fails to maintain any insurance which Tenant is required to maintain
pursuant to this Article X, Tenant shall be liable to Landlord for any
loss or cost resulting from such failure to maintain.  Tenant may not self-insure against any risks
required to be covered by insurance without Landlord’s prior written consent.

 

ARTICLE XI – DAMAGE OR DESTRUCTION

 

11.01                     Total Destruction. 
Except as provided in Section 11.03 below, this Lease shall
automatically terminate if the Building is totally destroyed.

 

11.02                     Partial Destruction of
Premises.  If the Premises are damaged by any casualty
and, in Landlord’s opinion, the Premises (exclusive of any Alterations made to
the Premises by Tenant) can be restored to its pre-existing condition within
two hundred seventy (270) days after the date of the damage or destruction,
Landlord shall, upon written notice from Tenant to

 

23

 

Landlord of such damage, except as provided in Section 11.03,
promptly and with due diligence repair any damage to the Premises (exclusive of
any Alterations to the Premises made by Tenant, which shall be promptly
repaired by Tenant at its sole expense) and, until such repairs are completed,
the Rent shall be abated from the date of damage or destruction in the same
proportion that the rentable area of the portion of the Premises which is
unusable by Tenant in the conduct of its business bears to the total rentable
area of the Premises.  If such repairs
cannot, in Landlord’s opinion, be made within said two hundred seventy (270)
day period, then Landlord may, at its option, exercisable by written notice
given to Tenant within thirty (30) days after the date of the damage or
destruction, elect to make the repairs within a reasonable time after the
damage or destruction, in which event this Lease shall remain in full force and
effect but the Rent shall be abated as provided in the preceding sentence; if
Landlord does not so elect to make the repairs, then either Landlord or Tenant
shall have the right, by written notice given to the other within sixty (60)
days after the date of the damage or destruction, to terminate this Lease as of
the date of the damage or destruction.

 

11.03                     Exceptions to Landlord’s
Obligations.  Notwithstanding anything to the contrary
contained in this Article XI, Landlord shall have no obligation to repair
the Premises if either: (a) the Building in which the Premises are located is
so damaged as to require repairs to the Building exceeding twenty percent (20%)
of the full insurable value of the Building; or (b) Landlord elects to demolish
the Building in which the Premises are located; or (c) the damage or
destruction occurs less than two (2) years prior to the Termination Date,
exclusive of option periods.  Further,
Tenant’s Rent shall not be abated if either (i) the damage or destruction is repaired
within five (5) business days after Landlord receives written notice from
Tenant of the casualty, or (ii) Tenant, or any officers, partners, employees,
agents or invitees of Tenant, or any assignee or subtenant of Tenant, is, in
whole or in part, responsible for the damage or destruction.

 

11.04                     Waiver.  The
provisions contained in this Lease shall supersede any contrary laws (whether
statutory, common law or otherwise) now or hereafter in effect relating to
damage, destruction, self-help or termination.

 

ARTICLE XII – CONDEMNATION

 

12.01                     Taking.  If
the entire Premises or so much of the Premises as to render the balance
unusable by Tenant shall be taken by condemnation, sale in lieu of condemnation
or in any other manner for any public or quasi-public purpose (collectively “Condemnation”),
and if Landlord, at its option, is unable or unwilling to provide substitute
premises containing at least as much rentable area as described in Section 1.02
above, then this Lease shall terminate on the date that title or possession to
the Premises is taken by the condemning authority, whichever is earlier.

 

12.02                     Award.  In
the event of any Condemnation, the entire award for such taking shall belong to
Landlord.  Tenant shall have no claim
against Landlord or the award for the value of any unexpired term of this Lease
or otherwise.  Tenant shall be entitled
to independently pursue

 

24

 

a separate award in a separate proceeding for Tenant’s relocation costs
directly associated with the taking, provided such separate award does not
diminish Landlord’s award.

 

12.03                     Temporary Taking.  No
temporary taking of the Premises shall terminate this Lease or entitle Tenant
to any abatement of the Rent payable to Landlord under this Lease; provided,
further, that any award for such temporary taking shall belong to Tenant to the
extent that the award applies to any time period during the Lease Term and to
Landlord to the extent that the award applies to any time period outside the Lease
Term.

 

ARTICLE XIII
– RELOCATION

 

13.01                     Relocation. 
Landlord shall have the right, at its option upon not less than thirty
(30) days prior written notice to Tenant, to relocate Tenant and to substitute
for the Premises described above other space in the Building containing at
least as much rentable area as the Premises described in Section 1.02
above.  If Tenant is already in occupancy
of the Premises, Landlord shall reimburse Tenant for Tenant’s reasonable moving
and telephone relocation expenses and for reasonable quantities of new
stationery upon (i) Landlord’s prior written approval of the amount of such
expenses; and (ii) submission to Landlord of receipts for such expenditures
incurred by Tenant.

 

ARTICLE XIV
– ASSIGNMENT AND SUBLETTING

 

14.01                     Restriction. 
Without the prior written consent of Landlord, Tenant shall not, either
voluntarily or by operation of law, assign, encumber, or otherwise transfer
this Lease or any interest herein, or sublet the Premises or any part thereof,
or permit the Premises to be occupied by anyone other than Tenant or Tenant’s
employees (any such assignment, encumbrance, subletting, occupation or transfer
is hereinafter referred to as a “Transfer”). 
For purposes of this Lease, the term “Transfer” shall also include (a) if
Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by
operation of law, of a majority of the partners, or a transfer of a majority of
partnership interests, within a twelve month period, or the dissolution of the
partnership, and (b) if Tenant is a closely held corporation (i.e. whose stock
is not publicly held and not traded through an exchange or over the counter) or
a limited liability company, the dissolution, merger, consolidation, division,
liquidation or other reorganization of Tenant, or within a twelve month period:
(i) the sale or other transfer of more than an aggregate of 50% of the voting
securities of Tenant (other than to immediate family members by reason of gift
or death) or (ii) the sale, mortgage, hypothecation or pledge of more than an
aggregate of 50% of Tenant’s net assets. 
An assignment, subletting or other action in violation of the foregoing
shall be void and, at Landlord’s option, shall constitute a material breach of
this Lease.  Notwithstanding anything
contained in this Article XIV to the contrary, Tenant shall have the right
to assign the Lease or sublease the Premises, or any part thereof, to an “Affiliate”
without the prior written consent of Landlord, but upon at least twenty (20)
days’ prior written notice to Landlord, provided that said Affiliate is not in
default under any other lease for space in a property that is owned or managed
by Landlord or any of its affiliates. 
For purposes of this provision, the term “Affiliate” shall mean any
corporation or other entity controlling, controlled by, or under common control
with (directly or indirectly) Tenant, including, without limitation, any parent
corporation controlling Tenant or any subsidiary that Tenant controls.  The term

 

25

 

“control,” as used herein, shall mean the power to direct or cause the
direction of the management and policies of the controlled entity through the
ownership of more than fifty percent (50%) of the voting securities in such controlled
entity.  Notwithstanding anything
contained in this Article XIV to the contrary, Tenant expressly covenants
and agrees not to enter into any lease, sublease, license, concession or other
agreement for use, occupancy or utilization of the Premises which provides for
rental or other payment for such use, occupancy or utilization based in whole
or in part on the net income or profits derived by any person from the property
leased, used, occupied or utilized (other than an amount based on a fixed percentage
or percentages of receipts or sales), and that any such purported lease,
sublease, license, concession or other agreement shall be absolutely void and
ineffective as a conveyance of any right or interest in the possession, use,
occupancy or utilization of any part of the Premises.

 

14.02                     Notice to Landlord.  If
Tenant desires to assign this Lease or any interest herein, or to sublet all or
any part of the Premises, then at least thirty (30) days but not more than one
hundred eighty (180) days prior to the effective date of the proposed
assignment or subletting, Tenant shall submit to Landlord in connection with
Tenant’s request for Landlord’s consent:

 

(A)                              A statement containing (i) the name and
address of the proposed assignee or subtenant; (ii) such financial information
with respect to the proposed assignee or subtenant as Landlord shall reasonably
require; (iii) the type of use proposed for the Premises; and (iv) all of the
principal terms of the proposed assignment or subletting; and

 

(B)                                Four (4) originals of the assignment or
sublease on a form approved by Landlord and four (4) originals of the Landlord’s
Consent to Sublease or Assignment and Assumption of Lease and Consent.

 

14.03                     Landlord’s Recapture Rights.  At
any time within ten (10) business days after Landlord’s receipt of all (but not
less than all) of the information and documents described in Section 14.02
above, Landlord may, at its option by written notice to Tenant, elect to: (a)
sublease the Premises or the portion thereof proposed to be sublet by Tenant
upon the same terms as those offered to the proposed subtenant; (b) take an
assignment of the Lease upon the same terms as those offered to the proposed
assignee; or (c) terminate the Lease in its entirety or as to the portion of the
Premises proposed to be assigned or sublet, with a proportionate adjustment in
the Rent payable hereunder if the Lease is terminated as to less than all of
the Premises.  If Landlord does not
exercise any of the options described in the preceding sentence, then, during
the above-described twenty (20) business day period, Landlord shall either
consent or deny its consent to the proposed assignment or subletting.

 

14.04                     Landlord’s Consent;
Standards.  Landlord’s consent to a proposed assignment
or subletting shall not be unreasonably withheld; but, in addition to any other
grounds for denial, Landlord’s consent shall be deemed reasonably withheld if,
in Landlord’s good faith judgment: (a) the proposed assignee or subtenant does
not have the financial strength to perform its obligations under this Lease or
any proposed sublease; (b) the business and operations of the proposed assignee
or subtenant are not of comparable quality to the business and operations being
conducted by other tenants in the Building; (c) the proposed assignee or
subtenant intends to use any part of the Premises for a purpose not permitted under
this Lease; (d) either the

 

26

 

proposed assignee or subtenant, or any person which directly or indirectly
controls, is controlled by, or is under common control with the proposed
assignee or subtenant occupies space in the Building, or is negotiating with
Landlord to lease space in the Building; (e) the proposed assignee or subtenant
is disreputable; or (f) the use of the Premises or the Building by the proposed
assignee or subtenant would, in Landlord’s reasonable judgment, impact the
Building in a negative manner including but not limited to significantly
increasing the pedestrian traffic in and out of the Building or requiring any
alterations to the Building to comply with applicable laws; (g) the subject
space is not regular in shape with appropriate means of ingress and egress
suitable for normal renting purposes; (h) the transferee is a government (or
agency or instrumentality thereof) or (i) Tenant has failed to cure a default
at the time Tenant requests consent to the proposed Transfer.

 

14.05                     Additional Rent.  If
Landlord consents to any such assignment or subletting, one-half (1⁄2) of the
amount by which all sums or other economic consideration received by Tenant
(after deducting Tenant’s actual costs associated with such sublease or
assignment including brokerage commissions, legal fees and expenses and
advertising costs) in connection with such assignment or subletting, whether
denominated as rental or otherwise, exceeds, in the aggregate, the total sum
which Tenant is obligated to pay Landlord under this Lease (prorated to reflect
obligations allocable to less than all of the Premises under a sublease) shall
be paid to Landlord promptly after receipt as additional Rent under the Lease
without affecting or reducing any other obligation of Tenant hereunder.

 

14.06                     Landlord’s Costs.  If
Tenant shall Transfer this Lease or all or any part of the Premises or shall
request the consent of Landlord to any Transfer, Tenant shall pay to Landlord
as additional rent Landlord’s costs related thereto, including Landlord’s
reasonable attorneys’ fees, up to the aggregate sum of $750.00 per transaction.

 

14.07                     Continuing Liability of
Tenant.  Notwithstanding any Transfer, Tenant shall
remain as fully and primarily liable for the payment of Rent and for the
performance of all other obligations of Tenant contained in this Lease to the
same extent as if the Transfer had not occurred; provided, however, that any
act or omission of any transferee, other than Landlord, that violates the terms
of this Lease shall be deemed a violation of this Lease by Tenant.

