Document:

QuickLinks
 -- Click here to rapidly navigate through this document

 
 

  EXHIBIT 10.40    
    

EMPLOYMENT AGREEMENT  

        This Employment Agreement (the "Agreement"), dated November 1, 2007, is made by
and between VGX Pharmaceuticals, Inc, a Delaware corporation (the "Company"), and with its principal offices at 450 Sentry Parkway E., Blue Bell, PA,
19422 and Dr. Niranjan Sardesai ("Executive"), whose address is 102 Savory Lane, North Wales, PA 19454. 

 R E C I T A L S  

        WHEREAS, the Company desires to employ Executive and to have the benefit of his skills
and services, and Executive desires to accept employment with the Company, on the terms and conditions set forth herein; and 

        NOW, THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set forth herein and in the
Non-Compete Agreement, and the performance of each, the parties hereto, intending legally to be bound, hereby agree as follows: 

1.    Employment; Term.    

        a.     The
Company hereby agrees to employ Mr. Sardesai as Senior Vice President, Research & Development and Executive hereby agrees to accept such employment with
the Company in accordance with the terms and conditions of this Agreement. 

        b.     The
"Term" of this Agreement shall commence on November 1, 2007 (the "Commencement
Date") and continue for a period of three (3) years from the Commencement Date; provided,  however, that the Term of this
Agreement may be terminated earlier at any time as provided in Section 7 below. 

2.    Position and Duties.    

        a.     The
Company agrees to employ Mr. Sardesai throughout the Term with such responsibilities, duties and authority as are assigned to him by the Board of Directors
(the "Board") of the Company, Chief Executive Officer or its designee. Mr. Sardesai shall report to the Chief Executive Officer. 

        b.     Executive
shall faithfully devote his full business/working time, attention and energy to the business and affairs of the Company and the performance of his duties
hereunder and to use reasonable efforts to perform such responsibilities faithfully and efficiently. 

        c.     Without
limiting the generality of the foregoing paragraph, during the Term, upon prior written consent of the Board or its designee, Executive shall be permitted to
serve on other Boards of Directors, professional associations and otherwise be involved with any family business or trust to the extent that, in the reasonable judgment of the Board or its designee,
such other business pursuits and activity do not materially (i) interfere with Executive's ability to discharge Executive's duties and responsibilities to the Company, whether or not such
activity is pursued for gain, profit or other pecuniary advantage, or (ii) violate the Conflicts provision of Executive's Non-Compete Agreement. 

3.    Compensation.    

        a.     Executive
shall be entitled to receive as compensation for his employment a base annual salary at a rate of $140,000 per annum (the "Base
Salary"), which shall be paid to Executive by the Company or any of its affiliates on a monthly basis. 

        b.     Increases
in the Base Salary shall be reviewed annually by the Board during the Term and any such increases, if any, will be at the Board's or its designee's sole
discretion and will otherwise be consistent with the Company's annual policies and budget for payroll increases. 

4.    Bonus.    

        During
the Term, Executive shall be eligible to receive an incentive cash bonus up to the amount, based upon the criteria, and payable at such times, as may be determined by the Board
and targeted at twenty percent (20%) or more of the Base Salary. The amount shall be determined by the Board, in its 

 

sole
and absolute discretion, which shall be binding and final, and shall be paid in a one-time lump sum payment (less payroll taxes). To the extent that such cash bonus is to be
determined in light of financial performance during a specified fiscal period and the Agreement commences on a date after the start of such fiscal period, any cash bonus payable in respect of such
fiscal period's results may be prorated. In addition, if the period of Executive's employment hereunder expires before the end of a fiscal period, and if Executive is eligible to receive a cash bonus
at such time (such eligibility being subject to the restrictions set forth in Section 7 below), any cash bonus payable in respect of such fiscal period's results may be prorated. 

5.    Benefits; Stock Options and Warrant.    

        In
addition to the salary and cash bonus referred to above, Executive shall be entitled during the Term to participate in such employee benefits plans or programs of the Company, and
shall be entitled to such other fringe benefits, as are from time to time adopted by the Board and made available by the Company generally to employees of Executive's position, tenure, salary, age,
health and other qualifications. Without limiting the generality of the foregoing, Executive shall be eligible for such awards, if any, under the Company's employee benefits plans or programs as shall
be granted to Executive in the sole discretion of the Board or its designee. Executive acknowledges and agrees that the Company does not guarantee the adoption or continuance of any particular
employee benefits plan or program or other fringe benefits during the Term, and participation by Executive in any such plan or program shall be subject to the rules and regulations applicable thereto. 

        a.     The
Executive, Mr. Sardesai, will be granted options to purchase Seventy Five (75,000) shares of Common Stock of the Company at a strike price of $5.00 per share
pursuant to an Option Grant Agreement in substantially the form attached hereto as Exhibit A. These options are subject to the rules and
regulations of the 2001 Equity Incentive Plan. In addition, all shares of the Company's stock will be subject to those restrictions contained in the anticipated future Company's Stockholder's
Agreement. 

6.    Expenses.    

        The
Company will reimburse Executive, in accordance with the practices in effect from time to time for other officers or staff personnel of the Company, for all reasonable and necessary
business and traveling expenses and other disbursements incurred by Executive for or on behalf of the Company in the performance of Executive's duties hereunder, upon presentation by Executive to the
Company of appropriate vouchers and supporting documentation. 

7.    Termination.    

        Executive's
employment by the Company pursuant hereto is subject to termination as follows: 

        a.    Death or Disability.    The Company may by written notice to Executive or his personal representative terminate
Executive's employment on account of his death or total disability. In the case of Executive's death, Executive's employment shall be deemed to terminate on the date of Executive's death. For purposes
hereof, Executive shall be deemed to experience a "Total Disability" if Executive is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any such plan, Executive shall be deemed to experience a Total Disability if he shall have been unable to perform his duties
hereunder on a full-time basis for 90 consecutive days or longer, or for shorter periods aggregating 120 days in any 360-day period. In the event of any dispute under
this Section 7(a), Executive shall submit to a physical examination by a licensed physician mutually satisfactory to the Company and Executive, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative. In the case of a Total Disability, until the Company shall have terminated Executive's employment hereunder in accordance with
the foregoing, Executive shall be entitled to receive compensation provided for herein notwithstanding any such Total Disability. In the event of the termination of Executive's employment on account
of his death or such Total Disability, such termination shall be effective immediately upon 

2

 

notice,
in which case Executive or his representative will have no rights or claims against the Company under this Agreement except as follows: 

        (i)    Executive
(or his estate or representative, as applicable) shall be paid (A) any unpaid portion of his Base Salary computed on a pro
rata basis through the date of his termination and (B) any unreimbursed expenses; 

        (ii)   All
other of Executive's accrued but unpaid rights shall be as determined under any incentive compensation, stock option, retirement, employee welfare or other employee
benefits plan or program of the Company in which Executive is then participating at the time of his termination; and 

        (iii)  in
the case of Executive's Total Disability only, (A) the Company shall continue Executive's medical benefits coverage existing at the time of his termination
for as long as permissible under the Company's health benefits policies (not to exceed 60 days) and the Company further agrees to pay Executive's COBRA premiums for 6 months thereafter,
with such premiums to provide for coverage at the same level and subject to the same terms and conditions (including, without limitation, any applicable co-pay obligations of Executive,
but excluding any applicable tax consequences for Executive) as in effect for Executive at the time of termination, and (B) Executive shall further receive a lump-sum payment,
within 15 days after the effective date of termination, equal to the aggregate amount of Executive's Base Salary as in effect immediately prior to such termination that would be payable over a
period of 6 months following the effective date of such termination. 

        b.    Involuntary Termination for Cause.    In the event the Company terminates Executive's employment for Cause (as
such term is defined below), such termination ("Termination For Cause") shall be effective immediately upon notice thereof, in which case Executive will
have no rights or claims against the Company under this Agreement except as follows: 

        (i)    Executive
shall be paid (A) any unpaid portion of his Base Salary computed on a pro rata basis through the date of
his termination and (B) any unreimbursed expenses; and 

        (ii)   All
other of Executive's accrued but unpaid rights shall be as determined under any incentive compensation, stock option, retirement, employee welfare or other employee
benefits plan and program of the Company in which Executive is then participating at the time of his termination. 

        "Cause" shall mean: (1) conviction of Executive of any felony; (2) participation by Executive in any fraud or act of
dishonesty against the Company; (3) material violation by Executive of (i) any contract between the Company and Executive, or (ii) any statutory duty of Executive to the Company;
(4) conduct of Executive that, based upon a good faith and reasonable factual investigation and determination by the Board, demonstrates Executive's gross unfitness to serve; or (5) the
continued, willful refusal or failure by Executive to perform any material duties reasonably requested by the Board and/or Chief Executive Officer;  provided, however, that in the case of conduct described in clauses (3), (4) and
(5) hereof, such conduct shall not constitute "Cause" unless (a) the Board shall have given Executive written notice setting forth with specificity (i) the conduct deemed to
constitute "Cause," (ii) reasonable action that would remedy the objectionable conduct and (iii) a reasonable time (not less than 10 days) within which Executive may take such
remedial action, and (b) Executive shall not have taken such specified remedial action within such specified reasonable time. 

        c.    Involuntary Termination Without Cause.    The Company may terminate Executive's employment, other than on
account of death, Total Disability or for Cause, on 30 days written notice ("Termination  

3

 

 Without Cause"), in which case Executive will have no rights or claims against the Company under this Agreement except as follows: 

        (i)    Executive
(or his estate or representative, as applicable) shall be paid (A) any unpaid portion of his Base Salary computed on a pro
rata basis through the date of his termination, and (B) any unreimbursed expenses; 

        (ii)   All
other of Executive's accrued but unpaid rights shall be as determined under any incentive compensation, stock option, retirement, employee welfare or other employee
benefits plan and program of the Company in which Executive is then participating at the time of his termination; 

        (iii)  Executive
shall receive severance payments in the form of monthly payments of Executive's Base Salary (as in effect immediately prior to such termination) and of the
Pro Rata Bonus Amount (as such term is defined below) for a period of 6 months following the effective date of such termination; and 

        (iv)  The
Company shall continue Executive's medical benefits coverage existing at the time of his termination for as long as permissible under the Company's health benefits
policies (not to exceed 60 days) and the Company further agrees to pay Executive's COBRA premiums for 6 months thereafter, with such premiums to provide for coverage at the same level
and subject to the same terms and conditions (including, without limitation, any applicable co-pay obligations of Executive, but excluding any applicable tax consequences for Executive) as
in effect for Executive at the time of termination.. 

        For
the purposes of this Agreement, "Pro Rata Bonus Amount" shall mean one-twelfth (1/12th) of the greater of
(A) the most recent annual cash bonus paid to Executive prior to the date of his termination, or (B) the average of the three most recent annual cash bonuses paid to Executive prior to
the date of his termination. The rights of Executive and the obligations of the Company under this Section 7(c) shall remain in full force and effect notwithstanding the expiration of the Term,
whether by failure of the Board to extend such Term or otherwise, and the failure of the Board to extend such Term shall be deemed a Termination Without Cause under this Section 7(c). 

        d.    Voluntary Termination For Good Reason.    Executive may terminate his employment for good reason
("Termination For Good Reason") upon 30 days written notice. In the event of Termination for Good Reason, Executive shall be entitled to receive
the payments and other rights provided in Section 7(c)
hereof. For purposes of this Agreement, termination for "Good Reason" shall mean voluntary termination by Executive of his employment with the Company
based on one of the following events: 

        (i)    the
material diminution in Executive's position, title, responsibilities or authority from those in effect at the Commencement Date; 

        (ii)   the
breach by the Company of any of its material obligations under this Agreement. 

        e.    Voluntary Termination.    Executive may otherwise terminate his employment without Good Reason upon
30 days written notice, in which case Executive (or his estate or representative, as applicable) shall be paid (A) any unpaid portion of his Base Salary on a pro
rata basis through the date of the termination, and (B) any unreimbursed expenses. 

        f.    Forfeiture of Rights.    In the event that, subsequent to termination of Executive's employment hereunder,
Executive breaches any of the provisions of the Non-Compete Agreement in any material respect, all payments and benefits to which Executive may otherwise have been entitled to pursuant to
this Section 7 hereof shall immediately terminate and be forfeited. 

4

 

8.    Remedies.    

        In
addition to other remedies provided by law or equity, upon a breach by Executive of any of the covenants contained herein or in the Non-Compete Agreement, the Company
shall be entitled to have a court of competent jurisdiction enter an injunction against Executive enjoining Executive and prohibiting any further breach of the covenants contained herein. Executive
acknowledges that a breach or threatened breach by Executive of the provisions of this Agreement will cause irreparable damage to the Company because Executive's services to be performed hereunder are
of a unique, special and extraordinary character. Thus, the Company shall be entitled to injunctive relief without the necessity of proving actual damages and the Company shall not be required to post
a bond or other security in support of such injunctive relief. 

9.    Arbitration.    

        Any
claim, dispute or controversy arising out of or in connection with this Agreement, or any breach thereof, shall be arbitrated by the parties before a sole arbitrator (who shall have
substantial experience in the pharmaceutical and life sciences industry) conducted in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration
Association then in effect. The arbitrator shall have the authority to order discovery but shall not have the authority to add to, detract from or modify any provision hereof nor to award punitive
damages to any injured party. A decision by the sole arbitrator shall be final and binding. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The direct expense of
any arbitration proceeding shall be borne by the Company. Each party shall bear its own counsel fees. Such arbitration shall take place in Philadelphia, Pennsylvania. The parties hereto consent to the
jurisdiction of the state and federal courts located in the Commonwealth of Pennsylvania with respect to any action arising under this Agreement. Notwithstanding the foregoing, the Company shall be
entitled to seek injunctive or other equitable relief, as contemplated by Section 10 hereof, from any court of competent jurisdiction, without the need to resort to arbitration. 

10.    Assignment; Binding Nature.    

        This
Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, heirs (in the case of Executive) and permitted assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred to the successor of the Company or
its business if the assignee or transferee assumes all of the liabilities, obligations and duties of the Company, as contained in this Agreement, either contractually or as a matter of law. If any
such successor of the Company or its business does not agree to so assume such liabilities, obligations and duties, Executive may immediately resign, which shall be deemed a Termination For Good
Reason under the provisions of this Agreement. No rights or obligations of Executive under this Agreement may be assigned or transferred by Executive other than Executive's rights to compensation and
benefits, which may be transferred only by will or operation of law, except as otherwise specifically provided or permitted hereunder. 

11.    Notice.    

        Any
notice (including notice of a change of address) permitted or required to be given pursuant to the provisions of this Agreement shall be in writing and sent by certified mail,
postage pre-paid, return receipt requested, or by hand delivery to the parties at the following addresses: 

If to the Company:

VGX
Pharmaceuticals, Inc.

450 Sentry Parkway E.

Blue Bell, PA, 19422

Attention: Corporate Secretary 

5

 

With a copy to:

If to the Executive:

NIRANJAN
SARDESAI

102 Savory Lane,

North Wales, 19454 

        Notice
properly given by mail shall be deemed effective three business days after mailing, and if hand-delivered, upon receipt. 

12.    Entire Agreement.    

        This
Agreement and the Non-Compete Agreement constitute the complete agreements and understandings between the Company and Executive concerning Executive's employment by the
Company, and supersede any and all previous agreements or understandings concerning such employment, whether written or oral, between Executive and the Company. 

13.    Modification.    

        This
Agreement may not be waived, amended or modified without the express written consent of the party against whom enforcement of such Agreement is sought. 

14.    Waiver.    

        Except
as set forth herein, no delay or omission to exercise any right, power or remedy accruing to any party shall impair any such right, power or remedy or shall be construed to be a
waiver of or an acquiescence to any breach hereof. No waiver by either party of any breach by the other party of any condition or provision contained in this Agreement to be performed by such other
party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by Executive and the Chairman of
the Board. 

15.    Invalidity of Any Provision.    

        If
any portion of this Agreement is held invalid or inoperative, the other portions of this Agreement shall be deemed valid and operative and, so far as is reasonable and permitted by
the law, effect shall be given to the intent manifested by the portion held invalid or inoperative. 

16.    Applicable Law.    

        This
Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to the principles of conflict of laws thereof. 

17.    Counterparts.    

        This
Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same
agreement. 

18.    Headings.    

        The
Section headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement. 

19.    Binding Effect.    

        The
provisions of this Agreement will be binding upon, and will inure to the benefit of, the respective heirs, legal representatives and successors of the parties thereto. 

20.    Termination of Other Agreements.    

        The
execution of this Agreement by Viral Genomix and the Executive terminates and voids for all purposes any other Agreements, if any, between the parties. 

[SIGNATURE PAGE FOLLOWS]

6

 

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

					
	 	 	 VGX PHARMACEUTICALS, INC.
	

 	
 	
By:	
 	
/s/ J. Joseph Kim

 
	 	 	Name:	 	Dr. J. Joseph Kim, Ph.D.
	 	 	Title:	 	President & CEO
	

 	
 	
 EXECUTIVE:
	

 	
 	
/s/ Niranjan Sardesai

  DR. NIRANJAN SARDESAI

7

 FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT DATED

NOVEMBER 17, 2007  

        This is the First Amendment ("Amendment") to the Employment Agreement between VGX Pharmaceuticals, Inc. ("VGX") and Niranjan
Sardesai ("Executive") dated as of 20th day of August, 2008 (the "Effective Date"), amending the Employment Agreement ("Agreement") dated November 17, 2007 between VGX and Executive. All
undefined terms contained herein shall have the meaning set forth in the Agreement. 

        WHEREAS,
both parties wishes to amend the Agreement as follows: 

        NOW,
THEREFORE, for good and valuable consideration and intending to be legally bound, the parties hereby agree as follows: 

	1.
	The
base annual salary the Executive is entitled to receive for his employment is $140,700.00 per annum

	2.
	Executive
is entitled to 20 business days (4 weeks) as a Company paid vacation days annually. 

							
	Dr. Niranjan Sardesai

102 Savory Lane

North Wales, PA, 19454	 	VGX Pharmaceuticals

450 Sentry Parkway

Blue Bell, PA 19422

Telephone: 267-440-4205
	 	 	 	 	 	 	 
	/s/ Niranjan Sardesai

  Niranjan Sardesai

Sr. Vice President	 	/s/ Gene J. Kim

  Gene J. Kim

Chief Financial Officer
	
 Date:	
 	
August 20, 2008

 	
 	
Date:	
 	
August 20, 2008

 

 SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT DATED

NOVEMBER 17, 2007  

        This is the First Amendment ("Amendment") to the Employment Agreement between VGX Pharmaceuticals, Inc. ("VGX") and Niranjan
Sardesai ("Executive") dated as of            day of October 1, 2008 (the "Effective Date"), amending the Employment Agreement ("Agreement") dated November 17, 2007 between VGX and
Executive. All undefined terms contained herein shall have the meaning set forth in the Agreement. 