 

14.08                     Non-Waiver.  The
consent by Landlord to any Transfer shall not relieve Tenant, or any person
claiming through or by Tenant, of the obligation to obtain the consent of
Landlord, pursuant to this Article XIV, to any further Transfer.  In the event of an assignment or subletting,
Landlord may collect rent from the assignee or the subtenant without waiving
any rights hereunder and collection of the rent from a person other than Tenant
shall not be deemed a waiver of any of Landlord’s rights under this Article XIV,
an acceptance of assignee or subtenant as Tenant, or a release of Tenant from
the performance of Tenant’s obligations under this Lease.  If Tenant shall default under this Lease and
fail to cure within the time permitted, Landlord is irrevocably authorized, as
Tenant’s agent and attorney-in-fact, to direct any transferee to make all
payments under or in connection with the Transfer directly to Landlord (which
Landlord shall apply towards Tenant’s obligations under this Lease) until such
default is cured.

 

27

 

14.09                     Permitted Transfers. 
Notwithstanding anything contained in the Lease to the contrary, Tenant
may, without the consent of Landlord (and without application hereto of
Sections 14.03, 14.04, 14.05 and 14.06 hereof) but upon notice thereof, assign
this Lease or sublease the entire Premises to (i) an entity with which Tenant
is merged or consolidated, or (ii) an entity which purchases all or
substantially all of Tenant’s assets, by stock purchase, asset purchase or
otherwise, provided, however, that (x) the assignee or sublessee shall use the
Premises only for the purposes stated in Section 1.10 hereof and (y) the
assignee or surviving entity who succeeds as tenant under the Lease shall have
a net worth immediately following the transfer that is at least equal to the
net worth of the Tenant either (i) immediately preceding the date of such
transfer, or (ii) as of the date of this Lease, whichever is greater.  Under no circumstances, however, shall the
Tenant be released from liability, whether pursuant to this ARTICLE XIV or
as otherwise permitted in this Lease.

 

ARTICLE XV – DEFAULT AND REMEDIES

 

15.01                     Events of Default By Tenant.  The
occurrence of any of the following shall constitute a material default and
breach of this Lease by Tenant:

 

(A)                              The failure by Tenant to pay Base Rent or
make any other payment required to be made by Tenant hereunder as and when due.

 

(B)                                The abandonment of the Premises by Tenant or
the vacation of the Premises by Tenant for fourteen (14) consecutive days
(without the payment of Rent).

 

(C)                                The failure by Tenant to observe or perform
any other provision of this Lease to be observed or performed by Tenant, other
than those described in Sections 15.01(A) and 15.01(B) above, if such failure
continues for ten (10) days after written notice thereof by Landlord to Tenant;
provided, however, that if the nature of the default is such that it cannot be
cured within the ten (10) day period, no default shall exist if Tenant
commences the curing of the default within the ten (10) day period and
thereafter diligently prosecutes the same to completion.  The ten (10) day notice described herein
shall be in lieu of, and not in addition to, any notice required under law now
or hereafter in effect requiring that notice of default be given prior to the
commencement of an unlawful detainer or other legal proceeding.

 

(D)                               The making by Tenant or its Guarantor of any
general assignment for the benefit of creditors, the filing by or against
Tenant or its Guarantor of a petition under any federal or state bankruptcy or
insolvency laws (unless, in the case of a petition filed against Tenant or its
Guarantor the same is dismissed within thirty (30) days after filing); the
appointment of a trustee or receiver to take possession of substantially all of
Tenant’s assets at the Premises or Tenant’s interest in this Lease or the
Premises, when possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other seizure of substantially all of Tenant’s
assets located at the Premises or Tenant’s interest in this Lease or the
Premises, if such seizure is not discharged within thirty (30) days.

 

28

 

(E)                                 Any material misrepresentation herein, or
material misrepresentation or omission in any financial statements or other
materials provided by Tenant or any Guarantor in connection with negotiating or
entering into this Lease or in connection with any Transfer under Section 14.01.

 

15.02                     Landlord’s Right To Terminate Upon Tenant Default.  In
the event of any default by Tenant as provided in Section 15.01 above,
Landlord shall have the right without notice or demand to Tenant (Tenant hereby
irrevocably waiving all notices and demands, statutory or otherwise, including
without limitation, any notice otherwise required in connection with any
forcible entry and detainer action), to terminate this Lease or to terminate
Tenant’s right to possession of the Premises without terminating this Lease,
and in either event Landlord shall be entitled to receive from Tenant:

 

(A)                              The worth at the time of award of any unpaid
Rent which had been earned at the time of such termination; plus

 

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

 

(C)                                The worth at the time of award of the amount
by which the unpaid Rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; plus

 

(D)                               Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant’s failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom; and

 

(E)                                 At Landlord’s election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.

 

As
used in subparagraphs (A) and (B) above, “worth at the time of award” shall be
computed by allowing interest on such amounts at the then highest lawful rate
of interest, but in no event to exceed one percent (1%) per annum plus the rate
established by the Federal Reserve Bank of Dallas on advances made to member
banks under Sections 13 and l3a of the Federal Reserve Act (“discount rate”)
prevailing at the time of the award.  As
used in paragraph (C) above, “worth at the time of award” shall be computed by
discounting such amount by (i) the discount rate of the Federal Reserve Bank of
Dallas prevailing at the time of award plus (ii) one percent (1%).

 

15.03                     Mitigation of Damages.  If
Landlord terminates this Lease or Tenant’s right to possession of the Premises,
Landlord agrees to mitigate its damages to the following extent:  (a) Landlord shall be required only to use
reasonable efforts to mitigate, which shall not exceed such efforts as Landlord
generally uses to lease other space in the Building, (b) Landlord will not be
deemed to have failed to mitigate if Landlord or its affiliates lease any other
portions of the Building or other projects owned by Landlord or its affiliates
in the same geographic area, before

 

29

 

reletting
all or any portion of the Premises, and (c) any failure to mitigate as
described herein with respect to any period of time shall only reduce the Rent
and other amounts to which Landlord is entitled hereunder by the reasonable
rental value of the Premises during such period.  In recognition that the value of the Building
depends on the rental rates and terms of leases therein, Landlord’s rejection
of a prospective replacement tenant based on an offer of rentals below Landlord’s
published rates for new leases of comparable space at the Building at the time
in question, or at Landlord’s option, below the rates provided in this Lease,
or containing terms less favorable than those contained herein, shall not give
rise to a claim by Tenant that Landlord failed to mitigate Landlord’s damages.

 

15.04                     Landlord’s Right To Continue Lease Upon Tenant Default.  In
the event of a default of this Lease and abandonment of the Premises by Tenant,
if Landlord does not elect to terminate this Lease as provided in Section 15.02
above, Landlord may from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease.  Without limiting the foregoing, Landlord may
continue this Lease in effect after Tenant’s default and abandonment and
recover Rent as it becomes due.  In the
event Landlord re-lets the Premises, to the fullest extent permitted by law,
the proceeds of any reletting shall be applied first to pay to Landlord all
costs and expenses of such reletting (including without limitation, costs and
expenses of retaking or repossessing the Premises, removing persons and
property therefrom, securing new tenants, including expenses for redecoration,
alterations and other costs in connection with preparing the Premises for the
new tenant, and if Landlord shall maintain and operate the Premises, the costs
thereof) and receivers’ fees incurred in connection with the appointment of and
performance by a receiver to protect the Premises and Landlord’s interest under
this Lease and any necessary or reasonable alterations; second, to the payment
of any indebtedness of Tenant to Landlord other than Rent due and unpaid
hereunder; third, to the payment of Rent due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of other or
future obligations of Tenant to Landlord as the same may become due and
payable, and Tenant shall not be entitled to receive any portion of such
revenue.

 

15.05                     Right of Landlord to Perform.  All
covenants and agreements to be performed by Tenant under this Lease shall be
performed by Tenant at Tenant’s sole cost and expense.  If Tenant shall fail to pay any sum of money,
other than Rent, required to be paid by it hereunder or shall fail to perform
any other act on its part to be performed hereunder, Landlord may, but shall
not be obligated to, make any payment or perform any such other act on Tenant’s
part to be made or performed, without waiving or releasing Tenant of its
obligations under this Lease.  Any sums
so paid by Landlord and all necessary incidental costs, together with interest
thereon at the lesser of the maximum rate permitted by law if any or twelve
percent (12%) per annum from the date of such payment, shall be payable to
Landlord as additional rent on demand and Landlord shall have the same rights and
remedies in the event of nonpayment as in the case of default by Tenant in the
payment of Rent.

 

15.06                     Default Under Other Leases.  If
the term of any lease, other than this Lease, heretofore or hereafter made by
Tenant for any office space in the Building shall be terminated or terminable
after the making of this Lease because of any default by Tenant under such
other lease, such fact shall empower Landlord, at Landlord’s sole option, to
terminate this Lease by notice to Tenant or to exercise any of the rights or
remedies set forth in Section 15.02.

 

30

 

15.07                     Non-Waiver.  Nothing in this Article shall be deemed
to affect Landlord’s rights to indemnification for liability or liabilities
arising prior to termination of this Lease or Tenant’s right to possession of
the Premises for personal injury or property damages under the indemnification
clause or clauses contained in this Lease. 
No acceptance by Landlord of a lesser sum than the Rent then due shall
be deemed to be other than on account of the earliest installment of such rent
due, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord’s
right to recover the balance of such installment or pursue any other remedy in
the Lease provided.  The delivery of keys
to any employee of Landlord or to Landlord’s agent or any employee thereof
shall not operate as a termination of this Lease or a surrender of the
Premises.

 

15.08                     Cumulative Remedies.  The
specific remedies to which Landlord may resort under the terms of the Lease are
cumulative and are not intended to be exclusive of any other remedies or means
of redress to which it may be lawfully entitled in case of any breach or
threatened breach by Tenant of any provisions of the Lease.  In addition to the other remedies provided in
the Lease, including the right to terminate this Lease or to terminate Tenant’s
right of possession of the Premises and reenter and repossess the Premises and
remove all persons and property from the Premises without terminating this
Lease as provided in Section 15.02, Landlord shall be entitled to a
restraint by injunction of the violation or attempted or threatened violation
of any of the covenants, conditions or provisions of the Lease or to a decree
compelling specific performance of any such covenants, conditions or
provisions.

 

15.09                     Default by Landlord. 
Landlord’s failure to perform or observe any of its obligations under
this Lease shall constitute a default by Landlord under this Lease only if such
failure shall continue for a period of thirty (30) days (or the additional
time, if any, that is reasonably necessary to promptly and diligently cure the
failure) after Landlord receives written notice from Tenant specifying the
default.  The notice shall give in
reasonable detail the nature and extent of the failure and shall identify the
Lease provision(s) containing the obligation(s).  If Landlord shall default in the performance
of any of its obligations under this Lease (after notice and opportunity to
cure as provided herein), Tenant may pursue any remedies available to it under
the law and this Lease, except that in no event shall Landlord be liable for
punitive damages, lost profits, business interruption, speculative,
consequential or other such damages.  In
recognition that Landlord must receive timely payments of Rent and operate the
Building, Tenant shall have no right of self-help to perform repairs or any
other obligation of Landlord, and shall have no right to withhold, set-off, or
abate Rent.

 

ARTICLE XVI – ATTORNEYS’ FEES: COSTS OF SUIT

 

16.01                     Attorneys’ Fees.  If
either Landlord or Tenant shall commence any action or other proceeding against
the other arising out of, or relating to, this Lease or the Premises, the
prevailing party shall be entitled to recover from the losing party, in
addition to any other relief, its actual attorneys fees irrespective of whether
or not the action or other proceeding is prosecuted to judgment and
irrespective of any court schedule of reasonable attorneys’ fees.  In addition, Tenant shall reimburse Landlord,
upon demand, for all reasonable attorneys’ fees

 

31

 

incurred
in collecting Rent or otherwise seeking enforcement against Tenant, its
sublessees and assigns, of Tenant’s obligations under this Lease.

 

16.02                     Indemnification.  Should
Landlord be made a party to any litigation instituted by Tenant against a party
other than Landlord, or by a third party against Tenant, Tenant shall
indemnify, hold harmless and defend Landlord from any and all loss, cost,
liability, damage or expense incurred by Landlord, including attorneys’ fees,
in connection with the litigation.

 

ARTICLE XVII – SUBORDINATION AND ATTORNMENT

 

17.01                     Subordination.  This
Lease, and the rights of Tenant hereunder, are and shall be subject and
subordinate to the interests of (a) all present and future ground leases and
master leases of all or any part of the Building; (b) present and future
mortgages and deeds of trust encumbering all or any part of the Building; (c)
all past and future advances made under any such mortgages or deeds of trust;
and (d) all renewals, modifications, replacements and extensions of any such
ground leases, master leases, mortgages and deeds of trust; provided, however,
that any lessor under any such ground lease or master lease or any mortgagee or
beneficiary under any such mortgage or deed of trust (any such lessor,
mortgagee or beneficiary is hereinafter referred to as a “Mortgagee”) shall
have the right to elect, by written notice given to Tenant, to have this Lease
made superior in whole or in part to any such ground lease, master lease,
mortgage or deed of trust (or subject and subordinate to such ground lease,
master lease, mortgage or deed of trust but superior to any junior mortgage or
junior deed of trust).  Upon demand,
Tenant shall execute, acknowledge and deliver any instruments reasonably
requested by Landlord or any such Mortgagee to effect the purposes of this Section 17.01.  Such instruments may contain, among other
things, provisions to the effect that such Mortgagee (hereafter, for the
purposes of this Section 17.01, a “Successor Landlord”) shall (i) not be
liable for any act or omission of Landlord or its predecessors, if any, prior
to the date of such Successor Landlord’s succession to Landlord’s interest
under this Lease; (ii) not be subject to any offsets or defenses which Tenant
might have been able to assert against Landlord or its predecessors, if any,
prior to the date of such Successor Landlord’s succession to Landlord’s
interest under this Lease; (iii) not be liable for the return of any security
deposit under the Lease unless the same shall have actually been deposited with
such Successor Landlord; (iv) be entitled to receive notice of any Landlord
default under this Lease plus a reasonable opportunity to cure such default
prior to Tenant having any right or ability to terminate this Lease as a result
of such Landlord default; (v) not be bound by any rent or additional rent which
Tenant might have paid for more than the current month to Landlord; (vi) not be
bound by any amendment or modification of the Lease or any cancellation or
surrender of the same made without Successor Landlord’s prior written consent;
(vii) not be bound by any obligation to make any payment to Tenant which was
required to be made prior to the time such Successor Landlord succeeded to
Landlord’s interest; and (viii) not be bound by any obligation under the Lease
to perform any work or to make any improvements to the demised Premises.  Any obligations of any Successor Landlord
under its respective lease shall be non-recourse as to any assets of such Successor
Landlord other than its interest in the Premises and improvements.

 

32

 

17.02                     Attornment.  If the interests of Landlord under the Lease
shall be transferred to any superior Mortgagee or other purchaser or person
taking title to the Building by reason of the termination of any superior lease
or the foreclosure of any superior mortgage or deed of trust, Tenant shall be
bound to such Successor Landlord under all of the terms, covenants and
conditions of the Lease for the balance of the term thereof remaining and any
extensions or renewals thereof which may be effected in accordance with any
option therefor in the Lease, with the same force and effect as if Successor
Landlord were the landlord under the Lease, and Tenant shall attorn to and
recognize as Tenant’s landlord under this Lease such Successor Landlord, as its
landlord, said attornment to be effective and self-operative without the
execution of any further instruments upon Successor Landlord’s succeeding to
the interest of Landlord under the Lease. 
Tenant shall, upon demand, execute any documents reasonably requested by
any such person to evidence the attornment described in this Section 17.02.  Concurrently, upon written request from
Tenant, and provided Tenant is not in default under this Lease, Landlord agrees
to use diligent, commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the Successor Landlord. 
Such Non-Disturbance Agreement may be embodied in the Mortgagee’s
customary form of Subordination and Non-Disturbance Agreement.  If, after exerting diligent, commercially
reasonable efforts, Landlord is unable to obtain a Non-Disturbance Agreement
from any such Mortgagee, Landlord shall have no further obligation to Tenant
with respect thereto.

 

17.03                     Mortgagee Protection. 
Tenant agrees to give any Mortgagee, by registered or certified mail, a
copy of any notice of default served upon Landlord by Tenant, provided that
prior to such notice Tenant has been notified in writing (by way of service on
Tenant of a copy of Assignment of Rents and Leases, or otherwise) of the
address of such Mortgagee (hereafter the “Notified Party”).  Tenant further agrees that if Landlord shall
have failed to cure such default within twenty (20) days after such notice to
Landlord (or if such default cannot be cured or corrected within that time,
then such additional time as may be necessary if Landlord has commenced within
such twenty (20) days and is diligently pursuing the remedies or steps
necessary to cure or correct such default), then the Notified Party shall have
an additional thirty (30) days within which to cure or correct such default (or
if such default cannot be cured or corrected within that time, then such
additional time as may be necessary if the Notified Party has commenced within
such thirty (30) days and is diligently pursuing the remedies or steps
necessary to cure or correct such default). 
Until the time allowed, as aforesaid, for the Notified Party to cure
such default has expired without cure, Tenant shall have no right to, and shall
not, terminate this Lease on account of Landlord’s default.

 

ARTICLE XVIII – QUIET ENJOYMENT

 

18.01                     Provided that Tenant performs all of its obligations hereunder, Tenant
shall have and peaceably enjoy the Premises during the Lease Term free of
claims by or through Landlord, subject to all of the terms and conditions
contained in this Lease.

 

33

 

ARTICLE XIX – RULES AND REGULATIONS

 

19.01                     The Rules and Regulations attached hereto as Exhibit C are
hereby incorporated by reference herein and made a part hereof.  Tenant shall abide by, and faithfully observe
and comply with the Rules and Regulations and any reasonable and
non-discriminatory amendments, modifications and/or additions thereto as may
hereafter be adopted and published by written notice to tenants by Landlord for
the safety, care, security, good order and/or cleanliness of the Premises
and/or the Building.  Landlord shall not
be liable to Tenant for any violation of such rules and regulations by any
other tenant or occupant of the Building.

 

ARTICLE XX – ESTOPPEL CERTIFICATES

 

20.01                     Tenant agrees
at any time and from time to time upon not less than ten (10) days’ prior
written notice from Landlord to execute, acknowledge and deliver to Landlord a
statement in writing addressed and certifying to Landlord, to any current or
prospective Mortgagee or any assignee thereof, to any prospective purchaser of
the land, improvements or both comprising the Building, and to any other party
designated by Landlord, that this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications); that Tenant has accepted
possession of the Premises, which are acceptable in all respects, and that any
improvements required by the terms of this Lease to be made by Landlord have
been completed to the satisfaction of Tenant; that Tenant is in full occupancy
of the Premises; that no rent has been paid more than thirty (30) days in
advance; that the first month’s Base Rent has been paid; that Tenant is
entitled to no free rent or other concessions except as stated in this Lease;
that Tenant has not been notified of any previous assignment of Landlord’s or
any predecessor landlord’s interest under this Lease; the dates to which Base
Rent, additional rental and other charges have been paid; that Tenant, as of
the date of such certificate, has no charge, lien or claim of setoff under this
Lease or otherwise against Base Rent, additional rental or other charges due or
to become due under this Lease; that Landlord is not in default in performance
of any covenant, agreement or condition contained in this Lease; or any other
matter relating to this Lease or the Premises or, if so, specifying each such
default.  If there a Guaranty under this
Lease, said Guarantor shall confirm the validity of the Guaranty by joining in
the execution of the Estoppel Certificate or other documents so requested by
Landlord or Mortgagee.  In addition, in
the event that such certificate is being given to any Mortgagee, such statement
may contain any other provisions customarily required by such Mortgagee
including, without limitation, an agreement on the part of Tenant to furnish to
such Mortgagee, written notice of any Landlord default and a reasonable
opportunity for such Mortgagee to cure such default prior to Tenant being able
to terminate this Lease.  Any such
statement delivered pursuant to this Section may be relied upon by
Landlord or any Mortgagee, or prospective purchaser to whom it is addressed and
such statement, if required by its addressee, may so specifically state.  If Tenant does not execute, acknowledge and deliver
to Landlord the statement as and when required herein, Landlord is hereby
granted an irrevocable power-of-attorney, coupled with an interest, to execute
such statement on Tenant’s behalf, which statement shall be binding on Tenant
to the same extent as if executed by Tenant.

 

34

 

ARTICLE XXI – ENTRY BY LANDLORD

 

21.01                     Landlord may enter the Premises at all reasonable times and upon
reasonable notice to: inspect the same; exhibit the same to prospective
purchasers, Mortgagees or tenants; determine whether Tenant is complying with
all of its obligations under this Lease; supply janitorial and other services
to be provided by Landlord to Tenant under this Lease; post notices of
non-responsibility; and make repairs or improvements in or to the Building or
the Premises; provided, however, that all such work shall be done as promptly
as reasonably possible and so as to cause as little interference to Tenant as
reasonably possible.  Tenant hereby
waives any claim for damages for any injury or inconvenience to, or
interference with, Tenant’s business, any loss of occupancy or quiet enjoyment
of the Premises or any other loss occasioned by such entry.  Landlord shall at all times have and retain a
key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant’s vaults, safes and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all means
by which Landlord may deem proper to open such doors to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any such means,
or otherwise, shall not under any circumstances be deemed or construed to be a
forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from any part of the Premises.  Such entry by Landlord shall not act as a
termination of Tenant’s duties under this Lease.  If Landlord shall be required to obtain entry
by means other than a key provided by Tenant, the cost of such entry shall be
payable by Tenant to Landlord as additional rent.

 

ARTICLE XXII

LANDLORD’S
LEASE UNDERTAKINGS – EXCULPATION FROM

PERSONAL
LIABILITY; TRANSFER OF LANDLORD’S INTEREST

 

22.01                     Landlord’s Lease Undertakings. 
Notwithstanding anything to the contrary contained in this Lease or in
any exhibits, Riders or addenda hereto attached (collectively the “Lease
Documents”), it is expressly understood and agreed by and between the parties
hereto that: (a) the recourse of Tenant or its successors or assigns against
Landlord with respect to the alleged breach by or on the part of Landlord of
any representation, warranty, covenant, undertaking or agreement contained in
any of the Lease Documents or otherwise arising out of Tenant’s use of the
Premises or the Building (collectively, “Landlord’s Lease Undertakings”) shall
extend only to Landlord’s interest in the real estate of which the Premises
demised under the Lease Documents are a part (“Landlord’s Real Estate”) and not
to any other assets of Landlord or its constituent partners; and (b) except to
the extent of Landlord’s interest in Landlord’s Real Estate, no personal
liability or personal responsibility of any sort with respect to any of
Landlord’s Lease Undertakings or any alleged breach thereof is assumed by, or
shall at any time be asserted or enforceable against, Landlord, its constituent
partners,  or against any of their
respective directors, officers, employees, agents, constituent partners,
beneficiaries, trustees or representatives.

 

35

 

22.02                     Transfer of Landlord’s Interest.  In
the event of any transfer of Landlord’s interest in the Building, Landlord
shall be automatically freed and relieved from all applicable liability with
respect to performance of any covenant or obligation on the part of Landlord,
provided any deposits or advance rents held by Landlord are turned over to the
grantee and said grantee expressly assumes, subject to the limitations of this Section 22,
all the terms, covenants and conditions of this Lease to be performed on the
part of Landlord, it being intended hereby that the covenants and obligations
contained in this Lease on the part of Landlord shall, subject to all the
provisions of this Section 22, be binding on Landlord, its successors and
assigns, only during their respective periods of ownership.