        WHEREAS,
both parties wishes to amend the Agreement as follows: 

        NOW,
THEREFORE, for good and valuable consideration and intending to be legally bound, the parties hereby agree as follows: 

	3.
	The
base annual salary the Executive is entitled to receive for his employment is $170,000.00 per annum 

							
	Dr. Niranjan Sardesai

102 Savory Lane

North Wales, PA, 19454	 	VGX Pharmaceuticals

450 Sentry Parkway

Blue Bell, PA 19422

Telephone: 267-440-4205
	 	 	 	 	 	 	 
	/s/ Niranjan Sardesai

  Niranjan Sardesai

Sr. Vice President	 	/s/ Gene J. Kim

  Gene J. Kim

Chief Financial Officer
	
 Date:	
 	
October 1, 2008

 	
 	
Date:	
 	
October 1, 2008

 

QuickLinks

EXHIBIT 10.40EXHIBIT 10.41

 

LEASE AGREEMENT

 

VENTURE TECHNOLOGY CENTER XI
BUILDING

2700 RESEARCH FOREST DRIVE,
SUITE 180

THE WOODLANDS, MONTGOMERY
COUNTY, TEXAS

 

THIS LEASE AGREEMENT (“Lease”), effective August 20, 2001,
is between WOODLANDS VTO 2000 LAND, L.P” a Texas limited partnership (“Lessor”),
and APPLIED VETERINARY SYSTEMS, INC., a Delaware corporation (“Lessee”).

 

1. Premises.
Upon the terms and conditions hereinafter set forth, Lessor does hereby lease,
demise and let to Lessee and Lessee does hereby lease, and take from Lessor,
approximately 13,185 net rentable square feet of floor space (“Premises”),
subject to Section 48, together with all appurtenances thereto, in a
building known and referred to as Venture Technology Center XI Building (“Building”),
located at 2700 Research Forest Drive, The Woodlands, Montgomery County, Texas.
The Building is located on that certain 8.016 acre tract of land, located in
the John Taylor Survey, A-547 in Montgomery County, Texas, more particularly
described in Exhibit “A” (“Land”). The Premises is shown on the floor plan
attached hereto as Exhibit “A-I”. The address of the Premises is 2700
Research Forest Drive, Suite 180, The Woodlands, Texas 77380. Lessor
reserves the right to change the name of the Building whenever it desires
without any liability or consent of Lessee.

 

2. Loading Dock and
Parking. In addition to the Premises, Lessee and its invitees are hereby
granted the exclusive right to use the loading dock to be affixed to the
Premises pursuant to the Tenant Improvement Letter attached hereto as Exhibit “B”.
Lessee shall also have forty (40) parking permits, each for the non-exclusive
use by a single automobile in the parking areas provided by Lessor on the Land.
Lessor shall keep in good condition throughout the Term described below the
parking areas for and vehicular access ways to the Premises. The use of such
parking and access areas shall at all times be subject to such reasonable rules and
regulations as Lessor may promulgate.

 

3. Term. The term of
this Lease (“Term”) shall commence on October 1, 2001 (“Commencement Date”)
and shall expire on the last day of the seventy-third (73rd) full calendar month following the Commencement Date, subject to earlier
termination as hereinafter provided. Lessor shall tender possession of the
Premises to Lessee upon execution of this Lease by Lessor. Within 15 days
following Lessee’s receipt from Lessor of a memorandum of this Lease specifying
the Commencement Date and date of expiration of the Term, Lessee agrees to
execute the memorandum.

 

1

 

4. Use. Lessee shall
use the entire Premises solely for pharmaceutical manufacturing, standard
research laboratory and for office and for no other use.

 

5. Acceptance of the
Premises. Lessee agrees to accept the Premises “as-is”, “where-is”, “with
all faults”. However, all improvements, if any, shall be constructed in the
Premises, and the cost thereof paid, in accordance with Exhibit B.
Except as expressly provided in this Lease or such Exhibit B,
Lessor has not undertaken to perform any alteration or improvement to the
Premises. By taking possession of the Premises, Lessee shall be deemed to have
accepted the Premises, and to have acknowledged that Lessor’s obligations under
Exhibit B have been fully performed. Lessee hereby waives (i) any
claims due to defects in the Premises and/or the Building except (A) minor
finish adjustments in work performed by Lessor (“Punchlist Items”) specified in
reasonable detail by Lessee contemporaneously with taking possession, and (B) latent
defects in Lessor’s Work as described under Exhibit B, if any, of
which Lessee notifies Lessor within 180 days after taking possession; and (ii) all
express and implied warranties of suitability, habitability and fitness for any
particular purpose. Lessee waives the right to terminate this Lease due to the
condition of the Premises or the Building; Punchlist Items; or Lessor’s failure
to perform its construction obligations under this Lease.

 

6. Security Deposit.
Lessee contemporaneously with the execution of this Lease has deposited with
Lessor the sum of $46,147.50 receipt of which is hereby acknowledged by Lessor,
said security deposit being given to secure the faithful performance by Lessee
of all of the terms, covenants and conditions of this Lease to be kept and
performed by Lessee. If Lesseeshall fail to pay the rent herein reserved
promptly when due or if Lessee violates any of the other terms, covenants or
conditions of this Lease, said security deposit may, at the option of Lessor,
be applied to any rent due and unpaid or to any damages suffered by Lessor as a
result of Lessee’s default. Nothing contained in this Section shall in any
way diminish or be construed as waiving any of Lessor’s other remedies as
provided elsewhere in this Lease or at law or in equity. Should the entire
security deposit or any portion thereof be applied by Lessor for the payment of
sums due and payable to Lessor hereunder, Lessee shall, on the written demand
of Lessor, remit to Lessor a sufficient amount in cash to restore said security
deposit to its original amount. Should Lessee comply with all of the terms,
covenants and conditions of this Lease and promptly pay all of the rental
herein provided for as it falls due, (including any Additional Rent due at the
end of the Fiscal Year, which term is defined in Section 8 below, during
which the Term expires or terminates), and all other sums payable by Lessee to
Lessor hereunder, said security deposit or remaining balance thereof shall be
returned in full to Lessee. Lessor shall have the right to commingle the
security deposit with other funds of Lessor, and any interest earned shall be
the property of Lessor. Lessor may deliver the security deposit to any
purchaser of Lessor’s interest in the Premises, and thereupon be discharged
from further liability with respect to such deposit.

 

7. Base Rent. The
Base Rent, which Lessee hereby agrees to pay to Lessor monthly, in advance, at
Lessor’s address stated above, shall be the sum per month set forth below, due
and payable on the first day of each calendar month during the Term hereof,
without offset or deduction, with a pro rata portion being due and payable in
advance for any partial month occurring at the beginning of the Term.

 

2

 

	
  Month

  	
   

  	
  Base Rent Amount

  	
   

  
	
  1

  	
   

  	
  $5,000.00

  	
   

  
	
  2-25

  	
   

  	
  $12.00/PSF/yr.

  	
   

  
	
  26-49

  	
   

  	
  $13.00/PSF/yr.

  	
   

  
	
  50-73

  	
   

  	
  $14.00/PSF/yr.

  	
   

  

 

8.  Additional Rent. Lessor agrees to pay
all Operating Expenses (as defined in Section 10 below) (which includes the Management
Fee described in Section 10)  up to a maximum amount of $3.00 per year for each square
foot of rentable floor area in the Building (“Operating Cost Allowance”). In
the event the Operating Expenses shall, in any Fiscal Year exceed the product
of the Operating Cost Allowance times the rentable square feet of the Building
(prorated for any partial Fiscal Year at the beginning or end of the Term),
Lessee agrees to pay to Lessor, as Additional Rent, Lessee’s pro rata share of
any such excess (“Excess Operating Expenses”). The term “Fiscal Year”, as used
herein, shall mean Lessor’s fiscal year for accounting purposes which currently
is the 12-month period beginning January I and ending December 31.
Lessor shall have the right to change the Fiscal Year, from time to time, and,
in such event, Lessor shall notify Lessee in writing of such change. Lessee’s
pro rata share shall be determined by multiplying the Excess Operating Expenses
by a fraction, the numerator of which shall be the number of net rentable
square feet in the Premises, and the denominator of which shall be 95% of the
net rentable square footage in the Building, which may change from time to time
utilizing BOMA (Building Owners and Managers Association) standards. Within 90
days following the completion of each Fiscal Year, Lessor will provide to
Lessee a statement showing in reasonable detail the Operating Expenses for the
preceding Fiscal Year, the Additional Rent due with regard to Lessee’s share of
the Excess Operating Expenses, and Lessor’s reasonable estimate of Excess
Operating Expenses for the then current Fiscal Year. Lessee shall, on or before
30 days following receipt of said statement, pay to Lessor the amount of
Additional Rent due as provided herein, less the amount of Additional Rent paid
in advance (if any) during the preceding Fiscal Year. Any overpayment will be
credited by Lessor to Lessee’s pro rata share of the estimated Excess Operating
Expenses for the then current Fiscal Year. Lessee agrees to pay Additional Rent
each month thereafter, in addition to Base Rent, in an amount necessary to
amortize the estimated Excess Operating Expenses for the then current Fiscal
Year (or the pro rata portion thereof, if applicable) over a period equal to
the lesser of (i) the number of months remaining in the Term or (ii) the
number of months remaining in the current Fiscal Year. Notwithstanding that the
Term has expired or been terminated, Lessee shall remain liable for and agrees
to pay to Lessor within 30 days following receipt of an invoice therefore, its
pro rata portion of Excess Operating Expenses for the Fiscal Year (or portion
thereof) during which the Term expired or was terminated.

 

Lessee shall have the right,
at its expense and at a reasonable time, but, in any event within twelve (12)
months following the end of any Fiscal Year, to audit Lessor’s books relevant
to the Additional Rent due under this Section provided that (i) the
audit shall be prepared by a

 

3

 

certified public accounting firm of recognized regional standing or by
Lessee=s in-house audit staff; (ii) such firm or audit staff is not
compensated on a contingency fee@ basis; (iii) such audit is pursued to
its conclusion within thirty (30) days following the date of its commencement
and is conducted at the location where Lessor maintains its books and records
and shall not unreasonably interfere with the conduct of Lessor=s business; and
(iv) the audit report shall be simultaneously delivered to Lessor at no
charge. In the event that Lessor=s statement of Operating Expenses exceeds
Lessee=s actual pro rata share of Excess Operating Expenses for  any Fiscal Year by more than five percent
(5%), Lessor agrees to reimburse Lessee Lessee=s reasonable and actual cost of
such audit, not to exceed $1,500.

 

9. Payment of
Rentals. Lessee covenants to promptly pay all rentals when due and
payable. A late charge of 10% per cent shall be added to any payment of Base
Rent or Additional Rent which is more than 10 days past due in order to
compensate Lessor for the extra administrative expenses incurred. If Lessor
shall pay any monies or incur any expenses in correction of violations of the
covenants herein set forth, the amounts so paid or incurred shall, on notice to
Lessee, be considered additional rent payable by Lessee with the first
installment of Base Rent thereafter to become due and payable, and may be
collected or enforced as by law provided in respect of rentals.

 

10. Operating
Expenses. The term “Operating Expenses” means all of Lessor’s costs,
expenses and disbursements (but not acquisition of capital investment items,
except as hereinafter expressly provided or specific costs billed to specific
lessees) to operate and maintain the Land, the Building, and all improvements
on the Land from time to time, including, but not limited to, Lessor’s costs of
providing utilities, including, but not limited to lighting; porter services
and supplies; refuse removal (if Lessor elects to furnish this service);
landscaping, including irrigation; and general maintenance and repairs,
including, but not limited to, repairs to roof surface and preventive
maintenance, parking area restriping, exterior painting and other activities.
Operating Expenses shall also include a reasonable amortization charge on
account of any capital expenditure incurred to effect a reduction of Operating
Expenses and a reasonable charge for amortization of all capital items Lessor
installs (a) to reduce Operating Expenses, or (b) to promote safety,
or (c) which Lessor is required to install on or for the benefit of the
Building by any governmental law, code or regulation passed or enacted on or
after the Commencement Date, or (d) which is a replacement (as opposed to
additions or new improvements) of items located in the common areas adjacent to
the Building, the parking area and other facilities used in connection with the
Building, or involving the exterior of the Building, including, but not limited
to, the roof and structural elements. Additionally, Operating Expenses shall
include all ad valorem taxes or assessments, and annual assessments of The
Woodlands Community Association, Inc. and The Woodlands Commercial Owners
Association, whichever is applicable, which accrue against the Building or the
Land during the Term, together with all insurance premiums and deductibles
which Lessor is required to pay or deems necessary to pay with respect to the
Building or the Land, including, but not limited to, casualty insurance and
liability insurance, and a management fee (“Management Fee”) of 5% of the gross
rental for the Building. Lessor agrees that those items listed on Exhibit “E” attached
hereto shall not be included within the definition of “Operating Expenses.”
Notwithstanding anything contained

 

4

 

herein to the contrary, it is agreed that in the event not more than
95% of the rentable area in the Building is occupied during any Fiscal Year or
in the event not more than 95% of the rentable area in the Building is provided
with building standard services during any Fiscal Year, an adjustment shall be
made in computing the Operating Expenses for such year so that those Operating
Expenses which vary with occupancy of the Building shall be computed for such
year as though the Building had been 95% occupied during such year and as
though 95% of the Building had been provided with building standard services
during such year. Lessor agrees that it shall not be permitted to recover more
than 100% of Operating Expenses for any Fiscal Year.

 

Notwithstanding anything contained herein to the contrary, if at the
end of the Fiscal Year, the Land, with the Building thereon, has not yet
been placed on the tax rolls, the Fiscal Year ad valorem taxes and assessment
shall be adapted and increased as if it had been.

 

11. Utilities. Lessor
shall make available to the Building electricity, water and sewer Facilities.
Lessee agrees to assume all costs and expenses for water and sewer, except as
herein provided, electricity, and telephone, including any license or deposit
required to establish or maintain such services, and the costs of installation,
hook-up and metering. Lessor agrees to pay all costs and expenses for water and
sewer service. The cost of these services shall be included with Operating Expenses
as defined in Section 10 hereof. Lessor, however, reserves the right to
submeter, at Lessee’s cost and expense, Lessee’s water and sewer usage,
charging Lessee at cost plus 15% overhead. Lessee shall promptly pay for all
utility services furnished to the Premises during the term of this Lease.
Failure by Lessor to any extent to furnish these defined services or any
cessation thereof shall not constitute a breach of this Lease, render Lessor
liable in any respect for damages to either person or property, nor be
construed as an eviction of Lessee, nor work an abatement of rent, nor relieve
Lessee from fulfillment of any covenant or agreement herein, Lessee hereby
waiving all claims against Lessor arising from service interruptions. In the
event of any such interruption other than a service interruption for scheduled
maintenance, tests and inspections, however, Lessor shall use reasonable
diligence during normal business hours to restore such service in any
circumstance in which such restoration is within the reasonable control of
Lessor.

 

In the event that there is
any interruption of utility services to the Premises that (a) is within
Lessor=s actual control, and (b) Lessee is unable to operate (and Lessee
does not actually operate) its business at the Premises, and such interruption
continues for a period of ten (10) consecutive days, then Base Rent shall
abate commencing on the eleventh (11th) consecutive day of such interruption
until such time as such utility services are resumed.

 

12. Peaceful Enjoyment.
Lessee shall and may peacefully have, hold and enjoy the Premises for the Term,
subject to the terms and conditions of this Lease, provided that Lessee pays
the rentals and other sums herein recited and performs all of its covenants and
agreements herein contained. It is understood and
agreed that this covenant and any and all other covenants of Lessor contained
in this Lease shall be binding upon Lessor and its successors and assigns, but
only with respect to breaches occurring during its and their respective
ownership of Lessor’s interest hereunder.

 

5

 

13. Alterations,
Additions and Improvements. Lessee shall not make or allow to be made any
alterations or physical additions in or to the Premises without first obtaining
the written consent of Lessor, which consent shall not be unreasonably
withheld, delayed or conditioned; provided, however, that Lessee acknowledges
and agrees that it shall not be unreasonable for Lessor to withhold its
approval to any alterations or physical additions which are structural in
nature or which could affect adversely the mechanical, plumbing or electrical
systems for the Building. Lessor shall not be liable as a result of any such
consent for completeness, design sufficiency, or compliance with any law,
ordinance, order, rule, or regulation and Lessee shall indemnify, defend and
hold Lessor harmless from all claims, demands, damages, causes of action or
litigation, arising out of or resulting from such alterations. 

 

Any and all alterations, additions or improvements, other than that
portion of the initial Tenant improvements which are to be provided by Lessor
pursuant to the terms of Exhibit “B” hereto, shall be made at Lessee’s
sole expense in a good and workmanlike manner, in compliance with all
applicable laws, ordinances and regulations, with a contractor approved by
Lessor, which approval shall not be unreasonably withheld, conditioned or
delayed. At Lessor’s option, all such alterations, additions or improvements
upon the earlier to occur of (i) the termination date of the Lease or (ii) Lessor’s
termination of Lessee’s right of possession of the Premises pursuant to Section 29
of the Lease, shall become the property of Lessor and shall be surrendered to
Lessor upon the termination of this Lease by lapse of time or otherwise;
provided, however this clause shall not apply to removable equipment or
furniture owned by Lessee and which can be removed without damage to the
Building or the Premises, provided there is no default by Lessee in any of the
terms and conditions of the Lease. Notwithstanding anything foregoing to the
contrary, upon the earlier to occur of (i) the termination date of this
Lease, or (ii) Lessor’s termination of Lessee’s possession of the Premises
pursuant to Section 29 hereof, Lessor may require Lessee to remove the “Identified
Alterations” or any part thereof, and restore the same to the customary
condition of so-called “second generation space” and to restore any portion of
the Building shell affected by such removal to its condition prior to
installation of said Identified Alterations, reasonable wear and tear excepted.
The rights conferred to Lessor hereunder shall be in addition to (and not in
conflict with) any other rights conferred on Lessor by this Lease, in equity or
at law. At such time as Lessor approves the plans for the Tenant Improvements
(as provided for in Exhibit “B”), Lessor shall identify which alterations,
additions or improvements to the Premises, including without limitation, any
cabling or other computer, satellite or telecommunications equipment or
hardware, either located in the Premises or elsewhere within the Building or
the Land, which Lessor may require be removed at expiration or earlier
termination of this Lease (the “Identified Alterations”); provided, however,
Lessor shall have the right until the date of expiration or earlier
termination, by written notice to Lessee, to select which of the Identified
Alterations shall be removed and which shall not be removed.