 

ARTICLE XXIII – HOLDOVER TENANCY

 

23.01                     If Tenant holds possession of the Premises after the expiration or
termination of the Lease Term, by lapse of time or otherwise, Tenant shall
become a tenant at sufferance upon all of the terms contained herein, except as
to Lease Term and Rent.  During such
holdover period, Tenant shall pay to Landlord a monthly rental equivalent to
one hundred fifty percent (150%) of the Rent payable by Tenant to Landlord with
respect to the last month of the Lease Term. 
The monthly rent payable for such holdover period shall in no event be
construed as a penalty or as liquidated damages for such retention of
possession.  Without limiting the
foregoing, Tenant hereby agrees to indemnify, defend and hold harmless
Landlord, its beneficiary, and their respective agents, contractors and
employees, from and against any and all claims, liabilities, actions, losses,
damages (including without limitation, direct, indirect, incidental and
consequential) and expenses (including, without limitation, court costs and
reasonable attorneys’ fees) asserted against or sustained by any such party and
arising from or by reason of such retention of possession, which obligations
shall survive the expiration or termination of the Lease Term.

 

ARTICLE XXIV – NOTICES

 

24.01                     All notices which Landlord or Tenant may be required, or may desire, to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed to
Landlord at the addresses for Landlord set forth in Section 1.12 above and
to Tenant at the address for Tenant set forth in Section 1.13 above, or,
from and after the Commencement Date, to Tenant at the Premises whether or not
Tenant has departed from, abandoned or vacated the Premises, or addressed to
such other address or addresses as either Landlord or Tenant may from time to
time designate to the other in writing. Any notice shall be deemed to have been
served at the time the same was posted.

 

36

 

ARTICLE XXV – BROKERS

 

25.01                     INTENTIONALLY
LEFT BLANK.

 

ARTICLE XXVI – COMMUNICATIONS AND COMPUTER LINES

 

26.01                     Tenant may,
in a manner consistent with the provisions and requirements of this Lease,
install, maintain, replace, remove or use any communications or computer wires,
cables and related devices (collectively the “Lines”) at the Building in or
serving the Premises, provided: (a) Tenant shall obtain Landlord’s prior
written consent, which consent may be conditioned as required by Landlord, (b)
if Tenant at any time uses any equipment that may create an electromagnetic
field exceeding the normal insulation ratings of ordinary twisted pair riser
cable or cause radiation higher than normal background radiation, the Lines
therefor (including riser cables) shall be appropriately insulated to prevent
such excessive electromagnetic fields or radiation, and (c) Tenant shall pay
all costs in connection therewith. 
Landlord reserves the right to require that Tenant remove any Lines
which are installed in violation of these provisions.

 

Landlord may (but shall not have the obligation to):
(i) install new Lines at the Property, (ii) create additional space for Lines
at the Property and (iii) adopt reasonable and uniform rules and regulations
with respect to the Lines.

 

Notwithstanding anything to the contrary contained
in Article IX, Landlord reserves the right to require that Tenant remove
any or all Lines installed by or for Tenant within or serving the Premises upon
termination of this Lease.  Tenant shall
not, without the prior written consent of Landlord in each instance, grant to
any third party a security interest or lien in or to the Lines, and any such
security interest or lien granted without Landlord’s written consent shall be
null and void.  Except to the extent
arising from the intentional or negligent acts of Landlord or Landlord’s agents
or employees, Landlord shall have no liability for damages arising from, and Landlord
does not warrant that Tenant’s use of any Lines will be free from, the
following (collectively called “Line Problems”): (x) any eavesdropping or
wire-tapping by unauthorized parties, (y) any failure of any Lines to satisfy
Tenant’s requirements, or (z) any shortages, failures, variations,
interruptions, disconnections, loss or damage caused by the installation,
maintenance, replacement, use or removal of Lines by or for other tenants or
occupants at the Property.  Under no
circumstances shall any Line Problems be deemed an actual or constructive
eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or
relieve Tenant from performance of Tenant’s obligations under this Lease.  Landlord in no event shall be liable for
damages by reason of loss of profits, business interruption or other
consequential damage arising from any Line Problems.

 

37

 

ARTICLE XXVII – MISCELLANEOUS

 

27.01                     Entire Agreement.  This
Lease contains all of the agreements and understandings relating to the leasing
of the Premises and the obligations of Landlord and Tenant in connection with
such leasing.  Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein.  This Lease supersedes any
and all prior agreements and understandings between Landlord and Tenant and
alone expresses the agreement of the parties.

 

27.02                     Amendments.  This Lease shall not be amended, changed or
modified in any way unless in writing executed by Landlord and Tenant.  Landlord shall not have waived or released
any of its rights hereunder unless in writing and executed by Landlord.

 

27.03                     Successors.  Except as expressly provided herein, this
Lease and the obligations of Landlord and Tenant contained herein shall bind
and benefit the successors and assigns of the parties hereto.

 

27.04                     Force Majeure.  Landlord shall incur no liability to Tenant
with respect to, and shall not be responsible for any failure to perform, any
of Landlord’s obligations hereunder if such failure is caused by any reason
beyond the control of Landlord including, but not limited to, strike, labor
trouble, governmental rule, regulations, ordinance, statute or interpretation,
or by fire, earthquake, civil commotion, or failure or disruption of utility
services.  The amount of time for
Landlord to perform any of Landlord’s obligations shall be extended by the
amount of time Landlord is delayed in performing such obligation by reason of
any force majeure occurrence whether similar to or different from the foregoing
types of occurrences.

 

27.05                     Survival of Obligations.  Any
obligations of Tenant accruing prior to the expiration of the Lease shall survive
the expiration or earlier termination of the Lease, and Tenant shall promptly
perform all such obligations whether or not this Lease has expired or been
terminated.

 

27.06                     Light and Air.  No diminution or shutting off of any light,
air or view by any structure now or hereafter erected shall in any manner
affect this Lease or the obligations of Tenant hereunder, or increase any of
the obligations of Landlord hereunder.

 

27.07                     Governing Law.  This Lease shall be governed by, and
construed in accordance with, the laws of the State of Texas.

 

27.08                     Severability.  In the event any provision of this Lease is
found to be unenforceable, the remainder of this Lease shall not be affected,
and any provision found to be invalid shall be enforceable to the extent permitted
by law.  The parties agree that in the
event two different interpretations may be given to any provision hereunder,
one of which will render the provision unenforceable, and one of which will
render the provision enforceable, the interpretation rendering the provision
enforceable shall be adopted.

 

38

 

27.09                     Captions.  All captions, headings, titles, numerical
references and computer highlighting are for convenience only and shall have no
effect on the interpretation of this Lease.

 

27.10                     Interpretation. 
Tenant acknowledges that it has read and reviewed this Lease and that it
has had the opportunity to confer with counsel in the negotiation of this
Lease.  Accordingly, this Lease shall be
construed neither for nor against Landlord or Tenant, but shall be given a fair
and reasonable interpretation in accordance with the meaning of its terms and
the intent of the parties.

 

27.11                     Independent Covenants.  Each
covenant, agreement, obligation or other provision of this Lease to be
performed by Tenant are separate and independent covenants of Tenant, and not
dependent on any other provision of the Lease.

 

27.12                     Number and Gender.  All
terms and words used in this Lease, regardless of the number or gender in which
they are used, shall be deemed to include the appropriate number and gender, as
the context may require.

 

27.13                     Time is of the Essence.  Time
is of the essence of this Lease and the performance of all obligations
hereunder.

 

27.14                     Joint and Several Liability.  If
Tenant comprises more than one person or entity, or if this Lease is guaranteed
by any party, all such persons shall be jointly and severally liable for
payment of rents and the performance of Tenant’s obligations hereunder.

 

27.15                     Exhibits.  Exhibits A, B, C and D are incorporated into
this Lease by reference and made a part hereof.

 

27.16                     Offer to Lease.  The
submission of this Lease to Tenant or its broker or other agent, does not
constitute an offer to Tenant to lease the Premises.  This Lease shall have no force and effect
until (a) it is executed and delivered by Tenant to Landlord and (b) it is
fully reviewed and executed by Landlord; provided, however, that, upon
execution of this Lease by Tenant and delivery to Landlord, such execution and
delivery by Tenant shall, in consideration of the time and expense incurred by
Landlord in reviewing the Lease and Tenant’s credit, constitute an offer by
Tenant to Lease the Premises upon the terms and conditions set forth herein
(which offer to Lease shall be irrevocable for twenty (20) business days
following the date of delivery).

 

27.17                     No Counterclaim; Choice of Law.  It is
mutually agreed that in the event Landlord commences any summary proceeding for
non-payment of Rent, Tenant will not interpose any counterclaim of whatever
nature or description in any such proceeding. 
In addition, Tenant hereby submits to local jurisdiction and agrees that
any action by Tenant against Landlord shall be instituted in the State of Texas
and that Landlord shall have personal jurisdiction over Tenant for any action
brought by Landlord against Tenant in the State of Texas.

 

27.18                     Electrical Service to the Premises.  If
electricity to the Premises shall not be furnished by Landlord as part of
Building services as set forth in Section 7.01 but shall be

 

39

 

furnished
by the approved electric utility company serving the Building, Landlord shall
permit Tenant to receive such service directly from such utility company at
Tenant’s cost and shall permit Landlord’s wire and conduits, to the extent
available, suitable and safely capable, to be used for such purposes.  In such event, Tenant’s Base Rent shall be
equitably reduced based upon Landlord’s then cost for furnishing electricity.

 

27.19                     Rights Reserved by Landlord. 
Landlord reserves the following rights exercisable without notice
(except as otherwise expressly provided to the contrary in this Lease) and
without being deemed an eviction or disturbance of Tenant’s use or possession
of the Premises or giving rise to any claim for set-off or abatement of
Rent:  (a) to change the name or street
address of the Building; (b) to install, affix and maintain all signs on the
exterior and/or interior of the Building; (c) to designate and/or approve prior
to installation, all types of signs, window shades, blinds, drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises and, notwithstanding the provisions of Article IX,
the design, arrangement, style, color and general appearance of the portion of
the Premises visible from the exterior, and contents thereof, including,
without limitation, furniture, fixtures, signs, art work, wall coverings,
carpet and decorations, and all changes, additions and removals thereto, shall,
at all times have the appearance of premises having the same type of exposure
and used for substantially the same purposes that are generally prevailing in
comparable office buildings in the area; (d) to change the arrangement of
entrances, doors, corridors, elevators and/or stairs in the Building, provided
no such change shall materially adversely affect access to the Premises; (e) to
grant any party the exclusive right to conduct any business or render any service
in the Building, provided such exclusive right shall not operate to prohibit
Tenant from using the Premises for the purposes permitted under this Lease; (f)
to prohibit the placement of vending or dispensing machines of any kind in or
about the Premises other than for use by Tenant’s employees; (g) to prohibit
the placement of video or other electronic games in the Premises; (h) to have
access for Landlord and other tenants of the Building to any mail chutes and
boxes located in or on the Premises according to the rules of the United States
Post Office and to discontinue any mail chute business in the Building; (i) to
close the Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times under such
rules and regulations as Landlord prescribes for security purposes; (j) to
install, operate and maintain security systems which monitor, by close circuit
television or otherwise, all persons entering or leaving the Building; (k) to
install and maintain pipes, ducts, conduits, wires and structural elements
located in the Premises which serve other parts or other tenants of the
Building; and (l) to retain at all times master keys or pass keys to the
Premises.  Any violation of this
provision shall be deemed a material breach of this Lease.

 

40

 

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

 

	
  WITNESS:

  	
  LANDLORD:

  
	
   

  	
   

  	
   

  
	
   

  	
  PGI EQUITY PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   PGI Capital,
  Inc., General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Terry
  W. Hamann

  
	
   

  	
   

  	
  Terry W. Hamann

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TENANT:

  
	
   

  	
  TREATY OAK BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey L. Nash

  
	
   

  	
   

  	
  Jeffrey L. Nash

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
				

 

41

 

EXHIBIT A

 

FLOOR PLAN
OF PREMISES

 

42

 

EXHIBIT B

WORK LETTER
AGREEMENT

 

It is hereby agreed by
Landlord and Tenant that Landlord shall acquire and have installed the following
special use equipment for use by Tenant. 
Within 90 days of the Commencement Date Tenant agrees to reimburse
Landlord for all acquisition and installation costs of the special use
equipment as detailed by invoices, receipts and/or other forms provided by
Landlord and acceptable to Tenant. 
Estimated costs of the special use equipment to be reimbursed by Tenant
to Landlord are not to exceed $300,000 and are presented below for illustrative
purposes only.