 

14. Exterior Repairs.
Lessor will keep the exterior of the Building, including any doors, windows, or
glass, in repair, provided Lessee shall give Lessor written notice of the
necessity for such repairs, and provided that the damage thereto shall not have
been caused by the negligence of Lessee, its agents, employees, licensees or
invitees, in which event Lessee shall be responsible therefor for the cost.
Lessor shall be under no liability for repair, maintenance, alteration or any

 

6

 

other action with reference to any plumbing, electrical or other
mechanical installation within or serving the Premises or any part thereof,
except for the service lines leading to the Premises, provided that the damage
thereto shall not have been caused by the negligence of Lessee, its agents,
employees, licensees or invitees, in which event Lessee shall be responsible
therefor for the cost.

 

15. Operation by Lessee.
Lessee agrees to (a) keep the inside of all glass in the doors and windows
of the Premises clean; (b) keep all interior surfaces of the Premises
clean; (c) replace promptly, at its expense, any cracked or broken window
glass inside the Premises with glass of like kind and quality; (d) maintain
the Premises in a clean, orderly and sanitary condition and free of insects,
rodents, vermin and other pests; (e) keep any garbage, trash, rubbish or
refuse in rat-proof containers within the interior of the Premises until
removed from the area; (f) have such garbage, trash, rubbish and refuse removed
at its expense on a regular basis from location points and at such times as
designated by Lessor, if said service is not provided by Lessor; (g) keep
all mechanical apparatus free of vibration, noise or pollution which may be
transmitted beyond the Premises; (h) comply with all laws, ordinances, rules and
regulations of the Fire Underwriters Rating Bureau now or hereafter in affect; (i) shall
not commit or allow any waste or damage to be committed to the Premises, any
portion of the Building or the Land; and (j) conduct its
business in all respects in a dignified manner in accordance with high
standards of business operation.

 

In addition, Lessee shall
not (a) place or maintain any merchandise or other articles in any
vestibule or entry of the Premises, on the footwalks adjacent thereto or
elsewhere on the exterior of the Premises or Building without the written
consent of Lessor; (b) permit undue accumulation of garbage, trash,
rubbish or other refuse within or without the Premises; (c) cause or permit
objectionable odors to emanate or be dispelled from the Premises; (d) cause
or permit the parking of vehicles so as to interfere with the use of any
driveway, walk, parking area, dock or other common facility in the area; (e) occupy,
use or permit the use or occupancy of any portion of the Premises for any
business or purpose which is immoral, disreputable or in violation of any legal
direction of any public officer; or (f) occupy, use or permit the use or occupancy of
any portion of the Premises for any business or purpose which, in the opinion
of Lessor, reasonably formed, constitutes a public or private nuisance or
unduly disturbs the business of other tenants in the Building.

 

Lessor shall have the right,
upon written notice to Lessee, to provide for rubbish and refuse removal
services as required of Lessee above, and if such cost is not otherwise
included in Operating Expenses, Lessee agrees to reimburse Lessor for the cost
incurred in providing such service within 30 days after receipt of a statement
setting forth the cost of such service. Lessee agrees to discharge all waste
materials from the Premises in compliance with the rules and regulations
as set forth in The Woodlands Metro Center Municipal Utility District Policy
Manual - Industrial Waste Discharges - Permits and Charges - No. R&S-50,
issued July 12, 1979, with an effective date of July 12, 1979, as it
may be amended from time to time. Lessee shall haul away for disposal at its
own expense, any waste material not meeting the standards for discharge set
forth in the above-referenced manual.

 

7

 

Lessee shall comply, at
Lessee’s cost and expense, with all private restrictions encumbering the Land
and all present and future laws, ordinances, orders, rules, regulations and
requirements of all federal, state, and municipal governments, including all
municipal and road utility districts and municipal utility districts, and all
departments, commissions, boards and officers thereof, and any other body exercising
similar functions, which now or hereafter may be applicable to the Premises,
the improvements in the Premises, or to the use or manner of use of the
Premises or the improvements, including but not limited to, all environmental
laws and the Americans With Disabilities Act. In the event of a violation of
any environmental law by Lessee and cleanup of contamination is required, in
addition to all other remedies of Lessor under this Lease or at law or in
equity, Lessee shall conduct a cleanup so that there is a total and complete
removal of all contaminates from the Premises. Lessee agrees that no such
cleanup shall be subject to a risk reduction Standard 2 or 3 or Remedy Standard
B, and no deed recordation notice shall be recorded against the Premises.

 

Lessee also agrees to comply
with the Rules and Regulations of the Building, a copy of which is
attached as Exhibit “C”. Lessor may amend
said Rules and Regulations, from time to time, if reasonably necessary for
the safety, care, or cleanliness of the Building, provided that no amendment
shall alter any covenant or provision contained in this Lease. Lessee agrees to
comply with any amendment which is made to said rules and Regulations in
compliance with the terms of this subsection.

 

Lessee shall promptly pay
directly to the taxing authority all sales and/or ad valorem taxes now or
hereafter levied on Lessee’s personal property and leasehold improvements.
Lessee waives all rights under applicable law to protest appraised values or
receive notice of reappraisal regarding the Land and Building (including Lessor’s
personalty), irrespective of whether Lessor contests same. To the extent such
waiver is prohibited, Lessee appoints Lessor as Lessee’s attorney-in-fact,
coupled with an interest, to appear and take all actions which Lessee would
otherwise be entitled to take under applicable law.

 

16. Interior Repairs and
Maintenance. Lessee will, at Lessee’s cost and expense, keep the interior
of the Premises, together with all electrical, plumbing and other mechanical
installations therein, all heating and air conditioning equipment, and all
interior windows or doors serving the Premises, in good order and repair, and
will make all replacements thereto as its expense. Lessee will surrender the
Premises at the expiration or earlier termination of this Lease, in as good
condition as when received, excepting depreciation caused by ordinary wear and
tear. Lessee will not overload the electrical wiring serving the Premises or
within the Premises, and will install at its expense, but only after obtaining
Lessor’s written approval, which approval shall not be unreasonably withheld,
delayed or conditioned, any additional electrical service which may be required
in connection with Lessee’s use or occupancy. Notwithstanding anything herein
to the contrary, Lessor, and not Lessee, shall be liable for any and all
interior repairs which may result from any structural failure of the Building,
unless caused by Lessee, its agents, employees or invitees. Lessee will repair
promptly, at its expense, any damage to the Premises caused by bringing into
the Premises any property for Lessee’s use, or by the installation or removal
of such 

 

8

 

property, regardless of fault or by whom such damage was caused, unless
caused by the gross negligence or willful misconduct of the Lessor or Lessor
Parties (hereinafter defined). Upon execution of this Lease, Lessee, at its own
cost and expense, shall enter into a regularly scheduled preventative maintenance/service
contract with Lessor, or a maintenance contractor approved by Lessor, which
approval shall not be unreasonably withheld, conditioned or delayed, for
servicing all hot water, heating, and air-conditioning systems and equipment
within the Premises. If Lessee fails to make such repairs and/or to perform the
maintenance and repairs to the Premises which are Lessee’s obligation under
this Lease, Lessor may make same, and Lessee agrees to pay, as additional rent,
the cost thereof, plus 15% overhead, to Lessor promptly upon Lessor’s demand
therefor.

 

17. Roof and Walls.
Lessor or its designee shall have the exclusive right (a) to use all or
any part of the roof of the Building for any purpose including to erect
additional stories or other structures over all or any part of the Premises,
and to erect in connection with the construction thereof temporary scaffolds
and other aids to construction on the exterior of the Premises, provided that
access to the Premises shall not be denied; and (b) upon reasonable prior
written notice to Lessee, to install, maintain, use, repair and replace within
the Premises, pipes, ducts, conduits, wires and all other mechanical equipment
serving other parts of the Building, the same to be in locations within the
Premises as will not materially interfere with Lessee’s use thereof. Lessee
shall have no right to penetrate or erect improvements on the roof without the
prior written consent of Lessor, such approval not to be unreasonably withheld,
conditioned or delayed. Lessee shall be liable in damages to Lessor for any
breach of this provision, including damages for loss of any and all warranties.

 

18. Signs and Advertising.
Lessee will not place or suffer to be placed or maintained on or displaced to the exterior of the Premises, any sign, advertising matter or other
thing of any kind, and will not place or maintain any decoration, lettering or
advertising matter on the glass of any window or door of the Premises without
first obtaining the written approval of Lessor and anybody having a right to
approve signs pursuant to any restrictive covenants agreements. Lessee will
maintain any approved sign, decoration, lettering, advertising matter or other
thing in good condition and repair at all times, in compliance with all laws
and private covenants affecting the Landlord or the Building.

 

So long as the square
footage occupied by Lessee in the Building under this Lease is such that Lessee
is one of the four (4) largest tenants in the Building (i.e., no more than
three (3) other tenants in the Building occupy more square footage than
Lessee), then Lessee shall have the right to locate a sign advertising Lessee
upon both of the Building’s monument structures. If Lessee should become the
fifth (5th) largest tenant in the Building,
then Lessor shall have the right to require that Lessee’s sign panel on the
Building’s monument structures be removed. Lessor shall maintain such panels on
the monument structures for so long as Lessee is not in default under the terms
of this Lease. The cost of installation, the cost of the sign itself, and any
costs incurred by Lessor in repairing such sign shall be at the sole cost and
expense of Lessee, and Lessee shall indemnify and hold Lessor harmless with
respect to any claim, charge, expense, or liability for same. The placement of
any such sign upon the monument structures and the design and criteria

 

9

 

thereof shall be governed by such rules, regulations and requirements
as Lessor may, from time to time, promulgate. Upon default hereunder,
expiration, or earlier termination of this Lease, any sign advertising Lessee
upon the monument structures shall be removed by Lessee at its sole cost and
expense within thirty (30) days after the occurrence of such default, expiration,
or termination. If Lessee fails to perform any of its obligations under this
paragraph, Lessor shall be entitled to perform Lessee=s obligations on Lessee=s
behalf and for Lessee=s account, in which event Lessee shall, within thirty
(30) days following receipt of Lessor=s invoice accompanied by supporting
evidence of such expenditures incurred by Lessor, reimburse Lessor for all
reasonable costs and expense incurred in connection with performing such
obligations. If Lessee fails to timely reimburse Lessor, Lessor shall have the
right to file suit against Lessee in a court of competent jurisdiction and
recover from Lessee amounts due Lessor, together with interest thereon from the
due date until paid at the lesser of (a) the highest non-usurious rate of
interest allowed by applicable law, or (b) eighteen percent (18%) per
annum.

 

19. Entry by Lessor.
Lessee shall permit Lessor or Lessor’s agents, representatives, or employees to
enter upon the Premises at reasonable times, and upon having given Lessee
reasonable advance notice, (a) to inspect the Premises, to determine
whether Lessee is in compliance with the terms of this Lease; (b) to show
the Premises to prospective purchasers, lessees, mortgagees, beneficiaries
under trust deeds, or insurers (but as to prospective lessees only during the
last 7 months of the Term), and (c) to make repairs, improvements,
additions and alterations thereto, as Lessor is permitted to make according to
the terms of the Lease. Any inspections of the Premises pursuant to this
subsection shall be at Lessor’s cost and expense; provided, however, in the
event it is determined by Lessor that an environmental study should be conducted
on the Premises and said environmental study determines that Lessee has not
complied with all then existing environmental laws, Lessee shall reimburse
Lessor for the cost of the study within 15 days after receipt of an invoice
setting forth the cost, and Lessee shall promptly take all action necessary, at
Lessee’s sole expense, to remedy any noncompliance by Lessee discovered by such
study in accordance with Section 15 above.

 

20. Liens. In the
event that any mechanic’s, materialman’s, or other lien shall at any time be
filed against the Premises, the Building or the Land purporting to be for work,
labor, services or materials performed for or furnished to Lessee or anyone
holding the Premises through or under Lessee, or arising out of any alleged act
or omission of Lessee, Lessee shall forthwith cause the same to be properly
bonded or released. If Lessee shall fail to cause such lien to be
bonded or released within 15 days after being notified of the filing thereof,
then, in addition to any other right or remedy of Lessor, Lessor may, but shall
not be obligated to, discharge the same by posting a bond or paying the amount
claimed to be due, and the amount so paid by Lessor, and all costs and expenses
incurred by Lessor in procuring the discharge of such lien, including
reasonable attorney’s fees, shall be due and payable by Lessee to Lessor as
additional rent on the first day of the next succeeding month. Lessor shall not
be liable for any labor or materials furnished to Lessee upon credit, and no
mechanics’, materialman’s or other liens for any such labor or materials shall
attach to or affect the estate or interest of Lessor in and to the Land or
Building.

 

10

 

21. Subordination.
Lessee agrees that this Lease is and shall be subordinate to any mortgage or
deed of trust which may now or hereafter encumber the Building or the Land, and
to  all renewals,
modifications, consolidations, replacements and extensions thereof. In  confirmation of such subordination, Lessee shall at Lessor’s request
execute promptly any appropriate certificate or instrument that Lessor may
reasonably request. In the event of the enforcement by the trustee or the
beneficiary under a mortgage or deed of trust of the remedies provided for by
law or by such mortgage or deed of trust, Lessee will, upon request of any
person or party succeeding to the interest of Lessor as a result of such
enforcement, attorn to and automatically become the lessee of such successor in
interest without change in the terms or other provisions of this Lease;
provided, however, that such successor in interest shall not be bound by (i) any
payment of Base Rent or Additional Rent for more than one month in advance
except prepayments in the nature of security for the performance by Lessee of
its obligations under this Lease; (ii) any amendment or modifications
under this Lease made without the written consent of such trustee, beneficiary,
or successor in interest; (iii) any default by the prior owner or Landlord
in the observance or performance of any of its covenants or obligations
hereunder, or (iv) any right of offset which Lessee may have had against
the prior owner or Landlord. Upon request by any successor in interest, Lessee
shall execute and deliver an instrument or instruments confirming the
attornment herein provided for. Lessee further agrees that in the event Lessee
is notified of the existence of any mortgage or deed of trust and of the
address of the holder of any such instrument, Lessee agrees that it will give
the holder thereof notice of any claimed default under this Lease, and will
exercise no remedies which it may have on account thereof until forty-five (45)
days have elapsed after the receipt of such notice by the holder of such
instrument without cure thereof.

 

Lessee has requested that
Lessor provide a non-disturbance agreement from Lessor’s current mortgagee.
Lessor agrees to use Lessor’s best reasonable efforts to provide such an
agreement in form and substance acceptable to such mortgagee as soon as
reasonably possible  following
Lessor’s execution of this Lease.

 

Within 15 days after Lessor’s
request, Lessee agrees to execute an estoppel certificate or other agreement
certifying to Lessor and/or any mortgagee of the Building or any successor
thereto or designee thereof, such facts and agreeing to such reasonable notice
provisions as such mortgagee may request in connection with Lessor’s financing.
If Lessee fails or refuses to give a certificate hereunder within the time
period herein specified, then the information contained in such certificate as
submitted by Lessor shall be deemed correct for all purposes, and all notice
provisions and other matters in the certificate shall be deemed agreed to, but Lessor
shall have the right to treat such failure or refusal as a default by Lessee.

 

This Lease and all rights of
Lessee hereunder are further subject and subordinate to the extent that the
same relate to the Premises to all ground or underlying leases covering the
Land/or any part thereof which may now or hereinafter affect the Land or the
Building, and any renewals or modifications thereof.

 

11

 

22. Condemnation. If
the whole or any part of the Premises shall be taken under the power of eminent
domain, this Lease shall terminate as to the part so taken on the date Lessee
is required to yield possession thereof to the condemning authority. Lessor
shall, with reasonable diligence, make such repairs and alterations as may be
necessary in order to restore the part not taken to a useful condition, and the
Base Rent shall be reduced proportionately to the portion of the Premises so
taken. If the amount of the Premises so taken substantially impairs the
usefulness of the Premises for the purposes set forth in Section 4, either
party may terminate this Lease within 30 days after Lessee is dispossessed,
effective as of the date when Lessee is required to yield possession. All
compensation awarded for any taking shall belong to and be the property of
Lessor, except that Lessee shall have the right to assert a claim for any
personalty of Lessee that is taken and for Lessee’s moving costs.

 

23. Fire and Casualty.
In the event of a fire or other casualty in the Premises, Lessee shall
immediately give notice thereof to Lessor. If the Premises, shall be destroyed
by fire or other casualty so as to render the Premises untenantable, the rental
herein shall be reduced proportionally to the portion of the Premises rendered
untenantable until such time as the Premises are made tenantable by Lessor. If
from such cause the same shall be so damaged that Lessor shall decide not to
rebuild, or if Lessor’s lender or mortgagee does not make adequate insurance
proceeds available to make such repairs, then all rent and other sums owed
hereunder up to the time of such destruction or casualty shall be paid by
Lessee, and thenceforth this Lease shall cease and come to an end. If Lessor
elects to rebuild the Premises, then Lessor shall have a period of 180 days in
which to substantially complete such rebuilding. If Lessor is unable to
substantially complete such rebuilding within such 180-day period, then Lessee
shall have the right, exercisable until such time as Lessor has actually
substantially completed such rebuilding (but not thereafter), to terminate this
Lease by written notice to Lessor.

 

24. Casualty Insurance.
Lessor shall, at all times during the Term, maintain a policy or policies of
insurance with the premiums thereon fully paid in advance, issued by and
binding upon some solvent insurance company, licensed to do business in the
State of Texas, insuring Lessor’s interest in the Building against loss or
damage by fire and other hazards with coverages and in amounts as customarily
carried by owners of similar buildings in the Montgomery County, Texas area, as
determined by Lessor, with payments for losses thereunder payable solely to
Lessor or its designee.

 

25. Liability and
Personal Property Insurance. Lessee shall maintain, at its expense, at all
times during the Term, a policy or policies of commercial general liability
insurance, an all-risk policy insuring against loss or damage by fire or other
hazards for the full replacement value of Lessee’s personal property, trade
fixtures, equipment, inventory, and any alterations or improvements Lessee
constructs on the Premises (with extended coverage limits), and builder’s risk
coverage in such amounts as are reasonably required by Lessor in the event
Lessee performs any alterations or improvements to the Premises, with the
premiums thereon fully paid in advance, each issued by (i) an insurance
company or companies rated “A-” or higher under the most current edition of A.M.
Best’s Key Rating Guide, (ii) a Lloyds of London underwriter, or (iii) an
insurance company agreed to by Lessor. All insurers must be licensed to do
business in 

 

12

 

the State of Texas. The insurance shall afford protection of not less
than $1,000,000 combined single limit bodily injury and property damage per
occurrence. The policy or policies shall name Lessor as an additional insured.
As to any injury or damage occurring in or on the Premises, Lessee’s insurance
shall be primary. Lessee’s policy shall contain an agreement by the insurer
that such policy, or policies may not be canceled or materially modified
without 30 days’ prior notice to Lessor. Lessee shall provide Lessor a copy of
the required policy or policies, or a certificate evidencing the required
coverage, before beginning any work in the Premises or taking occupancy of
same. Additionally, Lessee shall provide Lessor evidence of the renewal of each
policy at least 30 days before the expiration of the policy.

 

26. Release of Claims:
Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee each waive any and all right of recovery,
claim, action or cause of action against the other and its partners (if any),
and the agents, officers, and employees of the other party or its partners, for
any loss or damage:

 

(i)                                    to the Premises, the Building, or any
improvements thereto, or any personal property of such party therein, by reason
of fire, the elements or any other cause which could have been insured against under a Texas standard special
form extended coverage insurance
policy, or

(ii)                                 arising out of any business interruption,
including but not limited to loss of profits, by reason of fire, the elements or any other cause,

 

regardless of cause or
origin, including the sole or concurrent negligence of the other party or
its  partners, or the agents, officers,
or employees of the other party or its partners. Lessor and Lessee covenant
that its insurance policies shall provide that the insurer shall not hold any
right of subrogation against
the other party for losses which must be insured against by the terms of this
Lease. This Section shall survive the termination of this Lease.

 

27.  Release
and Indemnification by Lessee. Subject to the terms of Section 26,
above, notwithstanding that joint or concurrent liability may be imposed upon
Lessor by law, Lessee shall indemnify and hold harmless (and at Lessor’s
option, defend) Lessor, and Lessor’s property managers, lenders, employees,
agents, contractors and invitees, and any affiliates or subsidiaries thereto
(individually, “Lessor Party”, collectively, “Lessor Parties”) at Lessee’s sole
cost and expense, against any loss, cost, damage or expense (including
attorneys’ fees and court costs) relating to or as a result of (a) any
default or failure to comply with the terms hereof (whether in connection with
termination hereof or otherwise) by Lessee, its agents, contractors, employees
and invitees (individually, “Lessee Party”, collectively, “Lessee Parties”); (b) any
act, omission or negligence of Lessee or any Lessee Parties; and (c) all
claims for damages to persons or property by reason of the use or occupancy of
the Premises not caused by the gross negligence or willful misconduct of Lessor
or the Lessor Parties. Notwithstanding any other provision hereof, the
preceding indemnity shall survive the termination, cancellation or expiration
of this Lease. Moreover, Lessor shall not be liable, and Lessee covenants not
to bring any action against Lessor, for any damage or injury to the Premises, Lessee’s
furniture, personal property, trade fixtures, 

 

13

 

inventory or equipment, Lessee, or any Lessee Parties, arising from any
use or condition of the Premises, Building, or Land, the act or neglect of co-tenants
or of any other person, or malfunction of any equipment or apparatus serving
the Premises, Building, or Land. Any and all claims against Lessor for any
damage or injury referred to in this paragraph are hereby waived and released
by Lessee.

 

28. Holding Over. In
the event of holding over by Lessee after the expiration or termination of the
Term and without the written consent of Lessor, there shall be no renewal of
this Lease by operation of law, but at Lessor’s sole option, Lessee shall be a
tenant at sufferance and shall pay monthly rent during the holdover period
equal to double the amount of all Base Rent and Additional Rent payable during
the last month of the Term. Further, Lessee shall indemnify Lessor against all
claims for damages by any other lessee to whom Lessor may have leased all or
any part of the Premises. Lessee shall vacate and deliver the Premises to
Lessor upon Lessee’s receipt of notice from Lessor to vacate. No holding over
by Lessee with or without the consent and acquiescence of Lessor or the
acceptance of rent shall operate to extend, reinstate or continue the Term of
this Lease.

 

29. Default by Lessee.
If (a) Lessee fails to timely pay any sum to be paid by Lessee under this
Lease and such failure continues for a period of 10 days following the date on
which written notice thereof is given (or deemed given) by Lessor; provided,
however, that Lessor shall be required to give only two (2) such notices
in any 12-month period, per calendar year, and upon the third such failure in
any l2-month period, per calendar year, Lessor shall have the right to avail
itself of any or all remedies afforded to Lessor hereunder without any further
notice to Lessee; (b) Lessee fails to perform any of its other duties or
obligations under this Lease and such default continues for 20 days after
Lessor delivers written notice to Lessee or deposits written notice in the U.
S. Mail addressed to Lessee’s address above; provided, however, that if such
failure is one which is not reasonably susceptible of being cured within a
20-day period, then Lessor shall not be deemed to be in default hereunder so long as Lessee commences
its cure of such failure within such 20-day period and diligently and
continuously prosecutes the cure thereof to completion within ninety (90) days
after delivery or deposit of Lessor’s written notice of such failure; (c) any
of the following actions occur and Lessee fails to contest same using Lessee’s
best reasonable efforts and cause same to be removed, dismissed, or vacated
within 30 days from the date of entry or filing: (i) Lessee’s interest
under this Lease is levied on under execution or other legal process, or (ii) any
petition is filed by or against Lessee to declare Lessee a bankrupt or to
delay, reduce or modify Lessee’s debts or obligations, or (iii) any
petition under the Bankruptcy Code is filed or other action taken to reorganize
or modify Lessee’s capital structure, or (iv) Lessee is declared insolvent
according to law, or (v) any general assignment of Lessee’s property is
made for the benefit of creditors, or (vi) a receiver or trustee is
appointed for Lessee or its property; (d) Lessee vacates or abandons the
Premises and ceases payment of rent; (e) if Lessee is a corporation,
Lessee ceases to exist as a corporation in good standing in the State of Texas;
or (f) if Lessee is a
partnership or other entity, Lessee is dissolved or otherwise liquidated, then
Lessor may treat the occurrence of anyone or more of the foregoing events as a
breach of this Lease. Upon the occurrence of any of the foregoing events, at
Lessor’s option, Lessor shall have anyone or more of the following described
remedies, in addition to all other rights and remedies provided at law or in
equity:

 

14

 

A.            Lessor
may continue this Lease in full force and effect, and this Lease shall continue
in full force and effect as long as Lessor does not terminate this Lease, and
Lessor shall have the right to collect Rent, Additional Rent and other charges
when due.

 

B.            Lessor may terminate this Lease and forthwith repossess
the Premises and  recover
damages in a sum of money equal to the total of (i) the cost of recovering
the Premises, including the cost of the removal and storage of any of Lessee’s
possessions left within the Premises, (ii) the unpaid Base Rent and
Additional Rent earned at the time of termination, plus interest thereon at the
lesser of 18% or the then maximum interest rate permitted to be charged by
applicable law (“Interest”) from the due date until paid, (iii) the
balance of the Base Rent and Additional Rent for the remainder of the Term,
discounted to its present value at the rate of 6% per annum, less the fair
market rental value (allowing a reasonable period for reletting) of the
Premises for said period (provided said sum shall not be less than zero), and (iv) any
other sum of money and/or damages owed by Lessee to Lessor.

 

C.            Without terminating this Lease, Lessor may
terminate Lessee’s right of possession and repossess the Premises by forcible detainer
suit or otherwise, without demand or notice of any kind to Lessee, and without
terminating this Lease, without acceptance of surrender of the Premises, and without becoming liable
for damages, or guilty of trespass. If Lessor pursues this remedy and if and to
the extent required by law, Lessor shall use reasonable efforts to relet the
Premises for Lessee’s account, for such rent and upon such terms and conditions
as Lessor deems satisfactory. Lessor shall be deemed to have used “reasonable
efforts” to relet the Premises if Lessor offers the Premises “for lease” and
entertains in good faith, bona fide offers to lease submitted to Lessor. In no
event shall Lessor be obligated to lease the Premises in priority of other
space in the Building or adjacent buildings owned by Lessor or any affiliate
thereof. If Lessor so relets, Lessor is authorized to
decorate or to make any repairs, changes, alterations or modifications in or to
the Premises as it deems necessary to prepare the Premises to relet at Lessee’s
expense. If Lessor fails to relet the Premises, then Lessee shall pay to Lessor
as damages a sum equal to the amount of the Base Rent and Additional Rent
provided for in this Lease for such period or periods. If Lessor relets the Premises and fails to realize a sufficient sum from
such reletting to pay all Base Rent and Additional Rent due and payable
hereunder after deducting (a) the due and unpaid Base Rent and Additional
Rent, (b) the accrued Interest thereon, (c) the cost of recovering
possession, (d) the costs and expenses of all decorations, repairs,
changes, alteration and modifications, (e) the expense of such reletting
and the collection of the rent
accruing therefrom, (f) the
cost of any brokerage fees or commissions payable by Lessor in connection with
such reletting or attempted related; (g) the cost of removing and storing
the furniture, trade fixtures, equipment, inventory and/or personal property of
Lessee or any other occupant’s property left on the Premises, Parking, or Land
after reentry, (h) any other costs incurred by Lessor in such reletting;
and (i) any other sum or money or damages owed by Lessee to Lessor at law,
in equity, or hereunder, then Lessee shall pay to Lessor any such deficiency
upon demand from time to time, Lessor shall in no event be obligated to pay any
excess proceeds from such reletting to Lessee after deduction of the foregoing
from such proceeds. Lessor may file one or more suits to recover any sums
falling due under this Section 

 

15

 

from time to time. Any
reletting shall not be an election by Lessor to terminate this Lease or
acceptance of surrender of the Premises unless Lessor gives a written notice of
such intention to Lessee. Notwithstanding any such reletting without
termination, Lessor may at any time thereafter elect to terminate this Lease
for such previous default.

 

D.            Lessor may change the locks on the Premises and not
return the new key to the Lessee unless the Lessee cures the default(s). The
Lessor will not have to give the Lessee a new key unless the Lessee cures the
default(s); the new key will be provided only during Lessor’s regular business
hours.

 

E.             Lessor may enter upon the Premises and do whatever
Lessee is obligated to do under the terms of this Lease; and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in effecting
compliance with Lessee’s obligations under this Lease plus fifteen percent
(15%) of such cost to cover overhead, plus Interest, and Lessee further  agrees that Lessor shall not be liable for
any damages resulting to Lessee from such action, except for Lessor’s gross
negligence or willful misconduct. No action taken by Lessor under this section
shall relieve Lessee from any of its obligations under this Lease or from any
consequences or liabilities arising from the failure to perform such
obligations.

 

F.             Any
furniture, trade fixtures, equipment, inventory or other personal property of
Lessee which remains on the Premises following (i) the termination date of
this Lease, or (ii) Lessor’s termination of Lessee’s possession of the
Premises pursuant to this Section 29, shall conclusively be deemed
abandoned, and without notice to Lessee, Lessor may dispose of the same in any
manner deemed suitable by Lessor, sell such property and retain the proceeds
therefor, or store such property at Lessee’s expense.

 

G.            Lessor shall have the right to exercise any and all other
remedies available  to Lessor in this Lease, at law or in equity.

 

30. Waiver. Failure
of Lessor to declare any default immediately upon occurrence thereof, or delay
in taking any action in connection therewith, shall not waive such default, but
Lessor shall have the right to declare any such default at any time and take
such action as might be lawful or authorized hereunder, either in law or at
equity.

 

31. Intentionally Omitted
Prior to Execution.

 

32. Assignment by Lessor.
Lessor shall have the right to sell, transfer or assign, in whole or in part,
all of its rights and obligations hereunder and in the Building and the Land.
In such event and upon the assumption by such transferee of Lessor’s
obligations hereunder, no further liability or obligation shall thereafter
accrue against Lessor hereunder.

 

33. Assignment by Lessee.
Lessee shall not, without Lessor’s prior written consent in each instance,
convey, assign Dr encumber this Lease or any interest herein, directly or 

 

16

 

indirectly, voluntarily or by operation of law, including the merger or
conversion of Lessee with Dr into another entity, or sublet all or any portion
of the Premises, or permit the use Dr occupancy of any part of the Premises by
anyone other than Lessee (collectively, “Transfer”). Except as otherwise
hereinafter set forth, if Lessee is other than an individual, any change in “control”
of Lessee shall constitute a Transfer, and the surviving party in control shall
be the Transferee. “Control” means the direct or indirect power to direct or
cause direction of the management and policies of an entity, whether through
ownership of voting securities, by contract or otherwise. Conversely, Lessee
shall not sublease space from, or assume the lease obligations of, another
lessee in the Project without Lessor’s prior written consent. Following any
Transfer, Lessee (and any guarantors) shall remain fully liable under this
Lease, as then or thereafter amended with or without notice to or consent of
Lessee (or any guarantors), and Lessor may proceed directly under this Lease
against Lessee (or any guarantor) without first proceeding against any other
party. Lessee shall give Lessor written notice of any proposed Transfer at
least 30 days prior to the anticipated effective date of the proposed Transfer,
which notice shall include a complete detailed written description of the
Transfer; the name, address, business and intended use of the Transferee; a
current audited financial statement for the Transferee certified by a
recognized accounting firm; a copy of the proposed Transfer document;
appropriate evidence of the existence, good standing and signature authority of
the Transferee in the state that the Land is located in; and such other
pertinent information as Lessor reasonably requests, together with Lessor’s
then-quoted Transfer processing fee as stipulated under the last paragraph of
this section. If the proposed Transferee is subject to any new requirements
under applicable law (including the Americans with Disabilities Act of 1990), (i) Lessee
shall be liable for any costs or expenses to comply with such requirements, and
(ii) to the extent such requirements require alterations, Lessee shall
deliver for Lessor’s approval plans and specifications complying with such
additional requirements and acceptable security assuring timely, lien-free
completion of construction. If the aggregate consideration, including Base
Rent, paid to Lessee for a Transfer exceeds that payable by Lessee under this
Lease (prorated according to the Transferred interest), then Lessee shall,
within 15 days after receipt, pay 50% of such excess to Lessor.

 

Within 30 days after receipt
of all required Transfer information, Lessor shall give Lessee written notice
of its election (i) to consent to the Transfer; or (ii) to terminate
this Lease as of the effective date of the Transfer as to the space covered by
such Transfer for the remainder of the Term, in which event Lessee shall be
relieved of its obligations accruing after the termination date with respect to
the terminated interest (provided, however, that Lessee shall have the right,
for a period of 5 days following the giving by Lessor of its decision to
terminate this Lease, to rescind its request for consent to a Transfer); or (iii) not
to consent to the Transfer, in which event this Lease shall continue in full
force and effect. If Lessor fails to timely make such election,
Lessor shall be deemed to have elected option (iii) above. Any Transfer
occurring without Lessor’s
consent shall be void and shall constitute a Default hereunder. In any event,
all renewal and expansion options and other preferential rights under this
Lease are personal to the original Lessee under this Lease and shall not be
exercisable by any Transferee. Neither Lessor’s acceptance of any name for
listing on the Building directory or other signage, nor Lessor’s acceptance of
rent from any Transferee, shall be deemed, or substitute for, Lessor’s consent
to a 

 

17

 

Transfer. Lessor agrees not
to unreasonably withhold, delay or condition its consent to any assignment of
this Lease or sublease of the entirety of the Premises; provided that the
proposed Transferee is (A) creditworthy, (B) has a good reputation in
the business community, (C) will use the Premises for only the use permitted in Section 4 of
this Lease, and (D) is not
then an occupant of the Building or person or entity with whom Lessor is then
negotiating to lease space in the Building and for which Lessor has reasonably
comparable space available in the Building to accommodate such proposed
Transferee’s space needs, Additionally, notwithstanding anything to the
contrary or apparent contrary set forth in this Lease, a transfer of “control”
of Lessee. occurring as a result of a merger of Lessee into another entity
shall not constitute a Transfer requiring Lessor’s consent so long as, within a
period of thirty (30) days following such merger, Lessee (or the surviving
entity) provides Lessor with written notice of such merger accompanied by a
copy of the merger documents filed with the Secretary of State of the State of
Delaware.

 

Notwithstanding anything
contained herein to the contrary, Lessor shall not be obligated to entertain or
consider any request by Lessee to consent to any proposed assignment of this
Lease or sublease of all or any part of the Premises unless each request by
Lessee is accompanied by a nonrefundable fee payable to Lessor in the amount of
$500.00 to cover Lessor’s administrative, legal, and other costs and expenses
incurred in processing each of Lessee’s requests. Neither Lessee’s payment nor
Lessor’s acceptance of the foregoing fee shall be construed to impose any
obligation whatsoever upon Lessor to consent to Lessee’s request.

 

34. Transfer of Control.
Subject to the exception set forth in Section 33, if Lessee is a
corporation, and if at any time during the term of this Lease, corporate shares
of Lessee shall be transferred by sale, assignment, bequest, inheritance,
operation of law or other disposition so as to result in a change in the
present control of said corporation by the person or persons now owning a
majority of said corporate shares, Lessee shall be in default of this Lease and
Lessor may exercise its rights in respect of default hereunder.