 

	
  Special Use Equipment

  	
   

  	
  Estimated Cost

  	
   

  
	
  Vaults,
  teller equipment, etc.

  	
   

  	
  $

  	
  70,000

  	
   

  
	
  Drive-thru
  structure

  	
   

  	
  $

  	
  20,000

  	
   

  
	
  Trenching
  & other special site prep

  	
   

  	
  $

  	
  15,000

  	
   

  
	
  Security
  glass

  	
   

  	
  $

  	
  5,000

  	
   

  
	
  Other
  Improvements & Specialty Needs

  	
   

  	
  $

  	
  75,000

  	
   

  
	
  Total

  	
   

  	
  $

  	
  185,000

  	
   

  

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Work
Letter Agreement as of the date first above written.

 

	
  WITNESS:

  	
  LANDLORD:

  
	
   

  	
   

  	
   

  
	
   

  	
  PGI EQUITY PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   PGI Capital,
  Inc., General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TENANT:

  
	
   

  	
  TREATY OAK BANK

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Jeffrey L. Nash

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
					

 

43

 

EXHIBIT C

RULES AND
REGULATIONS

 

1.                                       The sidewalks, entrances, passages, courts,
elevators, vestibules, stairways, corridors or halls shall not be obstructed or
used for any purpose other than ingress and egress.  The halls, passages, entrances, elevators,
stairways, balconies and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access thereto
by all persons whose presence in the judgment of Landlord shall be prejudicial
to the safety, character, reputation or interests of Landlord and its tenants,
provided that nothing herein contained shall be construed to prevent such
access by persons with whom the tenant normally deals in the ordinary course of
its business unless such persons are engaged in illegal activities.  No tenant and no employees of any tenant
shall go upon the roof of the Building without the written consent of Landlord.

 

2.                                       No awnings or other projections shall be
attached to the outside walls or surfaces of the Building nor shall the
interior or exterior of any windows be coated without the prior written consent
of Landlord.  Except as otherwise
specifically approved by Landlord, all electrical ceiling fixtures hung in
offices or spaces along the perimeter of the Building must be fluorescent and
of a quality, type, design and bulb color approved by Landlord.  Tenant shall not place anything or allow
anything to be placed near the glass of any window, door, partition or wall
which may appear unsightly from outside the Premises.

 

3.                                       No sign, picture, plaque, advertisement,
notice or other material shall be exhibited, painted, inscribed or affixed by
any tenant on any part of, or so as to be seen from the outside of, the
Premises or the Building without the prior written consent of Landlord.  In the event of the violation of the
foregoing by any tenant, Landlord may remove the same without any liability,
and may charge the expense incurred in such removal to the tenant violating
this rule.  Interior signs on doors and
the directory tablet shall be inscribed, painted or affixed for each tenant by
Landlord at the expense of such tenant, and shall be of a size, color and style
acceptable to Landlord.

 

4.                                       The toilets and wash basins and other
plumbing fixtures shall not be used for any purpose other than those for which
they were constructed, and no sweepings, rubbish, rags or other substances
shall be thrown therein.  All damage
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.

 

5.                                       No tenant or its officers, agents, employees
or invitees shall mark, paint, drill into, or in any way deface any part of the
Premises or the Building.  No boring,
cutting or stringing of wires or laying of linoleum or other similar floor
coverings shall be permitted except with the prior written consent of Landlord
and as Landlord may direct.

 

6.                                       No bicycles, vehicles or animals of any kind
shall be brought into or kept in or about the Premises and no cooking shall be
done or permitted by any tenant on the Premises except that microwave cooking
in a UL-approved microwave oven and the preparation of coffee,

 

44

 

tea,
hot chocolate and similar items for the tenant and its employees and business
visitors shall be permitted.  Tenant
shall not cause or permit any unusual or objectionable odors to escape from the
Premises.

 

7.                                       The Premises shall not be used for
manufacturing or for the storage of merchandise except as such storage may be
incidental to the use of the Premises for general office purposes.  No tenant shall engage or pay any employees
on the Premises except those actually working for such tenant on the Premises
nor advertise for laborers giving an address at the Premises.  The Premises shall not be used for lodging or
sleeping or for any immoral or illegal purposes.

 

8.                                       No tenant or its officers, agents, employees
or invitees shall make, or permit to be made any unseemly or disturbing noises,
sounds or vibrations or disturb or interfere with occupants of this or
neighboring buildings or Premises or those having business with them whether by
the use of any musical instrument, radio, phonograph, unusual noise, or in any
other way.

 

9.                                       No tenant or its officers, agents, employees
or invitees shall throw anything out of doors, balconies or down the
passageways.

 

10.                                 Tenant shall not maintain armed security in
or about the Premises without the prior written consent of Landlord, nor
possess any weapons, explosives, combustibles or other hazardous devices in or
about the Building and/or Premises.

 

11.                                 No tenant or its officers, agents, employees
or invitees shall at any time use, bring or keep upon the Premises any
flammable, combustible, explosive, foul or noxious fluid, chemical or
substance, or do or permit anything to be done in the Premises, or bring or
keep anything therein, which shall in any way increase the rate of fire
insurance on the Building, or on the property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them,
or conflict with the regulations of the Fire Department or the fire laws, or with
any insurance policy upon the Building, or any part thereof, or with any rules
and ordinances established by the Board of Health or other governmental
authority.

 

12.                                 No additional locks or bolts of any kind
shall be placed upon any of the doors or windows by any tenant, nor shall any
changes be made in existing locks or the mechanism thereof.  Each tenant must, upon the termination of
this tenancy, restore to Landlord all keys of stores, offices, and toilet rooms,
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished, such tenant shall pay to Landlord the cost
of replacing the same or of changing the lock or locks opened by such lost key
if Landlord shall deem it necessary to make such change.

 

13.                                 All removals, or the carrying in or out of
any safes, freight, furniture, or bulky matter of any description must take
place during the hours which Landlord may determine from time to time.  The moving of safes or other fixtures or
bulky matter of any kind must be made upon previous notice to the manager of
the Building and under his or her supervision, and the persons employed by any
tenant for such work must be acceptable to Landlord.  Landlord

 

45

 

reserves
the right to inspect all safes, freight or other bulky articles to be brought
into the Building and to exclude from the Building all safes, freight or other
bulky articles which violate any of these Rules and Regulations or the Lease of
which these Rules and Regulations are a part. 
Landlord reserves the right to prohibit or impose conditions upon the
installation in the Premises of heavy objects which might overload the building
floors.  Landlord will not be responsible
for loss of or damage to any safes, freight, bulky articles or other property
from any cause, and all damage done to the Building by moving or maintaining
any such safe or other property shall be repaired at the expense of the tenant.

 

14.                                 No tenant shall purchase or otherwise obtain
for use in the Premises water, ice, towel, vending machine, janitorial,
maintenance or other like services, or accept barbering or shoeshine services,
except from persons authorized by Landlord, and at hours and under regulations
fixed by Landlord.

 

15.                                 Landlord shall have the right to prohibit any
advertising by any tenant which, in Landlord’s opinion, tends to impair the
reputation of the Building or its desirability as an office building and upon
written notice from Landlord any tenant shall refrain from or discontinue such
advertising.

 

16.                                 Landlord reserves the right to exclude from
the Building between the hours of 6:00 p.m. and 6:00 a.m. and at all hours of
Saturdays, Sundays and legal holidays all persons who do not possess a pass
provided by Landlord.  Landlord shall
furnish passes to persons for whom any tenant requests the same in
writing.  Each tenant shall be
responsible for all persons for whom he requests passes and shall be liable to
Landlord for all acts of such persons. 
Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.  In the case of invasion, mob, riot, public
excitement or other commotion, Landlord reserves the right to prevent access to
the Building during the continuance of the same, by the closing of the gates
and doors or otherwise, for the safety of the tenants and others and the
protection of the Building and the property therein.

 

17.                                 Any outside contractor employed by any tenant
shall, while in the Building, be subject to the prior written approval of
Landlord and subject to the Rules and Regulations of the Building.  Tenant shall be responsible for all acts of
such persons and Landlord shall not be responsible for any loss or damage to
property in the Premises, however occurring.

 

18.                                 All doors opening onto public corridors shall
be kept closed, except when in use for ingress and egress, and left locked when
not in use.

 

19.                                 The requirements of tenants will be attended
to only upon application to the Office of the Building.

 

20.                                 Canvassing, soliciting and peddling in the
Building are prohibited and each tenant shall cooperate to prevent the same.

 

46

 

21.                                 All office equipment of any electrical or mechanical
nature shall be placed by tenants in the Premises in settings approved by
Landlord, to absorb or prevent any vibration, noise or annoyance.

 

22.                                 No air conditioning unit or other similar
apparatus shall be installed or used by any tenant without the written consent
of Landlord.

 

23.                                 There shall not be used in any space, or in
the public halls of the Building either by any tenant or others, any hand
trucks except those equipped with rubber tires and side guards.

 

24.                                 Landlord will direct electricians as to where
and how telephone and telegraph wires are to be introduced.  No boring or cutting for wires or stringing
of wires will be allowed without written consent of Landlord.  The location of telephones, call boxes and
other office equipment affixed to the Premises shall be subject to the approval
of Landlord.  All such work shall be
effected pursuant to permits issued by all applicable governmental authorities
having jurisdiction.

 

25.                                 No vendor with the intent of selling such
goods shall be allowed to transport or carry beverages, food, food containers,
etc., on any passenger elevators.  The
transportation of such items shall be via the service elevators in such manner
as prescribed by Landlord.

 

26.                                 Tenants shall cooperate with Landlord in the
conservation of energy used in or about the Building, including without
limitation, cooperating with Landlord in obtaining maximum effectiveness of the
cooling system by closing drapes or other window coverings when the sun’s rays
fall directly on windows of the Premises, and closing windows and doors to
prevent heat loss.  Tenant shall not
obstruct, alter or in any way impair the efficient operation of Landlord’s
heating, lighting, ventilating and air conditioning system.  Tenant shall not tamper with or change the
setting of any thermostats or temperature control valves, and shall in general
use heat, gas, electricity, air conditioning equipment and heating equipment in
a manner compatible with sound energy conservation practices and standards.

 

27.                                 All parking ramps and areas, pedestrian
walkways, plazas, and other public areas forming a part of the Building shall
be under the sole and absolute control of Landlord with the exclusive right to
regulate and control these areas.  Tenant
agrees to conform to the rules and regulations that may be established by
Landlord for these areas from time to time.

 

28.                                 Landlord reserves the right to exclude or
expel from the Building any person who, in the judgment of Landlord, is
intoxicated or under the influence of liquor or drugs, or who shall in any
manner do any act in violation of any of the rules and regulations of the
Building.

 

29.                                 Tenant and its employees, agents, subtenants,
contractors and invitees shall comply with all applicable “no-smoking”
ordinances and, irrespective of such ordinances, shall not smoke or permit
smoking of cigarettes, cigars or pipes outside of Tenant’s Premises (including
plaza areas) in any portions of the Building except areas specifically
designated as smoking areas by Landlord. 
If required by applicable ordinance, Tenant shall provide smoking areas
within Tenant’s Premises.