 

35. Notices. Any
notice required or permitted to be given pursuant to the terms of this Lease
shall be sent by certified or registered U.S. mail return receipt requested,
hand delivery or nationally recognized overnight courier, if to Lessor, at 2201
Timberloch Place, The Woodlands, Texas 77380, Attn: Property Management, with a
copy to Crescent Real Estate Equities Limited Partnership, 777 Main Street, Suite 2100,
Fort Worth, Texas 76102, Attn: Legal Department, and if to Lessee, at 2700
Research Forest Dr., Suite 180, The Woodlands, TX 77381, Attn: Douglas R.
Kern. The place to which such notices shall be sent may be changed by either
party giving notice of such change to the other party in the manner hereinabove
provided, and such address changes shall be effective within five (5) days
of receipt of such notice. A notice shall be deemed given and received (i) if
by certified or registered mail, on the 3rd business day following deposit in
the U. S. Mail; (ii) if by hand delivery, upon tender of delivery; and (iii) if
by overnight courier, the first (lst) business day following deposit.

 

36. Severability. If
any of the provisions of this
Lease shall contravene or be invalid under the laws of the particular state,
county, or jurisdiction where applied, such contravention or invalidity shall
not invalidate the Lease or any other portions thereof and the remainder of
this

 

18

 

Lease or the application
thereof to other persons or circumstances shall not be affected thereby.

 

37. Corporate Authority.
If Lessee signs as a corporation, or other entity each of the persons executing
this Lease on behalf of Lessee represents and warrants that Lessee is a duly
organized and existing corporation, partnership, limited liability company or
other entity, that Lessee has and is qualified to do business in Texas, that
the corporation or other entity has full right and authority to enter into this
Lease, and that all persons signing on behalf of the corporation or other
entity were authorized to do so by appropriate corporate or entity actions.

 

38. Title. This Lease
is subject to all matters of record in the Real Property Records of Montgomery
County, Texas. By execution of this Lease, Lessee consents to all plats and
replats of the Land, if any, in compliance with all applicable laws.

 

39. Not an Offer. The
submission of this Lease to Lessee shall not be construed as an offer, nor
shall Lessee have any rights with respect thereto unless Lessor executes a copy
of this Lease and delivers the same to Lessee.

 

40. Exhibits, Riders and
Addenda. This Lease also includes and incorporates herein for all purposes
all attached Exhibits, Riders, and Addenda, if any.

 

41. Joint and Several
Tenancy. If more than one person executes this Lease as Lessee, their
obligations hereunder are joint and several, and any act or notice of or to, or
refund to, or the signature of, anyone or more of them, in relation to the
renewal or termination of this Lease, or under or with respect to any of the
terms hereof shall be fully binding on each and all of the persons executing
this Lease as a Lessee.

 

42. Binding Effect.
This Lease shall be binding upon and inure to the benefit of the heirs,
successors or assigns of Lessor and Lessee, subject to the limitation on
subleasing and assignment herein contained.

 

43. Entire Agreement.
This Lease shall constitute the sole and only agreement of Lessor and Lessee
with regard to the Lease of the Premises, and shall supercede any prior or
contemporaneous oral or written agreements. This Lease may not be altered,
changed or amended, except by an instrument in writing, signed by both parties
hereto.

 

44. Pronouns.
Pronouns which refer to either Lessor or Lessee shall be construed to mean the
appropriate number and gender intended.

 

45. Force Majeure. If
either party shall be delayed or prevented from the performance of any act
required hereunder by reason of acts of God, strikes, lockouts, labor troubles,
inability to procure materials, restrictive governmental laws or regulations or
other cause without fault and beyond the control of the party obligated (Lessee’s
financial inability, such as inability to obtain financing or lack of capital,
excepted), performance of such act shall  be excused for the period of the delay, and the period for the
performance of any such act shall

 

19

 

be extended by a period
equal to the period of such delay; provided, however, nothing in this Section shall
excuse Lessee from the prompt payment of any rental or other charge required of
Lessee hereunder, except as may
be expressly provided elsewhere in this Lease.

 

46. Lessor’s Liability.
Any judgment recovered by any Lessee Party against
any Lessor Party shall be satisfied solely out of proceeds received at a
judicial sale upon execution and levy made against Lessor’s right, title and interest
in the Building. Lessee waives (i) all
right to levy against the Building or Land or any other properly of Lessor or
any Lessor Party for any deficiency or claim against Lessor or any Lessor Party
or to otherwise claim against Lessor or any Lessor Party for consequential,
special or punitive damages allegedly suffered by any Lessee Party, including
without limitation, lost profits and business  interruption.

 

47. General. Time is
of the essence of this Lease. All rights and remedies of Lessor and Lessee
under this Lease shall be
cumulative and none shall
exclude any other rights or remedies allowed by law. This Lease shall be
declared to be a Texas lease, and all of the terms hereof shall be construed according to the Jaws of the State of Texas. Said Lease shall
be performable only in Montgomery County, Texas, and venue for any action
hereunder shall lie exclusively in Montgomery County, Texas or in the Southern
District of Texas, Houston Division, as appropriate.

 

48. Brokers. Lessor
and Lessee warrant and represent to the other that it has not dealt with any
real estate broker and/or salesman in connection with the negotiation or
execution of this Lease and no such broker or salesman has been involved in
connection with this Lease, and each party agrees to defend, indemnify and hold harmless the other party from and against
any and all costs, expenses, attorneys’ fees or liability for any compensation,
commission and charges claimed
by any real estate broker and/or salesman due to acts of such party or such
party’s representatives.

 

49. Relocation.
Lessor shall have the right to require Lessee, upon 90 days notice, to relocate
the Premises to any other premises of equal or greater size with improvements
to be equal or greater than those prior to the relocation within the Building
or to other buildings in the Project (“Relocated Premises”) on a date of
relocation (the “Relocation Date”) specified therein. In such event, all
reasonable expenses of moving Lessee and decorating the Relocated Premises with
substantially the same leasehold improvements shall be at the expense of
Lessor, including the physical move, telephone installation and stationery
costs. Lessor shall have the option to tender the Relocated Premises to Lessee
on any date within a 30 day period prior to or after the Relocation Date, in
which event the Relocation Date shall become the date of tender of possession
of the Relocated Premises. From the Relocation Date through the expiration date
of the Lease, the aggregate Base Rent for the Relocated Premises shall be the
same as for the original Premises. Lessee’s failure to comply with these
provisions shall constitute a Default hereunder.

 

20

 

50. Guaranty.
Contemporaneously with the execution of this Lease, Douglas R. Kern (“Guarantor”),
a principal of Lessee, is delivering to Lessor a guarantee all of the
covenants, duties, and obligations of Lessee that accrue under this Lease
pursuant to a Guaranty in the form  attached hereto as Exhibit “D”.

 

IN TESTIMONY WHEREOF, the
parties hereto have executed this Lease in multiple counterparts, each of which
shall constitute an original but collectively shall constitute only one  document, such execution to be effective on
the date first above written.

 

	
   

  	
  LESSOR:

  
	
   

  	
  WOODLANDS VTO 2000 LAND,
  L.P.,

  
	
   

  	
  a Texas limited
  partnership

  
	
   

  	
  By: WOODLANDS VTO 2000
  LAND G.P., L.L.C.,

  
	
   

  	
   

  	
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Michael Richmond

  
	
   

  	
   

  	
  Name: Michael Richmond

  
	
   

  	
   

  	
  Title:   President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LESSEE:

  
	
   

  	
  APPLIED VETERINARY
  SYSTEMS, INC., a Delaware

  
	
   

  	
  Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Douglas R. Kern

  
	
   

  	
   

  	
  Name: Douglas R. Kern

  
	
   

  	
   

  	
  Title:   President/CEO

  

 

21

 

EXHIBIT “A”

The Land

 

22

 

EXHIBIT “B”

 

Tenant
Improvement Letter

 

ESFORMS\GTenant
Improvement Add\3·20-01

(Lessee does
work)

 

1.                                       Construction of Leasehold Improvements. Lessor shall provide, at Lessor’s expense
and utilizing the services of Fretz Construction, tenant improvements
consisting of 2 single-wide glass entry doors, 2 single-wide glass entry doors,
side by side causing a double door entrywayand 1 loading dock. Lessee shall
construct all other leasehold improvements required by Lessee for the Premises
(“Tenant Improvements”).

 

2.                                       Construction Costs. Lessee shall be responsible for all costs
associated with the construction of the Tenant Improvements. Lessee shall pay
to Lessor the sum of $ 0, said
amount to be Lessor’s administrative fee for construction management,
including, but not limited to, review of the plans, drawings, and
specifications for the Tenant Improvements, including the mechanical systems,
and periodic inspections of the construction.

 

3.                                       Approval of Plans. All plans, drawings, and specifications for
the Tenant Improvements (“Plans”) must be submitted, prior to commencement of
construction of the Tenant Improvements, to Lessor for its prior. written
approval, which approval shall not be unreasonably withheld. The Plans must be prepared by an
architect licensed to practice in the State of Texas and Lessee’s architect
must represent and warrant that the designs for the Premises embodied in the
Plans submitted to Lessor on behalf of Lessee shall comply with all applicable
building and life safety laws, rules, regulations and codes including, but not
limited to, the Texas Elimination of Architectural Barriers Act, and all City
of Houston building codes as adopted and modified by the Committee described in numbered paragraph
13 below. The Plans also must be provided as electronic files in .dwg, .dxf, or
other Autodesk AutoCAD compatible format. Lessor shall not be liable for
damages resulting from its approval or disapproval of the Plans or any action
taken by Lessee. If Lessor fails to respond to Lessee’s request for approval
within five (5) business days following Lessee’s submittal of all plans,
drawings, specifications and other information requested by Lessor and Tenant
is unable to complete the Tenant Improvements by October 1, 2001, and such
failure constitutes the sole reason for such inability, then Tenant shall be
entitled to an abatement of one (1) day of Base Rent for each day of such
delay.

 

4.                                       Contractor. Lessee’s choice for the contractor to perform the construction of the
Tenant Improvements shall be subject to Lessor’s prior, written approval, which
approval shall be given at Lessor’s sole discretion. Upon its execution, Lessee
shall provide to Lessor a copy of the contract for construction with the
approved contractor. Lessor shall have no liability for review or failure to
review such Contract. By its execution of this Lease, Lessor approves the
selection by Lessee of Fretz Construction as its contractor.

 

23

 

5.                                       Lessor’s Liability. Lessee acknowledges that Lessor is not an
architect or engineer. Accordingly, Lessor does not guaranty or warrant that
the approved Plans will comply with all applicable laws, be free from errors or
omissions, or result in construction of a safe place of habitation. nor that
the Tenant Improvements will be free from defects or unsafe conditions and
Lessor will have no liability therefor.

 

6. Electrical Service.
The Lessee shall put electrical service in its own name before construction can
commence. Requests for service should be made to Entergy. 1/800/840-4478.  If any charges are incurred by Lessor for
electricity to the Premises after the commencement of construction. these
charges will be reimbursed by Lessee.

 

7. Insurance. Prior
to the commencement of construction of the Tenant Improvements. Lessee shall
cause the contractor to provide to Lessor a certificate of insurance evidencing
that the contractor has obtained the following insurance:

 

(a)                                  Workers Compensation Insurance in accordance
with the laws of the State of Texas and Employers Liability Insurance with minimum limits of not less than the following:

 

	
   

  	
  Each Accident

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Disease Policy Limit

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Disease Each Employee

  	
   

  	
  $

  	
  250,000

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(b)                                 Comprehensive General Liability

 

Combined single limit bodily injury and property damage

 

	
   

  	
  - each occurrence

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  - aggregate

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Such
insurance shall include the following:

 

(i) Premises
- Operations

 

(ii) Contractor’s
Protective Liability, covering all work sublet.

 

(iii) Completed
Operations and Products Liability coverage, which shall be maintained for a
minimum period of three years after final payment and  Contractor shall continue to provide evidence
of such coverage to Owner on an
annual basis during such period.

 

(iv) Broad
Form Property Damage

 

(v) Property
Damage Liability Insurance which shall include coverage for Collapse  and Underground.

 

24

 

(vi) Contractual
Liability (Hold Harmless Coverage)

 

(vii) Personal Injury
(with Employment Exclusion deleted. if applicable)

 

	
  - aggregate

  	
   

  	
  $

  	
  1,000,000

  	
   

  

 

(c)                                  Comprehensive Automobile Liability Insurance,
with limits of liability of not less than the following:

 

Combined
single limit bodily injury and property damage

 

	
  - each occurrence

  	
   

  	
  $

  	
  1,000,000

  	
   

  

 

Such
coverage shall include owned, hired, and non-owned vehicles.

 

(d)                                 Umbrella Liability Insurance in an amount of
not less than $2,000,000 providing limits of liability in excess of limits
provided in (a), (b), and (c) above.

 

(e)                                  Builder’s Risk insurance for the complete
replacement value of the Tenant Improvements.

 

All insurance policies
arranged by the contractor shall contain a clause waiving any right of
subrogation against Lessor. All insurance policies, except the policy listed in
7(a) above, shall name Lessor as an additional insured.

 

8.                                       Completion of Construction. Lessee shall cause the contractor to
diligently pursue, until completion, the construction of the Tenant
Improvements in accordance with the plans, drawings, and specifications
approved by Lessor. Prior to the Commencement Date, Lessee shall provide to
Lessor the following items:

 

(1)                                  an affidavit that payroll, bills for
materials and equipment, and other indebtedness
connected with the construction of the Tenant Improvements have been paid or otherwise satisfied;

 

(2)                                  properly executed releases and affidavits of
payment establishing payment of
the Lessee’s and the contractor’s obligations related to the construction of the Tenant Improvements;
and

 

(3)                                  a complete list of all materialman,
suppliers, and subcontractors supplying materials or work costing in excess of $5,000, including addresses, telephone numbers, and names of
individuals to contact who are familiar
with the portion of the construction of the Tenant Improvements accomplished by such entity.

 

(4)                                  if applicable, proof of approval from the
Texas Department of Licensing and Regulation of the plans and specifications for the Tenant Improvements.

 

25

 

9.                                       Performance Standards. Lessee shall require that the contractor
perform all labor in a workmanlike manner, in strict compliance with the Lease,
including this Tenant Improvement Addendum,
all applicable Federal, state, local, and agency laws, ordinances, and
regulations, and according to
the standard industry practice.

 

10.                                 Trash. Lessee shall require that the contractor shall clean the job site and
haul away all accumulated trash
and debris on a daily basis. The contractor shall supply its own trash
receptacles and Lessor’s facilities shall not be for this purpose.

 

11.                                 Warranties. Lessee shall cause contractor to warrant to Lessor that materials and
equipment furnished for construction of the Tenant Improvements will be of good
quality and new unless otherwise required or permitted by the Lessee, that the
Tenant Improvements will be free from defects not inherent in the quality
required or permitted, and that the Tenant Improvements will conform with the
requirements of the plans, drawings, and specifications approved by Lessor.

 

12.                                 INDEMNIFICATION. LESSEE HEREBY AGREES TO INDEMNIFY AND HOLD
LESSOR HARMLESS FROM AND AGAINST AND TO REIMBURSE LESSOR WITH RESPECT TO ANY
AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, LOSS, DAMAGE, LIABILITIES, COSTS,
AND EXPENSES (INCLUDING ATTORNEY’S FEES AND COURT COSTS) OF ANY AND EVERY KIND
OR CHARACTER, INCLUDING, WITHOUT LIMITATION, INJURY TO OR DEATH OF ANY PERSON,
OR FOR DAMAGE TO ANY PROPERTY, KNOWN OR UNKNOWN, FIXED OR CONTINGENT, ASSERTED
AGAINST OR INCURRED BY LESSOR AT ANY TIME AND FROM TIME TO TIME BY REASON OF OR
ARISING OUT OF THE CONSTRUCTION OF THE TENANT IMPROVEMENTS BY LESSEE, LESSEE’S
CONTRACTOR AND LESSEE’S SUBCONTRACTORS OR FROM LESSOR’S FAILURE TO COMPLY WITH
THE TERMS OF THIS TENANT
IMPROVEMENT ADDENDUM.

 

Additionally, Lessee shall
discharge at once or bond or otherwise secure against all liens and attachments
which are filed in connection with the construction of the Tenant Improvements
by the contractor or any materialman, supplier, or subcontractor, and shall
indemnify, protect, defend, and hold Lessor harmless from and against all
claims, demands, causes of action, loss, damage, liability, costs, and expenses
(including attorneys fees and court costs) relating to such liens and
attachments.

 

13.                 The Woodlands Covenants and Standards. Lessee shall cause all construction to be
in accordance with The Woodlands Covenants and the Commercial/Industrial
Development Standards (“Standards”) adopted by the Committee under authority
granted by The Woodlands Covenants, and any other applicable standards. The
Woodlands Covenants shall mean and refer to:

 

· the
Covenants, Restrictions, Easements, Charges and Liens of The Woodlands, which
are

 

26

 

imposed upon the Land and
recorded in the Real Property Records of Montgomery County, Texas and which are
substantially similar in form and  substance as those recorded under:

 

·                                          County Clerk File No. 9210558 of the
Real Property Records of Montgomery County, Texas (WCA)

 

·                                          County Clerk’s File No. 9348561 of the
Real Property Records of Montgomery County, Texas (TWA)

 

the Declaration of Covenants
and Restrictions of The Woodlands Commercial Owners Association which are
imposed upon the Land and recorded in the Real  Property Records of Montgomery County, Texas,
and are substantially similar in for and substance as those recorded under
County Clerk’s File No. 9357930.

 

“Committee” as used herein
shall mean and refer to the committee organized pursuant to The Woodlands
Covenants for the purpose of establishing rules, regulations, policies and
procedures governing the improvement of property in The Woodlands.

 

Approval of plans by the
Committee shall not entitle Lessee to rely thereon with respect to conformity
with laws, regulations, codes, or ordinances, or with respect to the physical
condition of The Property. Lessee hereby waives any claims, demands, or causes
of action growing out of any plan approvals by the Committee.

 

14.                                 Approval of Improvements to the Premises. Lessee understands that when it performs
any construction, renovation, modification, or alteration on the Premises which
is expected to cost $50,000.00 or more, Lessee must (i) submit its plans
and specifications to the Texas Department of Licensing and Regulation for its
review and approval before commencing such work, (ii) provide evidence to
Lessor of such submission to and approval by this department, and (iii) indemnify,
defend, and hold Lessor harmless against any liability, claim, loss, damage or
penalty (including court costs and reasonable attorneys fees and court costs)
resulting from Lessee’s failure to comply with the Texas Elimination of
Architectural Barriers Act, as amended from time to time, or its associated rules and
regulations.