 

47

 

EXHIBIT D

 

Suite
Acceptance Agreement

 

	
  Building Name/Address:

  	
   

  
	
   

  
	
  Tenant Name:

  	
   

  
	
   

  
	
  Tenant Code:

  	
   

  	
   

  	
  Suite #:

  	
   

  
	
   

  
	
  Management’s Tenant Contact:

  	
   

  	
   

  	
  Phone #:

  	
   

  
											

 

Gentlemen:

 

As
a representative of the above referenced tenant, I/we have physically inspected
the suite noted above and its improvements with                              ,
a representative of                                       .
I/we accept the suite improvements as to compliance with all the requirements
indicated in our lease, also including the following verified information
below:

 

	
  Lease Commencement Date:

  	
   

  	
  ,

  	
  Occupancy Date:

  	
   

  
	
   

  
	
  Lease Rent Start Date *:

  	
   

  	
  , 

  	
  Actual Rent Start *:

  	
   

  
	
   

  
	
  Lease Expiration Date:

  	
   

  	
  ,

  	
  Actual Expiration Date:

  	
   

  
	
   

  
	
  Date Keys Delivered:

  	
   

  	
   

  
													

 

	
  Items requiring attention:

  	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  

 

*
If these dates are not the same, attach documentation.

 

NOTE:  This inspection is to be made prior to tenant
move-in.

 

48

 

OFFICE
LEASE

 

between

 

PGI EQUITY
PARTNERS, L.P.

(Landlord)

 

and

 

TREATY OAK
BANK

(Tenant)

 

 

TABLE OF
CONTENTS

 

OFFICE
LEASE

 

	
  Article

  	
   

  	
  Caption

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  I

  	
   

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  II

  	
   

  	
  PREMISES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  III

  	
   

  	
  TERM

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  IV

  	
   

  	
  RENTAL

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  V

  	
   

  	
  SECURITY DEPOSIT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VI

  	
   

  	
  USE OF PREMISES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VII

  	
   

  	
  UTILITIES AND
  SERVICES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII

  	
   

  	
  MAINTENANCE AND
  REPAIRS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  IX

  	
   

  	
  ALTERATIONS, ADDITIONS AND
  IMPROVEMENTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  X

  	
   

  	
  INDEMNIFICATION
  AND INSURANCE

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XI

  	
   

  	
  DAMAGE OR
  DESTRUCTION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XII

  	
   

  	
  CONDEMNATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII

  	
   

  	
  RELOCATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV

  	
   

  	
  ASSIGNMENT AND
  SUBLETTING

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XV

  	
   

  	
  DEFAULT AND REMEDIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XVI

  	
   

  	
  ATTORNEYS’
  FEES: COSTS OF SUIT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XVII

  	
   

  	
  SUBORDINATION
  AND ATTORNMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XVIII

  	
   

  	
  QUIET ENJOYMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XIX

  	
   

  	
  RULES AND
  REGULATIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XX

  	
   

  	
  ESTOPPEL
  CERTIFICATES

  	
   

  

 

 

	
  XXI

  	
   

  	
  ENTRY BY LANDLORD

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXII

  	
   

  	
  LANDLORD’S LEASE UNDERTAKINGS —
  EXCULPATION FROMPERSONAL LIABILITY; TRANSFER OF LANDLORD’S INTEREST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIII

  	
   

  	
  HOLDOVER TENANCY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXIV

  	
   

  	
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXV

  	
   

  	
  BROKERS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXVI

  	
   

  	
  COMMUNICATIONS
  AND COMPUTER LINES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XXVII

  	
   

  	
  MISCELLANEOUS

  	
   

  

 

EXHIBITS

 

	
  Exhibit A

  	
  Floor Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Work Letter
  Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Rules and
  Regulations

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Suite Acceptance
  LetterExhibit 10.6

 

TREATY OAK BANCORP, INC.

 

2004 STOCK INCENTIVE PLAN

(Amended and Restated as of May
20, 2004)

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I.                                         PURPOSE OF THE PLAN

 

This 2004 Stock Incentive Plan is intended to
promote the interests of Treaty Oak Bancorp, Inc., a Texas corporation, by
providing eligible persons in the Corporation’s service with the opportunity to
acquire a proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain in such service.

 

Capitalized terms shall have the meanings assigned
to such terms in the attached Appendix.

 

II.                                     STRUCTURE OF THE PLAN

 

A.                                   The Plan shall be divided into three separate
equity incentives programs:

 

•                                          the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,

 

•                                          the Stock Issuance Program under which
eligible persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase of such
shares or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and

 

•                                          the Automatic Option Grant Program under
which eligible non-employee Board members shall automatically receive option
grants at designated intervals over their period of continued Board service.

 

B.                                     The provisions of Articles One and Five shall
apply to all equity programs under the Plan and shall govern the interests of
all persons under the plan.

 

III.                                 ADMINISTRATION OF THE PLAN

 

A.                                   The Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.  Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board’s

 

 

discretion,
be vested in the Primary Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with respect to all such
persons.  However, any discretionary
option grants or stock issuances for members of the Primary Committee must be
authorized by a disinterested majority of the Board.

 

B.                                     Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

 

C.                                     Each Plan Administrator shall, within the
scope of its administrative functions under the Plan, have full power and
authority to establish such rules and regulations as it may deem appropriate
for proper administration of the Discretionary Option Grant and Stock Issuance
Programs and to make such determinations under, and issue such interpretations
of, the provisions of those programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable.  Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Issuance Programs under its
jurisdiction or any stock option or stock issuance thereunder.

 

D.                                    Service on the Primary Committee or the
Secondary Committee shall constitute service as a Board member, and members of
such committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any Stock Issuances
under the Plan.

 

E.                                      Administration of the Automatic Option Grant
Program shall be self-executing in accordance with the terms of that program,
and no Plan Administrator shall exercise any discretionary functions with
respect to any option grants or stock issuances made under that program.

 

IV.                                ELIGIBILITY

 

A.                                   The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:

 

(i)                                     employees,

 

(ii)                                  non-employee members of the Board or the
board of directors of any Parent or Subsidiary, and

 

(iii)                               consultants and other independent advisors
who provide services to the Corporation (or any Parent or Subsidiary).

 

2

 

B.                                     Each Plan Administrator shall, within the
scope of its administrative jurisdiction under the Plan, have full authority to
determine: (i) with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive such grants, the time or
times when those grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Satutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares
outstanding; and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive such issuances, the time or
times when the issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued
shares, and the consideration for such shares.

 

C.                                     The Plan Administrator shall have the
absolute discretion either to grant options in accordance with the
Discretionary Option Grant Program or to effect stock issuances in accordance
with the Stock Issuance Program.

 

D.                                    The individuals who shall be eligible to
participate in the Automatic Option Grant Program shall be limited to those
individuals who continue to serve as non-employee Board members at one or more
Annual Shareholders Meetings held after the Offering Date.  A non-employee Board member who has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall be eligible to receive periodic option grants under the Automatic Option
Grant Program while he or she continues to serve as a non-employee Board
member.

 

V.                                    STOCK SUBJECT TO THE PLAN

 

A.                                   The stock issuable under the Plan shall be
shares of authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market.  The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
500,000 shares.

 

B.                                     The number of shares of Common Stock
available for issuance under the Plan shall automatically increase on the first
business day of January each calendar year during the term of the Plan,
beginning with calendar year 2005, by an amount equal to two percent (2%) of
the total number of shares of Common Stock outstanding on the last business day
in December of the immediately preceding calendar year, but in no event
shall any such annual increase exceed 100,000 shares.

 

C.                                     No one person participating in the Plan may
receive stock options or direct stock issuances for more than 100,000 shares of
Common Stock in the aggregate per calendar year.

 

D.                                    Shares of Common Stock subject to outstanding
options shall be available for subsequent issuance under the Plan to the extent
(i) those options expire or terminate for any reason prior to exercise in full
or (ii) the options are cancelled in accordance with the

 

3

 

cancellation-regrant
provisions of Article Two.  Unvested
shares issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation’s repurchase rights under the Plan, shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan.  However, should the exercise price of an
option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation
in satisfaction of the withholding taxes incurred in connection with the
exercise of an option or the vesting of a stock issuance under the Plan, then
the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock.

 

E.                                      If any change is made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares, or other change affecting the outstanding shares of
Common Stock as a class without the Corporation’s receipt of consideration,
appropriate adjustments shall be made by the Plan Administrator to (i) the
maximum number and/or class of securities issuable under the Plan, (ii) the
maximum number and/or class of securities for which any one person may be
granted stock options or direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to continuing
non-employee Board members, (iv) the number and/or class of securities and the
exercise price per share in effect under each outstanding option under the
Plan, and (v) the maximum number and/or class of securities by which the share
reserve is to increase automatically each calendar year pursuant to the
provisions of Section V.B of this Article One.  Such adjustments to the outstanding options
are to be effected in a manner which shall preclude the enlargement or dilution
of rights and benefits under such options. 
The adjustments determined by the Plan Administrator shall be final,
binding, and conclusive.

 

4

 

ARTICLE TWO

 

DISCRETIONARY OPTION GRANT
PROGRAM

 

I.                                         OPTION TERMS

 

Each option shall be evidenced by one or more
documents in the form approved by the Plant Administrator; provided,
however, that each such document shall comply with the terms specified
below.  Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

 

A.                                   Exercise Price.

 

l.                                          The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the option grant date.

 

2.                                       The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section I
of Article Seven and the documents evidencing the option, be payable in
one or more of the forms specified below:

 

(i)                                     cash or check made payable to the
Corporation,

 

(ii)                                  shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation’s earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or

 

(iii)                               should the Common Stock be registered under Section 12
of the 1934 Act at the time the option is exercised and to the extent the
option is exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all applicable
Federal, state, and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise, and (b) the Corporation to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.

 

Except to the extent such sale and remittance
procedure is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.

 

5

 

B.                                     Exercise and Term of Options.

 

Each option shall be exercisable at such time or
times, during such period and for such number of shares as shall be determined
by the Plan Administrator and set forth in the documents evidencing the
option.  However, no option shall have a
term in excess of ten (10) years measured from the option grant date.

 

C.                                     Effect of Termination of Service.

 

1.                                       The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:

 

(i)                                     Any option outstanding at the time of the
Optionee’s cessation of Service for any reason shall remain exercisable for
such period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option shall
be exercisable after the expiration of the option term.

 

(ii)                                  Any option held by the Optionee at the time
of death and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee’s estate or by the
person or persons to whom the option is transferred pursuant to the Optionee’s
will or the laws of inheritance or by the Optionee’s designated beneficiary or
beneficiaries of that option.

 

(iii)                               Should the Optionee’s service be terminated
for Misconduct or should the Optionee otherwise engage in Misconduct while  holding one or more outstanding options under
this Article Two, then all those options shall terminate immediately and
cease to be outstanding.

 

(iv)                              During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of the
Optionee’s cessation of Service.  Upon
the expiration of the applicable exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
outstanding for any vested shares for which the option has not been
exercised.  However, the option shall,
immediately upon the Optionee’s cessation of Service, terminate and cease to be
outstanding to the extent the option is not otherwise at the time exercisable
for vested shares.

 

2.                                       The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:

 

(i)                                     extend the period of time for which the
option is to remain exercisable following the Optionee’s Cessation of Service
from the limited exercise period otherwise in effect for that option to such
greater period of time as

 

6

 

the Plan Administrator shall deem appropriate, but
in no event beyond the expiration of the option term, and/or

 

(ii)                                  permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the time
of the Optionee’s cessation of Service, but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.

 

D.                                    Shareholder Rights.  The
holder of an option shall have no shareholder rights with respect to the shares
subject to the option until such person shall have exercised the option, paid
the exercise price, and become a holder of record of the purchased shares.

 

E.                                      Repurchase Rights.  The
Plan Administrator shall have the discretion to grant options which are
exercisable for unvested shares of Common Stock.  Should the Optionee cease Service while
holding such unvested shares, the Corporation shall have the right to
repurchase, at the exercise price paid per share, any or all of those unvested
shares.  The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.

 

F.             Limited Transferability of Options.  During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or the laws of inheritance
following the Optionee’s death. 
Non-Statutory Options shall be subject to the same restriction, except
that a Non-Statutory option may be assigned in whole or in part during the
Optionee’s lifetime to one or more members of the Optionee’s family or to a
trust established exclusively for one or more such family members or to the
Optionee’s former spouse, to the extent such assignment is in connection with
the Optionee’s estate plan or pursuant to a domestic relations order.  The assigned portion may only be exercised by
the person or persons who acquire a proprietary interest in the option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee
may also designate one or more persons as the beneficiary or beneficiaries of
his or her outstanding options under this Article Two, and those options
shall, in accordance with such designation, automatically be transferred to
such beneficiary or beneficiaries upon the Optionee’s death while holding those
options.  Such beneficiary or
beneficiaries shall take the transferred options subject to all the terms and
conditions of the applicable agreement evidencing each such transferred option,
including (without limitation) the limited time period during which the option
may be exercised following the optionee’s death.