 

27

 

EXHIBIT C

 

TO
LEASE AGREEMENT

 

RULES
AND REGULATIONS

 

PASSAGE WAY OBSTRUCTION

 

The sidewalks, entries,
passages, courts, corridors and stairways shall not be obstructed by any
Lessee, its employees or agents, or used by them for purposes other than for
ingress and egress to and from their respective Premises.

 

SIGNAGE

 

No sign, advertisement,
display, notice or other lettering shall be exhibited, inscribed, painted or
affixed on any part of the outside of the Premises or inside, if visible from
the outside, of the Building of which they form a part without the prior
written approval of Lessor. All signs and notices of Lessee, so approved by
Lessor, shall be maintained by Lessee in good and attractive condition at
Lessee’s expense and risk. Lessor shall have the right to remove all signs
erected in violation of this rule without notice to Lessee, at the expense
of Lessee. Signage must comply with sign standards of The Woodlands Development
Standards Committee, The Woodlands Development Review Committee or The
Woodlands Community Standards Committee, whichever is applicable.

 

NOISE AND DISTURBANCE

 

No loud speakers, television
sets, phonographs, radios, security systems, or other devices shall be used in
a manner so as to be heard or seen outside of the Premises without the prior
written consent of Lessor.

 

Lessee shall not make or
permit any noise or odor which Lessor deems objectionable or unpleasant to
emanate from the Premises.

 

ANTENNAE AND AERIALS

 

No aerial or antenna,
including, but not limited to, a satellite dish, shall be erected on the roof
or exterior walls of the Premises or Building in which the Premises is a part,
without, in each instance, the prior written consent of Lessor. Any aerial or
antenna so installed without such written consent shall be subject to removal
by Lessor without notice at any time.

 

28

 

USE OF PREMISES

 

No portion of the Premises shall
be used for a purpose other than as permitted under the terms of this Lease. No
portion of the Premises shall be used for living, sleeping, residential or
lodging purposes.

 

FIRE PROTECTION

 

Lessee shall not do or
permit anything to be done in the Premises, or in the common areas of the
Building, or bring or keep anything therein, which will in any way increase the
rate of, or make inoperative, fire insurance on the Building or property kept
therein, or any other insurance policy carried by Lessor on the Building, or
obstruct or interfere with the rights of other Lessees, or in any way injure or
annoy them, or conflict with the laws relating to fire, or with any regulations
of the fire department, or with any insurance policy upon the Building or any part
thereof, or conflict with any of the rules or ordinances of any county,
state or federal authority. Should Lessee utilize flammable or combustible
liquids, all such flammables and combustibles will be stored and maintained in
OSHA approved cabinets.

 

PARKING

 

Lessee and Lessee’s
employees shall park their cars only in those portions of the parking area
designated for that purpose by Lessor.

 

All vehicles will be parked
within striped lanes. Parking across the stripes or in unmarked areas, blocking
of walkways, loading area, entrances or driveways will not be permitted. Should
such a situation exist, Lessor, at its option, shall have the right to tow such
vehicle away at the owner’s expense.

 

MAINTENANCE OF PREMISES

 

Lessee shall keep the
Premises at a temperature sufficiently high to prevent freezing of water in
pipes and fixtures.

 

No awning or other
projections shall be attached to the outside walls of the Premises or the
Building of which they form a part without, in each instance, the prior written
consent of Lessor.

 

DELIVERIES AND MOVES

 

All loading and unloading of
goods shall be done only at such times, in the areas and through the entrances
designated for such purpose by Lessor.

 

29

 

TRASH REMOVAL

 

All garbage,
refuse and waste (“Waste Material”) shall be kept in the kind of container
specified by Lessor, and shall be placed outside of the Premises, prepared for
collection in the manner and at the times and places specified by Lessor. In no
event shall Lessee dispose of Waste Material in public areas of the Building.
If Lessor shall provide or designate a service for picking up Waste Material,
Lessee shall use the same at Lessee’s cost, provided such cost shall be
competitive to any similar service available to Lessee. Waste Material includes
only solid waste generated by Lessee and specifically excludes, and Lessee
agrees not to deposit in the place for collection, any radioactive, volatile,
corrosive, highly flammable, explosive, infectious, biohazardous, toxic or
hazardous material as defined by applicable federal, state, or local laws or
regulations.

 

PEST CONTROL

 

Lessee shall use at Lessee’s
cost such pest extermination contractors as Lessor may direct and at such
intervals as Lessor may require, provided the cost thereof is competitive to
any similar service available to Lessee.

 

ELECTRICAL AND TELEPHONE
SERVICE

 

If Lessee desires
telegraphic, telephonic or other electric connections, Lessor or its agents
will direct the electricians as to where and how the wires may be introduced, and without such direction no boring or cutting for wires
will be permitted. Access to any mechanical, electrical or telephone rooms must
be approved by Lessor.

 

EXCESS TRASH DISPOSAL

 

In the event Lessee must
dispose of crates, boxes, etc., which will not fit into a standard exterior
trash container, it will be the responsibility of Lessee to dispose of same. In
no event will Lessee set such items in the common areas of the Building. Lessor
may provide a common trash receptacle for Lessee’s use.

 

WATER USAGE

 

The water closets and other
water fixtures shall not be used for any purpose other than those for which
they were intended, and any damage resulting to them from misuse, or the
defacing or injury of any part of the Building shall be borne by the person who
shall occasion it. No person shall waste water by interfering with the faucets
or otherwise.

 

ALTERATIONS AND CONTRACTOR
APPROVAL

 

All contractors and/or
technicians performing any alterations for Lessee within the Premises must be
referred to Lessor for approval and shall, prior to commencement, execute
proper lien waivers.

 

30

 

NOTICE TO RENT SIGNS

 

Lessor may place on the
windows or doors of the Premises, or upon the bulletin board, a notice “To Rent”
for one month prior to the expiration of the Term of the Lease.

 

LOCKS AND KEYS

 

Lessor agrees to furnish
Lessee two keys for the doors entering the Building, Lessee’s suite and each
entry door therein. Any additional keys will be furnished at a charge by Lessor
equal to its cost plus 15% overhead. No additional locks shall be placed upon
any doors without the written consent of Lessor, nor shall any duplicate keys
be made. All necessary keys shall be furnished by Lessor, and the same shall be
surrendered upon the termination of this lease, and Lessee shall then give to
Lessor or its agents explanation of the combination of all locks upon the doors
of vaults.

 

UPKEEP OF PREMISES

 

All glass. locks and
trimmings in or about the doors and windows. and all electric globes and shades
belonging to the Building shall be kept whole, and whenever broken by the
Lessee or its agents or invitees. shall be immediately replaced or repaired and
put in order by Lessee under
the direction and to the satisfaction of Lessor and on vacating Premises shall
be left whole and in good repair.

 

SKYLIGHTS AND WINDOWS

 

No floors, skylights or
windows that reflect or admit light into the corridors or passage-ways, or to
any other place in the Building. shall be covered or obstructed by any Lessee.
If Lessee desires blinds or window coverings, they must be of such shade,
color, material and make as shall be prescribed by Lessor (and any awning
proposed may be prohibited by Lessor).

 

ADDITIONAL RULES AND REGULATIONS

 

Lessor reserves the right to
make such other and further reasonable rules and regulations as in its
judgment may from time to time be necessary for the safety care and cleanliness
of the Building and its occupants
and for the preservation of good order therein.

 

31

 

GUARANTY OF LEASE

 

THIS GUARANTY is given by
DOUGLAS R. KERN (“Guarantor”), whose address is 64 Autumn Crescent, The Woodlands, TX 
77381, in favor of WOODLANDS
VTO 2000 LAND, L.P., a Texas limited partnership, with offices at 2201
Timberloch Place, The Woodlands, Texas (“Lessor”) as of this 20th day of August, 2001.

 

APPLIED VETERINARY SYSTEMS,
INC., a Delaware corporation (“Lessee”) wishes to enter into a lease (“Lease”)
with Lessor for 13,185 rentable square feet of floor space in a building known
as Venture Technology Center XI located at 2700 Research Forest Blvd., Suite 180,
The Woodlands, Texas; and

 

WHEREAS, Lessor has refused
to enter into said Lease unless the obligations of Lessee under said Lease are
guaranteed in the manner hereinafter set forth;

 

NOW, THEREFORE, in
consideration of Lessor entering into the Lease, dated this date and being
executed simultaneously herewith, the Guarantor hereby agrees as follows:

 

1.                                       Guarantor unconditionally guarantees to
Lessor and its successors and assigns the full and punctual performance and
observance by Lessee of all of the terms, covenants and conditions to be kept,
performed or observed by Lessee pursuant to the Lease. If at any time Lessee
shall default in the performance or observance of any of the terms, covenants
or conditions in the Lease and such default shall continue beyond any
applicable grace or cure period provided for therein, Guarantor will promptly
and fully keep, perform and observe the same in the place and stead of Lessee.
Guarantor shall pay, reimburse and indemnify Lessor for all damages, costs,
expenses, losses and other liabilities arising or resulting from Lessee’s
failure to perform or satisfy the required terms. Guarantor does not waive
notice of any breach or default by Lessee; however, Guarantor agrees that any
notice given to Lessee c/o  Guarantor at the address for
notice set forth in the Lease also constitutes notice to Guarantor of any such
breach or default. Guarantor assumes all responsibility for being and keeping
itself informed of Lessee’s financial condition and assets and all other
circumstances bearing upon the risk of nonperformance by Lessee under the
Lease.

 

2.                                       Any act of the Lessor, or the successors or
assigns of Lessor, consisting of a waiver of any of the terms or conditions of
the Lease, or the giving of any consent to any matter or thing relating to the
Lease, or the granting to Lessee of any indulgences or extensions of time of
payment of any amount due from Lessee or the time of performance of any
obligation of Lessee may be done without notice to, or assent from, the
Guarantor and without releasing the obligations of the Guarantor.

 

3.                                       The obligations of the Guarantor hereunder
shall not be released by Lessor’s receipt, application or release of the
security deposit or any other collateral given for the 

 

32

 

performance and observance of covenants and conditions in the Lease
contained on Lessee’s part to be performed or observed; nor by any modification
of any of the terms or conditions of the Lease, but in case of any such
modification the liability of the Guarantor, shall be deemed modified In accordance with the
terms of any such modification of the Lease.

 

4.                                       The liability of Guarantor hereunder shall in
no way be affected by a) the release or discharge of Lessee in any
receivership, bankruptcy or other similar proceeding, b) the impairment,
limitation or modification of the liability of Lessee or the estate of Lessee
in bankruptcy, or of any remedy for the enforcement of Lessee’s liability under
the Lease resulting from the operation of any present or future provision of
the National Bankruptcy Act, c) the rejection or disaffirmance of the Lease in
any such proceeding, d) the assignment or transfer of the Lease by Lessee, or
e) any disability or other defense of Lessee, f) the release or termination from any cause whatsoever of the liability
of Lessee pursuant to the Lease.

 

5.                                       Until all the covenants and conditions in the
Lease on the Lessee’s part to be performed and observed are fully performed and
observed, the Guarantor: (a) shall have no right of subrogation against
the Lessee by reason of any payments or acts of performance by the Guarantor,
in compliance with the obligations of the Guarantor hereunder; (b) waives
any right to enforce any remedy which the Guarantor now or hereafter shall have
against the Lessee by reason of anyone or more payment or acts of performance
in compliance with the obligations of the Guarantor hereunder; and (c) subordinates
any liability or indebtedness of the Lessee now or hereafter held by the
Guarantor to the obligations of the Lessee to the Lessor under the Lease.

 

6.                                       This guaranty extends to any successor, assignee
or Lessee of Lessee, to any extensions or renewals of the Lease, and any term
established by reason of the holdover of Lessee or any assignee of Lessee.

 

7.                                       This guaranty is binding upon Guarantor. its
legal representatives and assigns and is binding upon and shall inure to the
benefit of Lessor, its successors and assigns. No assignment or delegation by
Guarantor shall release Guarantor of its obligations under this guaranty. The
term “Lessee” used in this guaranty includes also the first and any successive
assignee or Lessee of Lessee.

 

8.                                       This instrument may not be changed, modified,
discharged or terminated orally or in any manner other than by an agreement in
writing signed by the Guarantor and the Lessor.

 

9.                                       This guaranty and the rights and obligations
of the Lessee and of the Guarantor shall be governed and construed in
accordance with the laws of the State of Texas, and it is further agreed that
this contract is performable in Montgomery County, Texas, and the Guarantor
waives the right to be sued elsewhere.

 

Guarantor has signed this
guaranty on the date stated above.

 

 

	
   

  	
  /s/
  DOUGLAS R. KERN

  
	
   

  	
  DOUGLAS R. KERN

  

 

33

 

EXHIBIT “E”

 

EXCLUSIONS FROM OPERATING
EXPENSES

 

Notwithstanding anything in
the Lease to the contrary, Lessor and Lessee agree that the following items
shall be excluded from Operating Expenses:

 

1.     Capital expenditures in accordance with generally accepted accounting
principles except that Operating Expenses shall include the costs (amortized
over such period as Landlord shall determine, together with interest thereon at
the Prime Rate adjusted daily on the unamortized balance thereof) of any
capital improvement:

 

a.             which acts in any manner to reduce Operating
Expenses;

 

b.             which is required under any governmental law,
code or regulation passed or enacted on or after the effective date of this
Lease;

 

c.             which is a replacement (as opposed to
additions or new improvements) of items located in the common areas adjacent to
the Building, the parking area and other facilities used in connection with the
Building, or involving the exterior of the  Building, including, but not limited to the
roof and structural elements.

 

Prime
Rate, as used herein, shall mean the varying per annum rate of interest which
shall from day to day be equal to the per annum rate of interest then most
recently established and announced by Chase Bank of Texas, N.A. as its prime
lending rate of interest, with each such change in such per annum rate of
interest to become effective on the effective date of each such change.

 

2.             Costs of correcting defects in the Building,
the common areas adjacent thereto and the  parking area and other facilities used in
connection therewith, or the equipment used  therein and the replacement of defective
equipment to the extent such costs are covered  by warranties of manufacturers, suppliers, or
contractors, or are otherwise borne by  parties other than Lessor, except that
conditions resulting from ordinary wear and tear  will not be deemed defects for the purpose of
this category.

 

3.             Costs of bringing the Building, the common
areas adjacent thereto and the parking area and other facilities used in
connection therewith into compliance with building codes, laws, rules,
regulations, ordinances, or any other governmental rules or requirements,

 

34

 

including,
without limitation, the Americans With Disabilities Act of 1990, which
compliance was required prior to the effective date of this Lease.

 

4.             Costs of repairs or other work occasioned by
fire, windstorm, or other casualty of an insurable nature, whether or not
Lessor carries such insurance, and costs reimbursable to Lessor by governmental
authorities in eminent domain or condemnation proceedings, except that the
amount of any insurance deductible up to the amount of $25,000.00 shall be
included in Operating Expenses.

 

5.             Any expenses or costs that, under generally
accepted accounting principles attributable to losses due to uncollected rent
or fees or reserves for bad debts.

 

6.             Any expenses that are or should be separately
metered or billed directly to or separately paidby another lessee or other
third party.

 

7.             Costs of preparation of space, including
buildout, renovating, or otherwise improving, changing, decorating, or
redecorating space, for new lessees, prospective lessees, or other occupants in
the Building, or vacant space in the Building except for routine, periodic
repair, and replacement not considered to be capital items under generally
accepted accounting principles.

 

8.             Costs incurred in removing the property or
improvements of former lessees or other  occupants of the Building.

 

9.             Architectural fees, leasing commissions,
attorneys’ fees, costs and disbursements, and ther expenses incurred in
connection with negotiations or disputes with lessees, prospective lessees, or
other occupants of the Building and any such expenses incurred in connection
with this Lease.

 

10.           Specific costs incurred for third parties
(including other lessees), including without limitation, above Building
standard electrical and/or janitorial services, and other services above
Building standard.

 

11.           All utility costs for which Lessee directly
contracts with local utility companies.

 

12.           Costs incurred due to acts of Lessor, any
other lessee, or other occupant of the Building causing an increase in the rate
of insurance on the Building or its contents.

 

13.           Costs, fines, interest penalties, attorneys’
fees, and costs of litigation incurred due to late payment of taxes (except for
penalties associated with Lessor’s good faith contest of real estate taxes),
utility bills, ground rentals, or mortgage debt, and other such costs incurred by
Lessor’s failure to make such payments when due.

 

35

 

14.           Penalties, fines, and other costs incurred
due to violations or alleged violations by Lessor, any other lessee, or any
third party of any laws, rules, regulations, codes, or ordinances. It is
understood and agreed that Operating Expenses shall include costs to comply
with laws, rules, regulations passed or enacted by the governmental authority
on or after the effective date of this Lease.

 

15.           Costs incurred due to violations or alleged
violations by Lessor, any other lessee, or other occupant of the Building of
the terms and conditions of any lease or other rental arrangement covering
space in the Building.

 

16.           Wages, salaries, and other compensation of
any kind or nature paid to any executive employees above the grade of director
of property management (manager) and any related overhead, administrative and
general office expense other than the management fee specifically provided for
in the Lease.

 

17.           Costs incurred in the operation of any
concession serving the Building, including, without limitation, parking
facilities.

 

18.           Compensation paid to clerks, attendants, and
other persons in any concessions operated  by Lessor.

 

19.           Ground rentals, payment of principal and
interest on debt (and other debt costs), amortization
payments on any mortgage or mortgages executed by Lessor covering the   Building or the Land (or any portion thereof) (except to the extent
that any of the foregoing may include payments or prepayments of insurance
premiums or taxes that would be included in Operating Expenses if paid directly
by Lessor), rental concessions, and negative cash flow guarantees.

 

20.           Costs incurred in connection with the sale,
refinancing, mortgaging, or selling, or change   of ownership
of the Building or the Land, including, without limitation, brokerage commissions,
attorneys’ and accountants’ fees, loan brokerage fees, closing costs, interest
charges and property transfer taxes.