 

7

 

II.                                     INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all
Incentive Options.  Except as modified by
the provisions of this Section II, all the provisions of Articles One,
Two, and Seven shall be applicable to Incentive Options.  Options which are specifically designated as
Non-Statutory Options when issued under the Plan shall not
be subject to the terms of this Section II.

 

A.                                   Eligibility. 
Incentive Options may only be granted to Employees.

 

B.                                     Dollar Limitation.  The
aggregate Fair Market Value of the shares of Common Stock (determined as of the
respective date or dates of grant) for which one or more options granted to any
Employee under the Plan (or any other option plan of the Corporation or any
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000).  To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

 

C.                                     10% Shareholder.  If
any Employee to whom an Incentive Option is granted is a 10% Shareholder, then
the exercise price per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value per share of Common Stock on the option grant
date, and the option term shall not exceed five (5) years measured from the
option grant date.

 

III.                                 CORPORATE TRANSACTION/CHANGE IN
CONTROL

 

A.                                   Each option which is assumed in connection
with a Corporate Transaction shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction. Appropriate adjustments to reflect such Corporate
Transaction shall also be made to: (i) the exercise price payable per share
under each outstanding option, provided the exercise price payable for
such securities shall remain the same; (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan; (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options or direct stock issuances under the Plan per calendar
year; and (iv) the maximum number and/or class of securities by which the share
reserve is to increase automatically each calendar year.  To the extent the actual holders of the
Corporation’s outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under the Discretionary Option Grant Program, substitute one or more shares of
its own common stock with a fair market value equivalent to the cash
consideration paid per share of Common Stock in such Corporate Transaction.

 

B.                                     The Plan Administrator shall have the
discretionary authority to structure one or more outstanding options under the
Discretionary Option Grant Program so that those options shall, immediately
prior to the effective date of such Corporate Transaction, become

 

8

 

exercisable
for all the shares of Common Stock at the time subject to those options and may
be exercised for any or all of those shares as fully vested shares of Common
Stock, whether or not those options are to be assumed in the Corporate
Transaction.  In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation’s rights under the Discretionary Option Grant Program so
that those rights shall not be assignable in connection with such Corporate
Transaction and shall accordingly terminate upon consummation of such Corporate
Transaction, and the shares subject to those terminated rights shall thereupon
vest in full.

 

C.                                     The Plan Administrator shall have full power
and authority to structure one or more outstanding options under the
Discretionary Option Grant Program so that those options shall become
exercisable for all the shares of Common Stock at the time subject to those
options in the event the Optionee’s Service is subsequently terminated by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of any Corporate Transaction
in which those options are assumed and do not otherwise accelerate.  In addition, the Plan Administrator may
structure one or more of the Corporation’s repurchase rights so that those
rights shall immediately terminate with respect to any shares held by the
Optionee at the time of his or her Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.

 

D.                                    The Plan Administrator shall have the
discretionary authority to structure one or more outstanding options under the
Discretionary Option Grant Program so that those options shall, immediately
prior to the effective date of a Change in Control, become exercisable for all
the shares of Common Stock at the time subject to those options and may be
exercised for any or all of those shares as fully vested shares of Common
Stock.  In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation’s repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the
consummation of such Change in Control, and the shares subject to those
terminated rights shall thereupon vest in full. 
Alternatively, the Plan Administrator may condition the automatic
acceleration of one or more outstanding options under the Discretionary Option
Grant Program and the termination of one or more of the Corporation’s
outstanding purchase rights under such program upon the subsequent termination
of the Optionee’s Service by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control.

 

E.                                      The portion of any Incentive Option
accelerated in connection with a Corporate Transaction or Change in Control
shall remain exercisable as an Incentive Option only to the extent the applicable
One Hundred Thousand Dollar ($100,000) limitation is not exceeded.  To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.

 

F.                                      The outstanding options shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize, or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate, or sell or transfer all or any part of its business or assets.

 

9

 

IV.                                CANCELLATION AND REGRANT OF
OPTIONS

 

The Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
option holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program (including outstanding options incorporated
from the Predecessor Plan) and to grant in substitution new options  covering
the same or a different number of shares of Common Stock but with an exercise
per share based on the Fair Market Value per share of Common Stock on the new
grant date.

 

10

 

ARTICLE THREE

 

STOCK ISSUANCE PROGRAM

 

I.                                         STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock
Issuance Program through direct and immediate issuances without any intervening
option grants.  Each such stock Issuance
shall be evidenced by a Stock Issuance Agreement which complies with the terms
specified below.  Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals or the satisfaction of specified Service
requirements.

 

A.                                   Purchase Price.

 

l.                                          The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the issuance date.

 

2.                                       Subject to the provisions of Section I
of Article Seven, shares of Common Stock may be issued under the Stock
Issuance Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:

 

(i)                                     cash or check made payable to the
Corporation, or

 

(ii)                                  past services rendered to the Corporation (or
any Parent or Subsidiary).

 

B.                                     Vesting Provisions.

 

1.                                       Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant’s period of Service or upon attainment of specified performance
objectives.  The elements of the vesting schedule applicable
to any unvested shares of Common Stock issued under the Stock Issuance Program
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.  Shares of Common
Stock may also be issued under the Stock Issuance Program pursuant to share
right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or the satisfaction of specified
Service requirements.

 

2.                                       Any new, substituted, or additional
securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant’s unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares, or other change affecting the outstanding Common Stock as a class
without the Corporation’s

 

11

 

receipt
of consideration shall be issued subject to (i) the same vesting requirements
applicable to the Participant’s unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.

 

3.                                       The Participant shall have full shareholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant’s interest in
those shares is vested.  Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares.

 

4.                                       Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further shareholder rights with respect to
those shares.  To the extent the
surrendered shares were previously issued to the Participant for consideration
paid in cash or cash equivalent (including the Participant’s purchase-money
indebtedness), the Corporation shall repay to the Participant the cash
consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.

 

5.                                       The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock which would otherwise occur upon the cessation of the Participant’s
Service or the non-attainment of the performance objectives applicable to those
shares.  Such waiver shall result in the
immediate vesting of the Participant’s interest in the shares of Common Stock
as to which the waiver applies.  Such
waiver may be effected at any time, whether before or after the Participant’s
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.

 

6.                                       Outstanding share right awards under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards, if the
performance goals or Service requirements established for such awards are not
attained or satisfied.  The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock under one or more outstanding share right awards as to which
the designated performance goals or Service requirements have not been attained
or satisfied.

 

II.                                     CORPORATE TRANSACTION/CHANGE IN
CONTROL

 

A.                                   All of the Corporation’s outstanding
repurchase rights under the Stock Issuance Program shall be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction as set forth in the Stock Issuance Agreement.

 

B.                                     The Plan Administrator shall have the
discretionary authority to structure one or more of the Corporation’s
repurchase rights under the Stock Issuance Program so that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock

 

12

 

subject
to those terminated rights shall immediately vest, in the event the Participant’s
Service should subsequently terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which those repurchase rights
are assigned to the successor corporation (or parent thereof).

 

C.                                     The Plan Administrator shall also have the
discretionary authority to structure one or more of the Corporation’s
repurchase rights under the Stock Issuance Program so that those rights shall
automatically terminate in whole or in part, and the shares of Common Stock
subject to those terminated rights shall immediately vest, either upon the
occurrence of a Change in Control or upon the subsequent termination of the
Participant’s Service by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of that Change in Control.

 

III.                                 SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s
discretion, be held in escrow by the Corporation until the Participant’s
interest in such shares vests or may be issued directly to the Participant with
restrictive legends on the certificates evidencing those unvested shares.

 

13

 

ARTICLE FOUR

 

AUTOMATIC OPTION GRANT PROGRAM

 

I.                                         OPTION TERMS

 

A.                                   Grant Dates.  On
the date of each Annual Shareholders Meeting, each individual who is to
continue to serve as a non-employee Board member, whether or not that
individual is standing for re-election to the Board at that particular Annual
Meeting, shall automatically be granted a Non-Statutory Option to purchase
three-thousand (3,000) shares of Common Stock, provided such individual has
served as a non-employee Board member for at least six (6) months and that such
Board member has not received an automatic option grant on either of the last
two preceding Annual Shareholder Meetings. 
There shall be no limit on the number of such 3,000-share option grants
any one non-employee Board member may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise received
one or more stock option grants from the Corporation shall be eligible to
receive one or more such annual option grants over their period of continued
Board service.

 

B.                                     Exercise Price.

 

1.                                       The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.

 

2.                                       The exercise price shall be payable in one or
more of the  alternative forms authorized
under the Discretionary Option Grant Program. 
Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the exercise price for the purchased shares
must be made on the Exercise Date.

 

C.                                     Option Term.  Each
option shall have a term of ten (10) years measured from the option grant date.

 

D.                                    Exercise and Vesting of Options.  Each
option shall immediately be exercisable for any or all of the option
shares.  However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation,
at the exercise price paid per share, upon the Optionee’s cessation of Board
service prior to vesting in those shares. 
The shares subject to each 3,000-share option grant shall vest in three
equal annual installments upon the Optionee’s completion of each one (1)-year
period of service measured from the grant date.

 

E.                                      Limited Transferability of
Options.  Each
option under this Article Five may be assigned in whole or in part during
the Optionee’s lifetime to one or more members of the Optionee’s family or to a
trust established exclusively for one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with
the Optionee’s estate plan or pursuant to a domestic relations order. The
assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to

 

14

 

the
assignment.  The terms applicable to the
assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.  The optionee may also designate one or more
persons as the beneficiary or beneficiaries of his or her outstanding options
under this Article Five, and those options shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee’s death while holding those options.  Such beneficiary or beneficiaries shall take
the transferred options subject to all terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited period during which the option may exercised following
the Optionee’s death.

 

F.                                      Termination of Board Service.  The
following provisions shall govern the exercise of any options held by the
Optionee at the time the Optionee ceases to serve as a Board member:

 

(i)                                     The Optionee (or, in the event of Optionee’s
death, the personal representative of the Optionee’s estate or the person or
persons to whom the option is transferred pursuant to the Optionee’s will or
the laws of inheritance or the designated beneficiary or beneficiaries of such
option) shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.

 

(ii)                                  During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the time
of the Optionee’s cessation of Board service.

 

(iii)                               Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may, during
the twelve (12)-month exercise period following such cessation of Board
service, be exercised for any or all of those shares as fully vested shares of
Common Stock.

 

(iv)                              In no event shall the option remain
exercisable after the expiration of the option term.  Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. 
However, the option shall, immediately upon the Optionee’s cessation of
Board service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.

 

II.                                     CORPORATE TRANSACTION/CHANGE IN
CONTROL

 

A.                                   Each option which is assumed in connection
with a Corporate Transaction shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the

 

15

 

number
and class of securities which would have been issuable to the Optionee in
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction.  Appropriate adjustments shall also be made to
the exercise price payable per share under each outstanding option, provided
the aggregate exercise price payable for such securities shall remain the
same.  To the extent the actual holders
of the Corporation’s outstanding Common Stock receive cash consideration for
their Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under the Automatic Option Grant Program, substitute one or more shares of its
own common stock with a fair market value equivalent to the cash consideration
paid per share of Common Stock in such Corporate Transaction.

 

B.                                     The grant of options under the Automatic
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

 

III.                                 REMAINING TERMS

 

The remaining terms of each option grant granted
under the Automatic Option Grant Program shall be the same as the terms in
effect for option grants made under the Discretionary Option Grant Program.