 

21.           State, local, federal, personal and corporate
income taxes measured by the income of Lessor from all sources or from sources
other than rent alone; estate and inheritance taxes; franchise, succession and
transfer taxes.

 

22.           All costs incurred by Lessor in connection
with any dispute relating to the Lessor’s title to or ownership of the Building
or the Land.

 

23.           Advertising and promotional expenditures.

 

36

 

24.           Costs and expenses in excess of $10,000.00 in
the aggregate for owning, leasing, and maintaining sculpture, painting, and
other works of art installed in and/or on the Building or the Land.

 

25.           Contributions to charitable organizations.

 

26.           Expenses and costs relating in any way
whatsoever to the identification, testing,  monitoring
and control, encapsulation, removal, replacement, repair, or abatement of any hazardous
materials within the Building of the Land (a) which material was
classified as Ahazardous@ prior to the effective date of this Lease and (b) was
required to be removed, replaced, repaired or abated prior to the effective
date of this Lease.

 

37

 

FIRST
AMENDMENT TO LEASE AGREEMENT

 

This FIRST
AMENDMENT TO LEASE AGREEMENT (this “First Amendment”) is executed to be
effective as of the 12th day of November, 2007 (the “First Amendment Effective Date”),
by and between all those entities set forth on Exhibit “A”
attached hereto and hereby incorporated herein for all purposes, each a
Delaware limited liability company, as lessor (collectively, “Lessor”), successor
from the original lessor, Woodlands VTO 2000 Land, L.P., a Texas limited
partnership (“Original
Lessor”), by an assignment or series of successive assignments,
and,VGX PHARMACEUTICALS, INC. a
Delaware corporation, as lessee (“Lessee”), successor from the original lessee,
Applied Veterinary Systems, Inc., a Delaware corporation (“Original Lessee”), by
an assignment or series of successive assignments.

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, Original
Lessor and Original Lessee executed that certain Lease Agreement dated as of August 20,
2001 (as amended, the “Lease”),
pursuant to which Original Lessor leased to Original Lessee that approximately
13,185 net rentable square feet of floor space in a building known and referred
to as Venture Technology Center XI Building, located at 2700 Research Forest
Drive, The Woodlands, Montgomery County, Texas (as more particularly described
in the Lease, the “Premises”),
the term of which Lease commenced on October 1, 2001;

 

WHEREAS, Lessor
succeeded to the interests of Original Lessor under the Lease by virtue of
transfer (or a series of transfers) of the Premises ending with Lessor and an
assignment (or series of assignments) of the lessor’s interest in the Lease
ending with Lessor;

 

WHEREAS, Lessee
succeeded to the interests of Original Lessee under the Lease by virtue of
transfer (or a series of transfers) of the Premises ending with Lessee and an
assignment (or series of assignments) of the lessee’s interest in the Lease
ending with Lessee;

 

WHEREAS, Lessor and
Lessee desire to amend the Lease to:  (i) extend
the term of the Lease; (ii) provide for Lessee’s construction of certain “Modifications”
(as herein defined) to the improvements located on the land; (iii) amend
the rent due under the Lease; and (iv) make certain other modifications to
the Lease as stated herein;

 

NOW, THEREFORE, for
and in consideration of the sum of TEN DOLLARS ($10.00), the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee
hereby agree as follows:

 

38

 

1.             Defined
Terms.  Reference is
hereby made to the Lease.  Each
capitalized term used herein and not otherwise defined herein shall have the
meaning ascribed to it in the Lease.  The
provisions in this First Amendment shall control over any conflicting
provisions in the Lease.

 

2.             Extension
of Term.  The term of the
Lease is extended to a date that is ten (10) years from November 1,
2007 (the “Extension
Commencement Date”) (even though a portion thereof overlaps the
existing term, this 10-year period is herein called the “Extended Term”).

 

3.             Use.  Commencing on the First Amendment Effective
Date, Section 4 of the Lease shall be and hereby is amended, superseded
and replaced, to read in its entirety as follows:

 

“4.           Use.        Lessee shall use the entire Premises solely for
pharmaceutical manufacturing, standard research laboratory, general office and
for such other purposes as are incidental or related thereto.  Lessee may maintain (for use by Lessee and
its employees and incidental use by their invitees and visitors) in the
Premises employee lunch rooms, employee coffee bars, research library, kitchens
for the foregoing, printing and copying facilities, storage, telecommunications
and data rooms, and any other facility or equipment utilized in the normal
conduct of Lessee’s business and not inconsistent with the primary use of the
Premises as a business office.”

 

4.             Adjustments
to Base Rent.  Until the
Extension Commencement Date, Lessee will continue to pay Base Rent (per Section 7
of the Lease) in the amount of $15,382.50 per month.  Notwithstanding anything in the Lease to the
contrary, the Lease is hereby amended to provide that the Base Rent amount due
from Lessee to Lessor during the remainder of the initial Term of the Lease
following the Extension Commencement Date and during the Extended Term shall be
as follows:

 

(a)           First twelve (12) months of the Extended
Term:  $20,326.88 per month; and

 

(b)           Next twelve (12) months of the Extended Term
(i.e., months 13-24 of the Extended Term): 
$20,601.56 per month; and

 

(c)           Next twelve (12) months of the Extended Term
(i.e., months 25-36 of the Extended Term): 
$20,876.25 per month; and

 

39

 

(d)           Next twelve (12) months of the Extended Term
(i.e., months 37-48 of the Extended Term): 
$21,150.94 per month; and

 

(e)           Next twelve (12) months of the Extended Term
(i.e., months 49-60 of the Extended Term): 
$21,425.63 per month; and

 

(f)            Next twelve (12) months of the Extended
Term (i.e., months 61-72 of the Extended Term): 
$21,700.31 per month; and

 

(g)           Next twelve (12) months of the Extended Term
(i.e., months 73-84 of the Extended Term): 
$21,975.00 per month; and

 

(h)           Next twelve (12) months of the Extended Term
(i.e., months 85-96 of the Extended Term): 
$22,249.69 per month; and

 

(i)            Next twelve (12) months of the Extended
Term (i.e., months 97-108 of the Extended Term):  $22,524.38 per month; and

 

(j)            Last twelve (12) months of the Extended
Term (i.e., months 109-120 of the Extended Term):  $22,799.06 per month.

 

5.             Adjustments
to Operating Cost Allowance. 
Commencing on the Extension Commencement Date, the first sentence of Section 8
of the Lease shall be and hereby is amended, superseded and replaced, to read
in its entirety as follows:

 

“Lessor agrees to pay all Operating Expenses
(as defined in Section 10 below) (which includes the Management Fee described in Section 10)
up to a maximum amount of the greater of actual Operating Expenses for the 2007
Fiscal Year grossed up to reflect a 95% occupancy level, or $5.93 per year for
each square foot of rentable area in the Building (“Renewal Operating Cost
Allowance”).”

 

Lessor and Lessee further agree that, in
order to implement the foregoing amendment to the Operating Cost Allowance
during the 2007 Fiscal Year, the Operating Cost Allowance for the 2007 Fiscal

 

40

 

Year shall be an amount equal to a blended
rate of $3.00 per year for each square foot of rentable area in the Building
for the first ten (10) months of the 2007 Fiscal Year and the Renewal
Operating Cost Allowance for the last two (2) months of the 2007 Fiscal
Year.

 

6.             Approved Alterations; Lessor’s Allowance.  The Lease is hereby amended to provide the
following:

 

(a)           Lessee is hereby
granted consent and approval from Lessor, as long as the work contemplated in
this section is completed within two (2) years from the Extension
Commencement Date, to make alterations or improvements to the Premises as
described on Exhibit “B”
attached hereto and incorporated herein by this reference (the “Approved Alterations”).  Construction of the Approved Alterations shall
be performed in accordance with the terms, provisions and conditions of Exhibit “B-1” attached hereto.

 

(b)           Upon completion of all
of the Approved Alterations by Lessee, Lessee shall give written notice thereof
to Lessor accompanied by documentation establishing the amount expended for the
Approved Alterations (“Verified
Expenditures”), requesting payment by Lessor of the Verified
Expenditures, which shall not to exceed ONE HUNDRED THIRTY-ONE THOUSAND, EIGHT
HUNDRED FIFTY AND NO/100 DOLLARS ($131,850.00) in the aggregate (the “Allowance”).  Lessor and Lessee acknowledge and agree that
the Verified Expenditures may include costs related to architectural and
engineering fees related to the Approved Alterations and costs related to
moving operations and personnel to the Premises.  Lessee shall submit a single draw request for
all completed work on an AIA request for payment appropriately signed,
accompanied by lien waivers for all completed work.  Lessee may not draw from the Allowance more
than once.  Lessor may audit Lessee’s
books, records and receipts should it desire to do so, at any time upon
reasonable notice to Lessee, to further verify and confirm the Verified
Expenditures made the subject of the draw. 
Within twenty (20) days from the date of the request, as long as Lessee
is not in material default of the Lease, Lessor will pay Lessee a cash sum
equal to the lesser of the Verified Expenditures made the subject of the draw
or the Allowance (the “Required
Payment”).

 

(c)           Notwithstanding
anything in the Lease to the contrary, Lessor shall in no way be responsible
for (i) correction or repair of any defect in construction or design of
the Approved Alterations (the same to be Lessee’s affirmative responsibility as
an additional repair obligation of Lessee under the Lease), or (ii) any
consequence to Lessee as a result of any defective design or construction of
the Approved Alterations, including damage to Lessee property, loss of use of
the Premises or interruption or loss of business activity of Lessee, and Lessee
hereby releases Lessor from, and agrees to indemnify Lessor against, any
claims, actions, losses, suits, costs and expenses arising out of any defective
design or

 

41

 

construction
of the Additional Alterations made by Lessee or Lessee’s contractors,
subcontractors, employees or agents.

 

7.             Lessor’s
Limited HVAC Warranty. 
Lessor agrees to make, at its expense, any necessary repair to or
replacement of the current roof-top HVAC units serving the Premises for a
period of one year after the First Amendment Effective Date.  Lessee agrees to give Lessor written notice
of need for repairs to the roof-top HVAC units during the one-year repair
warranty period.  Lessor shall not be in
default of the Lease or otherwise liable in any way to Lessee or any third
party by reason of the foregoing roof-top HVAC units being or becoming out of
repair until Lessor has been notified in writing by Lessee of the necessity of
repair by Lessee and has had reasonable opportunity to repair the same.  Notwithstanding the above, Lessor agrees to
make any necessary repairs or replacements as soon as commercially
reasonable.  After the expiration of the
one (1) year warranty period, Lessee will be responsible for any and all
maintenance costs and repair costs related to the HVAC system.

 

8.             Subordination.  Commencing on the First Amendment Effective
Date, the second paragraph of Section 21 of the Lease shall be and hereby
is amended, superseded and replaced, to read in its entirety as follows:

 

“Lessor agrees to use
reasonable efforts to secure and deliver to Lessee a commercially reasonable
non-disturbance agreement from and executed by Lessor’s mortgagee (“Mortgagee”), for the
benefit of Lessee whereby, as a condition to any attornment or subordination by
Lessee to Lessor’s mortgagee, Lessee shall not be disturbed in its possession
of the Premises or its rights under the Lease so long as Lessee is not in
default under the Lease.  Lessee
acknowledges and agrees that a form of non-disturbance agreement (an “SNDA Agreement”),
acceptable to Lessee is attached hereto as Attachment
I; provided, however, that Lessee acknowledges and agrees that
any future SNDA Agreement may contain, among other terms and conditions (a) any
provision (or the substantial equivalent thereof) contained in any previous
SNDA Agreement executed by Lessee (or any predecessor lessee hereunder), (b) a
provision requiring that notices of Lessor default be given to the Mortgagee
and the Mortgagee allowed a reasonable time in addition to Lessor’s cure period
hereunder to cure such default before Lessee shall be entitled to take its
remedies hereunder or by law, (c) a provision stating that the terms of
the Mortgagee’s mortgage govern over any conflicting provision of this Lease
pertaining to the Mortgagee’s obligation to make insurance or condemnation
proceeds available for reconstruction of any part of the Premises, (d) provisions
by which such Mortgagee or successor-in-interest upon foreclosure is agreed not
to be bound by (excepting those provisions of a continual nature with respect
to the maintenance or repairs of the Property and Premises to the extent first
arising after the date such Mortgagee or successor-in-interest obtains title to
the Premises) (i) any payment of rent or additional rent for more than one
(1) month in advance, including prepayment in the nature of

 

42

 

security for the performance by Lessee of its
obligations under this Lease (unless actually received by such successor in
interest), (ii) any amendment or modification of this Lease (or implied
waiver of Lessee’s obligations) made without the written consent of such
trustee or such beneficiary or such successor in interest, (iii) any
representations or defaults by any prior Lessor, and (iv) any other
commercially reasonable matters that such Mortgagee is not directly responsible
for causing, as such Mortgagee may specify, and/or (e) such other
provisions and protections as such Mortgagee may request that are reasonably
customary in the commercial mortgage lending community at the time.”

 

9.             Assignment by Lessee.  Commencing on the First Amendment
Effective Date, Section 33 of the Lease shall be and hereby is amended,
superseded and replaced, to read in its entirety as follows:

 

“33.         Assignment by Lessee.  Lessee shall not, without Lessor’s prior
written consent in each instance, such consent shall not unreasonably withheld,
conditioned or delayed, convey, assign or encumber this Lease or any interest
herein, directly or indirectly, voluntarily or by operation of law, including
the merger or conversion of Lessee with or into another entity, or sublet all
or any portion of the Premises, or permit the use or occupancy of any part of
the Premises by anyone other than Lessee (collectively, “Transfer”).  Except as otherwise hereinafter set forth, if
Lessee is other than an individual, any change in “control” of Lessee shall
constitute a Transfer, and the surviving party in control shall be the
Transferee.  “Control” means the direct
or indirect power to direct or cause direction of the management and policies
of an entity, whether through ownership of voting securities, by contract or
otherwise.  Conversely, Lessee shall not
sublease space from, or assume the lease obligations of, another lessee in the
Project without Lessor’s prior written consent, such consent shall not be
unreasonably withheld, conditioned or delayed. 
Following any Transfer, Lessee (and any guarantors) shall remain fully
liable under this Lease, as then or thereafter amended with or without notice
to or consent of Lessee (or any guarantors), and Lessor may proceed directly
under this Lease against Lessee (or any guarantor) without first proceeding
against any other party.  Lessee shall
give Lessor written notice of any proposed Transfer at least 15 days prior to
the anticipated effective date of the proposed Transfer, which notice shall
include a complete detailed written description of the Transfer, the name,
address, business and intended use of the Transferee; a current audited
financial statement for the Transferee certified by a recognized accounting
firm; a copy of the proposed Transfer document; appropriate evidence of the
existence, good standing and signature authority of the Transferee in the state
that the Land is located in; and such other pertinent information as Lessor
reasonably requests, together with Lessor’s then-quoted Transfer processing fee
as stipulated under the last paragraph of this section.  If the proposed Transferee is subject to any
new requirements under applicable law (including the Americans with
Disabilities Act of 1990) affecting the Premises, (i) Lessee shall be
liable for any costs or expenses to comply with such requirements, and (ii) to
the

 

43

 

extent such requirements require alterations,
Lessee shall deliver for Lessor’s approval plans and specifications complying
with such additional requirements and acceptable security assuring timely,
lien-free completion of construction.  If
the aggregate consideration, including Base Rent, after deductions are made for
concessions, tenant improvement costs and lease commissions incurred as a
result of procuring such Transfer, paid to Lessee for a Transfer exceeds that
payable by Lessee under this Lease (prorated according to the Transferred
interest), then Lessee shall, within 15 days after receipt, pay 50% of such
excess to Lessor.

 

“Within 15 days after receipt
of all required Transfer information, Lessor shall give Lessee written notice
of its election (i) to consent to the Transfer; or (ii) to terminate
this Lease as of the effective date of the Transfer as to the space covered by
such Transfer for the remainder of the Term, in which event Lessee shall be
relieved of its obligations accruing after the termination date with respect to
the terminated interest (provided, however, that Lessee shall have the right,
for a period of 5 days following the giving by Lessor of its decision to
terminate this Lease to rescind its request for consent to a Transfer); or (iii) not
to consent to the Transfer, in which event this Lease shall continue in full
force and effect.  If Lessor fails to
timely make such election, Lessor shall be deemed to have elected option (iii) above.  Any Transfer occurring without Lessor’s
consent, which shall not be unreasonably withheld, conditioned or delayed,
shall be void and shall constitute a Default hereunder.  In any event, all renewal and expansion
options and other preferential rights under this Lease are personal to the
original Lessee under this Lease and shall not be exercisable by any Transferee
unless such conveyance is approved and consented to by Lessor in its sole and
absolute discretion.  Neither Lessor’s
acceptance of any name for listing on the Building directory or other signage,
nor Lessor’s acceptance of rent from any Transferee, shall be deemed, or
substituted for, Lessor’s consent to a Transfer.

 

“Lessor agrees not to
unreasonably withhold, delay or condition its consent to any assignment of this
Lease or sublease of the entirety of the Premises, provided that the proposed
Transferee is (A) creditworthy defined as having a comparable net worth to
that of Lessee as of the Extension Commencement Date, (B) an entity of
good standing in its particular state of incorporation, (C) will use the
Premises for only the use permitted in Section 4 of this Lease, and (D) not
then an occupant of the Building or a person or entity with whom Lessor is then
negotiating to lease space in the Building for which Lessor has reasonably
comparable space available in the Building to accommodate such proposed
Transferee’s space needs.  Additionally,
notwithstanding anything to the contrary or apparent set forth in this Lease, (Y) a
transfer of “control” of Lessee occurring as a result of a merger of Lessee
into another entity shall not constitute a Transfer requiring Lessor’s consent
so long as, within a period of thirty (30) days following such merger, Lessee
(or the surviving entity) provides Lessor with written notice of such merger
accompanied by a copy of the merger documents filed with the Secretary of State
of the State of Delaware if applicable, and (Z) any Transfer to any entity
which controls, is

 

44

 

controlled by, or is under common control
with, Lessee shall not constitute a Transfer requiring Lessor’s consent so long
as, within a period of thirty (30) days following such Transfer, Lessee (or the
Transferee) provides Lessor with written notice of such Transfer accompanied by
a copy of all documents effecting such Transfer.