 

16

 

ARTICLE FIVE

 

MISCELLANEOUS

 

I.                                         FINANCING

 

The Plan Administrator may permit any Optionee or
Participant to pay the option  exercise price under the Discretionary
Option Grant Program or the purchase price of shares issued under the Stock
Issuance Program by delivering a full-recourse, interest-bearing promissory
note payable in one or more installments. 
The terms of any such promissory note (including the interest rate and
the terms of repayment) shall be established by the Plan Administrator in its
sole discretion.  In no event may the
maximum credit available to the Optionee or Participant exceed the sum of (i)
the aggregate option price or purchase price payable for the purchased shares
(less the par value of such shares) plus (ii) any Federal, state, and local
income and employment tax liability incurred by the Optionee or the Participant
in connection with the option exercise or share purchase.

 

II.                                     TAX WITHHOLDING

 

A.                                   The Corporation’s obligation to deliver
shares of Common Stock upon the exercise of options or the issuance or vesting
of such shares under the Plan shall be subject to the satisfaction of all
applicable Federal, state, and local income and employment tax withholding requirements.

 

B.                                     The Plan Administrator may, in its
discretion, provide any or all holders Non-Statutory Options or unvested shares
of Common Stock under the Plan (other than the options granted or the shares
issued under the Automatic Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to
which such holders may become subject in connection with the exercise of their
options or the vesting of their shares. 
Such right may be provided to any such holder in either or both of the
following formats:

 

Stock Withholding:  The
election to have the Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Non-Statutory Option or the
vesting of such shares, a portion of those shares with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to exceed one
hundred percent (100%)) designated by the holder.

 

Stock Delivery:  The
election to deliver to the Corporation, at the time the Non-Statutory Option is
exercised or the shares vest, one or more shares of Common Stock previously
acquired by such holder (other than in connection with the option exercise or
share vesting triggering the Withholding Taxes) with an aggregate Fair Market
Value equal to the percentage of the Withholding Taxes (not to exceed one
hundred percent (100%)) designated by the holder.

 

17

 

III.                                 EFFECTIVE DATE AND TERM OF THE
PLAN

 

A.                                   The Plan shall become effective immediately
on the Plan Effective Date.  Options may
be granted under the Discretionary Option Grant at any time on or after the
Plan Effective Date, and the initial option grants under the Automatic Option
Grant Program shall also be made on the Plan Effective Date to any non-employee
Board members eligible for such grants at that time.  However, no options granted under the Plan
may be exercised, and no shares shall be issued under the Plan, until the Plan
is approved by the Corporation’s shareholders. 
If such shareholder approval is not obtained within twelve (12) months
after the Plan Effective Date, then all options previously granted under this
plan shall terminate and cease to be outstanding, and no further options shall
be granted and no shares shall be issued under the Plan.

 

B.                                     The Plan shall terminate upon the earliest
to occur of (i) January 2014, (ii) the date on which all shares available
for issuance under the Plan shall have been issued as fully vested shares, or
(iii) the termination of all outstanding options in connection with a Corporate
Transaction.  Should the Plan terminate
on January 2014, then all option grants and unvested stock issuances
outstanding at that time shall continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.

 

IV.                                AMENDMENT OF THE PLAN

 

A.                                   The Board shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects.  However, no such amendment or modification
shall adversely affect the rights and obligations with respect to stock options
or unvested stock issuances at the time outstanding under the Plan unless the
Optionee or the Participant consents to such amendment or modification.  In addition, certain amendments may require
shareholder approval pursuant to applicable laws or regulations.

 

B.                                     Options to purchase shares of Common Stock
may be granted under the Discretionary Option Grant and shares of Common Stock
may be issued under the Stock Issuance Program that are in each instance in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs shall be held
in escrow until there is obtained shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under
the Plan.  If such shareholder approval
is not obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding, and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

 

C.                                     The Plan was amended on April 12, 2004,
in connection with an amendment and restatement and in connection with the
Corporation’s banking regulatory application in order to terminate (i) the
Salary Investment Option Grant Program; (ii) the

 

18

 

Director
Fee Option Grant Program; (iii) the ability to grant stock appreciation rights;
(iv) outstanding options in the event of shortfalls in minimum capital
requirements.

 

D.                                    The Plan was amended on May 20, 2004, in
connection with this amendment and restatement and in connection with the
Corporation’s banking regulatory application in order to eliminate automatic
acceleration of vesting in the event of certain corporate events.

 

V.                                    USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from
the sale of Common Stock under the Plan shall be used for general corporate
purposes.

 

VI.                                REGULATORY APPROVALS

 

A.                                   The implementation of the Plan, the granting
of any stock option under the Plan, and the issuance of any shares of Common
Stock (i) upon the exercise of any granted option or (ii) under the Stock
Issuance Program shall be subject to the Corporation’s procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it, and the shares of Common
Stock issued pursuant to it.

 

B.                                     No shares of Common Stock or other assets
shall be issued or delivered under the Plan unless and until there shall have
been compliance with all applicable requirements of Federal and state
securities laws, including the filing and effectiveness of the Form S-8
registration statement for the shares of Common Stock issuable under the Plan,
and all applicable listing requirements of any stock exchange (or the Nasdaq
National Market, if applicable) on which Common Stock is then listed for
trading.

 

C.                                     After 30 days following the Corporation’s
receipt of notice from any banking regulatory authority that the capital
requirements of the Corporation or any Subsidiary has fallen below any mandated
regulatory level, all outstanding options under the Plan shall terminate and
cease to be outstanding.

 

VII.                            NO EMPLOYMENT/SERVICE RIGHTS

 

Nothing in the Plan shall confer upon the Optionee
or the Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person’s Service at any time for any reason, with or
without cause.

 

19

 

APPENDIX

 

The following definitions shall be in effect under
the Plan:

 

A.                                   Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Four of the Plan.

 

B.                                     Board shall mean the Corporation’s Board of
Directors.

 

C.                                     Change in Control shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:

 

(i)                                     the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation’s outstanding
securities pursuant to a tender or exchange offer made directly to the Corporation’s
shareholders, or

 

(ii)                                  a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a majorityof the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in
office at the time the Board approved such election or nomination.

 

D.                                    Code shall mean the Internal Revenue Code of
1986, as amended.

 

E.                                      Common Stock shall mean the Corporation’s common stock.

 

F.                                      Corporate Transaction shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

 

(i)                                     a merger, consolidation, or other
reorganization approved by the Corporation’s shareholders, unless
securities representing more than fifty percent (50%) of the total combined
voting power of the voting securities of the successor corporation are
immediately thereafter beneficially owned, directly or indirectly and in
substantially the same proportion, by the persons who beneficially owned the
Corporation’s outstanding voting securities immediately prior to such
transaction, or

 

(ii)                                  the sale, transfer, or other disposition of
all or substantially all of the Corporation’s assets in complete liquidation or
dissolution of the Corporation.

 

A-1

 

G.                                     Corporation shall mean Treaty Oak Bancorp, Inc., a Texas
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Treaty Oak Bancorp, Inc. that shall by appropriate action
adopt the Plan.

 

H.                                    Discretionary Option Grant
Program shall mean the
discretionary option grant program in effect under Article Two of the
Plan.

 

I.                                         Employee shall mean an individual who is in the
employ of the Corporation (or any Parent or Subsidiary), subject to the control
and direction of the employer entity as to both the work to be performed and
the manner and method of performance.

 

J.                                        Exercise Date shall mean the date on which the Corporation
shall have received notice of the option exercise.

 

K.                                    Fair Market Value per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:

 

(i)                                     If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the Nasdaq
National Market and published in The Wall Street Journal.  If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.

 

(ii)                                  If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange and published in The Wall Street Journal.  If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.

 

(iii)                               For purposes of any option grants made on the
Offering Date, the Fair Market Value shall be deemed to be equal to the price
per share at which the Common Stock is to be sold in the initial public
offering pursuant to the Registration Statement.

 

(iv)                              If the Common Stock is at the time neither
listed on any Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator after taking
into consideration such factors as the Plan Administrator shall deem to deem
appropriate.

 

L.                                      Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.

 

A-2

 

M.                                 Involuntary Termination shall mean the termination of the Service of
any individual which occurs by reason of:

 

(i)                                     such individual’s involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct or Neglect, or

 

(ii)                                  such individual’s voluntary resignation
following (A) a change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits, and target bonus under
any corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual’s place of
employment by more than fifty (50) miles, provided such change, reduction, or
relocation is effected by the Corporation without the individual’s consent.

 

N.                                    Misconduct shall mean the commission of any act of
fraud, embezzlement, or dishonesty by the Optionee or Participant, any
unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material manner.  The foregoing definition shall not in any way
preclude or restrict the right of the Corporation (or any Parent or Subsidiary)
to discharge or dismiss any Optionee, Participant, or other person in the
Service of the Corporation (or any Parent or Subsidiary) for any other acts or
omissions, but such other acts or omissions shall not be deemed, for purposes
of the Plan, to constitute grounds for termination for Misconduct.

 

O.                                    Neglect shall mean the continued failure to
adequately perform such individual’s duties and responsibilities concerning
such individual’s Service after having been informed of such failure in
writing.

 

P.                                      1934 Act shall mean the Securities Exchange Act of
1934, as amended.

 

Q.                                    1933 Act shall mean the Securities Act of 1993, as
amended.

 

R.                                     Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.

 

S.                                      Offering Date shall mean the date on which the
Registration Statement is declared effective by the SEC in connection with an
initial public offering of the Common Stock.

 

T.                                     Optionee shall mean any person to whom an option is
granted under the Discretionary Option Grant or Automatic Option Grant Program.

 

U.                                    Parent shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken

 

A-3

 

chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.

 

V.                                     Participant shall mean any person who is issued shares
of Common Stock under the Stock Issuance Program.

 

W.                                Permanent Disability or
Permanently Disabled shall mean the inability of
the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of a continuous duration of twelve (12) months or
more.  However, solely for purposes of
the Automatic Option Grant Program, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.

 

X.                                    Plan shall mean the Corporation’s 2004 Stock
Incentive Plan, as set forth in this document.

 

Y.                                     Plan Administrator shall mean the particular entity, whether
the Primary Committee, the Board, or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible persons, to the extent
such entity is carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.

 

Z.                                     Plan Effective Date shall mean the date the Plan shall become
effective and shall be coincident with the Offering Date.

 

AA.                         Primary Committee
shall mean the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.

 

BB.                             Registration Statement shall mean the registration statement on Form SB-2 filed by the
Corporation under the 1933 Act in connection with an initial public offering of
the Common Stock.

 

CC.                             SEC shall mean
the Securities and Exchange Commission.

 

DD.                           Secondary Committee
shall mean a committee of one or more Board members appointed by the Board to
administer the Discretionary option Grant and Stock Issuance programs with
respect to eligible persons other than Section 16 Insiders.

 

EE.                               Section 16 Insider shall mean an officer or director of the Corporation subject to the
short-swing profit liabilities of Section 16 of the 1934 Act.

 

FF.                               Service shall
mean the performance of services for the Corporation (or any Parent or
Subsidiary) by a person in the capacity of an Employee, a non-employee member
of the board

 

A-4

 

of
directors or a consultant or independent advisor, except to the extent
otherwise specifically provided in the documents evidencing the option grant or
stock issuance.

 

GG.                             Short Term Federal Rate shall mean the applicable federal rate as published in revenue rulings
from the Department of Treasury for obligations less than three years.

 

HH.                           Stock Exchange
shall mean either the American Stock Exchange or the New York Stock Exchange.

 

II.                                     Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

 

JJ.                                   Stock Issuance Program shall mean the stock issuance program in effect under Article Three
of the Plan.

 

KK.                           Subsidiary shall
mean any corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation, provided each corporation other
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

 

LL.                               10% Shareholder
shall mean the owner of stock (as determined under Code Section 424(d))
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation (or any Parent or Subsidiary).

 

MM.                     Withholding Taxes
shall mean the Federal, state, and local income and employment withholding
taxes to which the holder of Non-Statutory Options or unvested shares of Common
Stock may become subject in connection with the exercise of those options or
the vesting of those shares.

 

A-5

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