 

“Notwithstanding anything
contained herein to the contrary, Lessor shall not be obligated to entertain or
consider any request of Lessee to consent to any proposed assignment of this
Lease or sublease of all or any part of the Premises unless each request by
Lessee is accompanied by a nonrefundable fee payable to Lessor in the amount of
$500.00 to cover Lessor’s administrative, legal, and other costs and expenses
incurred in processing each of Lessee’s requests.  Neither Lessee’s payment nor Lessor’s
acceptance of the foregoing fee shall be construed to impose any obligation
whatsoever upon Lessor to consent to Lessee’s request.”

 

10.           Notices.  Commencing on the First Amendment Effective
Date, Section 35 of the Lease shall be and hereby is amended, superseded
and replaced, to read in its entirety as follows:

 

“35.         Notices.  Any notice required or permitted to be given
pursuant to the terms of this Lease shall be sent by certified or registered
U.S. mail return receipt requested, hand delivery or nationally recognized
overnight courier, if to Lessor, at 4545 Post Oak Place, Suite 200,
Houston, Texas 77027, Attn:  Property
Management, with a copy to Boyar & Miller, 4265 San Felipe, Suite 1200,
Houston, Texas 77027, Attn:  Timothy J.
Heinrich, and if to Lessee, at 2700 Research Forest Dr., Suite 180, The
Woodlands, Texas 77381, Attn: Gene Kim, with a copy to PalermoBarr, Commercial
Real Estate Advisors, 10200 Grogan’s Mill Road, Suite 550, The Woodlands,
Texas  77380, Attn: Damon Palermo.  The place to which such notices shall be sent
may be changed by either party giving notice of such change to the other party
in the manner hereinabove provided, and such address changes shall be effective
within five (5) days of receipt of such notice.  A notice shall be deemed given and received (i) if
by certified or registered mail, on the 3rd business day following deposit in
the U.S. Mail; (ii) if by hand delivery, upon tender of delivery; and (iii) if
by overnight courier, the first (1st) business day following deposit.”

 

11.           Relocation.  Commencing on the First Amendment Effective
Date, Section 49 of the Lease shall be and hereby is omitted and deleted
in its entirety.

 

45

 

12.                                 Renewal Option. 
Lessee shall have an option to renew the term of the Lease in accordance
with the terms and conditions set forth in Exhibit “C”
attached hereto and made a part hereof for all purposes.

 

13.                                 Preferential Lease Right. Lessee shall have the preferential right to
lease certain space in the Building in accordance with the terms and conditions
set forth in Exhibit “D”
attached hereto and made a part hereof for all purposes.

 

14.                                 Early Termination Right. 
Lessee shall have the option to terminate the Lease, but only in strict
accordance with the terms and conditions set forth in Exhibit “E” attached hereto and
made a part hereof for all purposes.

 

15.                                 Estoppel Certifications. 
Lessee hereby acknowledges and certifies to Lessor that:  (a) as of the First Amendment Effective
Date, Lessor is not in default under the Lease and Lessor has fully performed
all of its obligations and responsibilities under the Lease, and Lessor is not
in default of the Lease; (b) there is no existing sublease of the Premises
or any part thereof and Lessee has not assigned the Lease or any right or
interest therein, either directly or indirectly; (c) Lessee has received
no notice and has no knowledge of any violation of any law, ordinance or
regulation pertaining to the Premises; (d) Lessee has paid in full for any
labor and materials provided to improve, alter, repair or modify the Premises,
and no right of lien has been claimed or asserted against Lessee or the
Premises in regard to any such work authorized by Lessee; (e) the Lease is
not amended, either orally or in writing or by course of conduct or otherwise; (f) Lessee
has expended no monies for which it claims any right of offset or abatement
under the Lease; and (g) Lessee’s current sole address for notice and/or billing
under the Lease is:  2700 Research Forest
Dr., Suite 180, The Woodlands, Texas 77381, Attn: Gene Kim, with a copy
notice to Palermo Barr, Commercial Real Estate Advisors, 10200 Grogan’s Mill
Road, Suite 550, The Woodlands, Texas 
77380, Attn: Damon Palermo.  But
for these acknowledgements and certifications of Lessee, Lessor would not enter
into this First Amendment.

 

16.                                 Amendments.  This
First Amendment sets forth the entire understanding of Lessor and Lessee in
connection with amending the Lease.  Except as otherwise expressly amended herein,
the Lease remains in full force and effect in accordance with its terms.

 

17.                                 Binding Agreement.  This
First Amendment shall be binding upon, and shall inure to the benefit of, the
parties hereto and their respective legal representatives, successors and
permitted assigns.  This First Amendment
is not binding until executed and delivered by Lessor and Lessee.

 

46

 

18.                                 Severability.  If
any provision of this First Amendment, or the application thereof to any person
or circumstance, shall, for any reason and to any extent, be invalid or
unenforceable, the remainder of this First Amendment and the application of
such provision to other persons or circumstances shall not be affected thereby
but rather shall be enforced to the greatest extent permitted by applicable
law.

 

19.                                 Counterparts.  This
First Amendment may be executed in multiple counterparts, each of which shall
constitute an original, but all of which shall constitute one and the same
agreement.  Execution and delivery of
this First Amendment by facsimile transmission is binding the same as if
original signed copies had been exchanged by the parties hereto.

 

20.                                 Brokers. 
Lessee and Lessor each hereby represents to the other that it has not
been represented by, has not engaged, and has not involved in this transaction
any broker, agent or other commissionable party in connection with or relating
to the transaction described in this First Amendment, except Palermo REI, LP
d/b/a PalermoBarr, Commercial Real Estate Advisors (“Lessee’s Broker”),
and except involvement of Lessor’s broker, for which Lessor is solely
responsible.   Within ten (10) days
after the Extension Commencement Date and provided that Lessee is not then in
default under the Lease, but only if such conditions are satisfied, Lessor
agrees to pay Lessee’s Broker an amount equal to four percent (4%) of the
aggregate Base Rent to be paid by Lessee to Lessor during the Extension
Term.  Lessee and Lessor each agrees to
indemnify, defend and hold harmless the other party from and against any and
all claims, suits, actions, proceedings, judgments, liabilities, losses,
expenses and costs, including without limitation, costs of court, litigation
expense, and reasonable attorney’s fees, resulting from or arising out of any
breach of its foregoing representation, or by any claim by any broker asserting
a claim contrary to its above representation (or, in the case of the indemnity
by Lessor, any claims by the broker it has engaged, if any, and any claim by
Lessee’s Broker for the commission Lessor has agrees to pay as set forth above
when the same is in fact due and payable).

 

21.                                 Amendment Not Binding on
Lessor UNLESS Executed and Delivered by Lessor. 
Nothing in this First Amendment constitutes an offer or agreement of
Lessor unless and until Lessor has executed this First Amendment and returned
one (1) fully executed original to Lessee after it has been signed and
delivered by Lessee.  Lessee shall not
rely on the drafting of this First Amendment by Lessor (or Lessor’s request for
Lessee to execute and submit the same to Lessor) as constituting an agreement
to allow modification of the Lease, and until the execution and return of this
First Amendment by Lessor to Lessee, Lessee shall be responsible and liable for
performance of the Lease without regard to the proposed terms of this First
Amendment.  Lessee acknowledges that
Lessor has not made any verbal agreements with or given any verbal assurance to
Lessee, of any nature or kind, with regard to Lessor’s willingness to enter
into this First Amendment, and it has not relied on any such anticipated
signature of Lessor hereon.

 

47

 

22.                                 Guaranty. 
Lessor and Lessee hereby acknowledge and agree that the Guaranty of
Lease, dated August 20, 2001, between CREEKSTONE
WOODLANDS, LLC,  a Texas
limited liability company, as Lessor, successor from the original lessor,
Woodlands VTO 2000 Land, L.P., a Texas limited partnership, by an assignment or
series of successive assignments, and DOUGLAS
R. KERN, an individual, no longer applies and is hereby deleted in
its entirety.

 

[SIGNATURES BEGIN ON
FOLLOWING PAGE]

 

48

 

IN WITNESS WHEREOF, the parties hereto have duly executed this First Amendment on the
date across from their respective signatures, below, to be effective as of the
First Amendment Effective Date.

 

 

	
   

  	
   

  	
   

  	
  LESSOR:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  11/12, 2007

  	
   

  	
  /s/
  Michael F. Preston

  
	
   

  	
   

  	
   

  	
  MICHAEL
  F. PRESTON,
  President of

  
	
   

  	
   

  	
   

  	
  Creekstone Management GP,
  L.L.C., a

  
	
   

  	
   

  	
   

  	
  Delaware limited liability
  company, general

  
	
   

  	
   

  	
   

  	
  partner of Creekstone
  Management, L.P.,

  
	
   

  	
   

  	
   

  	
  a Texas limited
  partnership,

  
	
   

  	
   

  	
   

  	
  acting solely in its
  capacity as

  
	
   

  	
   

  	
   

  	
  attorney-in-fact of Lessor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Acknowledged and agreed:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  CREEKSTONE
  WOODLANDS, LLC, a

  Delaware limited liability company

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  Creekstone Woodlands
  Holdings, LLC,

  
	
   

  	
   

  	
   

  	
   

  	
  a Delaware limited
  liability company,

  
	
   

  	
   

  	
   

  	
   

  	
  its managing member

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  11/12, 2007

  	
   

  	
   

  	
  By:

  	
  /s/
  Michael F. Preston

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  MICHAEL F. PRESTON

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  President

  

 

49

 

	
   

  	
   

  	
   

  	
  LESSEE:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  VGX
  PHARMACEUTICALS, INC.,
  a Delaware

  corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  10/26, 2007

  	
   

  	
  By:

  	
  /s/ J. J. Kim

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  J. J. Kim

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President& CEO

  

 

50

 

EXHIBIT “A”

 

TENANTS-IN-COMMON

 

Creekstone Woodlands, LLC

 

Creekstone Woodlands 1, LLC

 

Creekstone Woodlands 2, LLC

 

Creekstone Woodlands 5, LLC

 

Creekstone Woodlands 6, LLC

 

A-1

 

EXHIBIT “B”

 

APPROVED
ALTERATIONS

 

B-1

 

EXHIBIT “B-1”

 

CONSTRUCTION
OF APPROVED ALTERATIONS

 

1.                                       [Intentionally Deleted.]

 

2.                                       [Intentionally Deleted.]

 

3.                                       Approval of Plans.  All
plans, drawings, and specifications for the Approved Alterations (“Plans”) must
be submitted, prior to commencement of construction of the Approved Alterations,
to Lessor for its prior, written approval, which approval shall not be
unreasonably withheld, conditioned or delayed. 
The Plans must be prepared by an architect licensed to practice in the
State of Texas and selected by Lessee, subject to Lessor’s reasonable
approval.  Lessee’s architect must
represent and warrant that the designs for the Approved Alterations embodied in
the Plans submitted to Lessor on behalf of Lessee shall comply with all
applicable building and life safety laws, rules, regulations and codes
including, but not limited to, the Americans with Disabilities Act, the Texas
Elimination of Architectural Barriers Act, and all City of Houston building
codes as adopted and modified by the Committee described in numbered paragraph
13 below.  The Plans also must be
provided as electronic files in .dwg, .dxf or other Autodesk Auto CAD
compatible format.  Lessor shall not be
liable for damages resulting from its approval or disapproval of the Plans or
any action taken by Lessee.  If Lessor
fails to respond to Lessee’s request for approval within five (5) business
days following Lessee’s submittal of all plans, drawings, specifications and
other information requested to Lessor, then such request for approval shall be
deemed approved.

 

Due
to the age of construction of the existing improvements, no current asbestos
survey is required.  However, Lessor
shall supply Lessee summary pages from the third party Phase I report
Lessor received during Lessor’s due diligence prior to the Extension Commencement
Date.

 

4                                          Contractor.  Lessee shall bid the
Lessor-approved construction documents to not less than three (3) general
contractors mutually acceptable to Lessor and Lessee.  Lessee shall choose the general contractor,
with Lessor’s consent, which consent shall not be unreasonably withheld,
delayed or

 

1

 

conditioned,
to construct the Approved Alterations and Lessee shall promptly enter into a
construction agreement with the chosen general contractor.  Upon its execution, Lessee shall provide to
Lessor a copy of the contract for construction with the approved
contractor.  Lessor shall have no
liability for review or failure to review such contract.

 

5.                                       Lessor’s Liability. 
Lessee acknowledges that Lessor is not an architect or engineer.  Accordingly, Lessor does not guaranty or
warrant that the approved Plans will comply with all applicable laws, be free
from errors or omissions, or result in construction of a safe place of
habitation, nor that the Approved Alterations will be free from defects or
unsafe conditions and Lessor will have no liability therefor.

 

6.                                       Electrical Service. 
[Intentionally Deleted.]

 

7.                                       Insurance.  Prior to the commencement of
construction of the Approved Alterations, Lessee shall cause the contractor to
provide to Lessor a certificate of insurance evidencing that the contractor has
obtained the following insurance:

 

(a)                                  Workers Compensation Insurance in accordance
with the laws of the State of Texas and Employers Liability Insurance with
minimum limits of not less than the following:

 

	
  Each Accident

  	
   

  	
  $

  	
  1,000,000

  
	
   

  	
   

  	
   

  
	
  Disease Policy Limit

  	
   

  	
  $

  	
  1,000,000

  
	
   

  	
   

  	
   

  
	
  Disease Each
  Employee

  	
   

  	
  $

  	
  250,000

  

 

(b)                                 Comprehensive General Liability

 

Combined
single limit bodily injury and property damage

 

	
  - each occurrence

  	
   

  	
  $

  	
  1,000,000

  
	
   

  	
   

  	
   

  	
   

  
	
  -aggregate

  	
   

  	
  $

  	
  1,000,000

  

 

2

 

Such
insurance shall include the following:

 

(i)                                     Premises – Operations

 

(ii)                                  Contractor’s Protective Liability, covering
all work sublet.

 

(iii)                               Completed Operations and Products Liability
coverage, which shall be maintained for a minimum period of three years after
final payment and Contractor shall continue to provide evidence of such
coverage to Owner on an annual basis during such period.

 

(iv)                              Broad Form Property Damage

 

(v)                                 Property Damage Liability Insurance, which
shall include coverage for Collapse and Underground.

 

(vi)                              Contractual Liability (Hold Harmless
Coverage)

 

(vii)                           Personal Injury (with Employment Exclusion
deleted, if applicable)

 

	
  -aggregate

  	
   

  	
  $

  	
  1,000,000

  

 

(c)                                  Comprehensive Automobile Liability Insurance,
with limits of liability of not less than the following:

 

Combined
single limit bodily injury and property damage

 

	
  -each
  occurrence

  	
   

  	
  $

  	
  1,000,000

  

 

Such
coverage shall include owned, hired and non-owned vehicles.

 

(d)                                 Umbrella Liability Insurance in an amount of
not less than $2,000,000 providing limits of liability in excess of limits
provided in (a), (b) and (c) above.

 

3

 

(e)           Builder’s Risk insurance for the complete
replacement of the Approved Alterations.

 

All insurance policies arranged by the
contractor shall contain a clause waiving any right of subrogation against
Lessor.  All insurance policies, except
the policy listed in 7(a) above, shall name Lessor as an additional
insured.

 

8.             Completion of Construction.  Lessee shall cause the contractor to
diligently pursue, until completion, the construction of the Approved
Alterations in accordance with the plans, drawings, and specifications approved
by Lessor.  Within seventy-five (75) days
following substantial completion of the Approved Alterations, Lessee shall
provide to Lessor the following items:

 

(1)           a
complete architectural and engineered set of documents describing the scope of
work;

 

(2)           an
affidavit that payroll, bills for materials and equipment, and other
indebtedness connected with the construction of the Approved Alterations have
been paid or otherwise satisfied;

 

(3)           properly
executed releases and affidavits of payment establishing payment of the Lessee’s
contractor’s obligations related to the construction of the Approved
Alterations;

 

(4)           a
complete list of all materialmen, suppliers, and subcontractors supplying
materials or work costing in excess of $5,000, including addresses, telephone
numbers, and names of individuals to contact who are familiar with the portion
of the construction of the Approved Alterations accomplished by such entity;

 

(5)           if
applicable, proof of approval from the Texas Department of Licensing and
Regulation of the plans and specifications for the Approved Alterations; and

 

B-4

 

(6)           a
warranty book and any other customary and reasonable information that is
requested by the Lessor.

 

9.             Performance Standards.  Lessee shall require that the contractor
perform all labor in a workmanlike manner, in strict compliance with the Lease,
including this Exhibit “B-1”,
all applicable Federal, state, local and agency laws, ordinances, and
regulations, and according to the standard industry practice.  Lessor shall have the right to supervise all “base
building” and other construction related activities affecting the plumbing and
structural systems of the building.  Due
to the laboratory nature of the Approved Alterations, Lessee shall have the
right to “self-perform” any design and renovation construction work once the
plans for such work are approved by Lessor (such approval shall not be
unreasonably withheld, delayed or denied). 
Lessee shall not use any materials containing asbestos or hazardous
substances unless these substances are incorporated within construction
materials approved for such use by the Environmental Protection Agency.

 

10.           Trash.  Lessee shall require that the contractor
clean the job site and deposit all accumulated trash and debris on a daily
basis in the designated construction dumpster(s).  The contractor shall supply its own trash
receptacles and Lessor’s facilities shall not be for this purpose.

 

11.           Warranties.  Lessee shall cause contractor to warrant to
Lessor that materials and equipment furnished for construction of the Approved
Alterations will be of good quality and new unless otherwise required or
permitted by the Lessor, that the Approved Alterations will be free from defects
not inherent in the quality required or permitted, and that the Approved
Alterations will conform with the requirements of the plans, drawings, and
specifications approved by Lessor.

 

12.           INDEMNIFICATION.  LESSEE HEREBY AGREES TO INDEMNIFY AND HOLD LESSOR
HARMLESS FROM AND AGAINST AND TO REIMBURSE LESSOR WITH RESPECT TO ANY AND ALL
CLAIMS, DEMANDS, CAUSES OF ACTION, LOSS, DAMAGE, LIABILITIES, COSTS, AND
EXPENSES (INCLUDING ATTORNEY’S FEES AND COURT COSTS) OF ANY AND EVERY KIND OR
CHARACTER, INCLUDING, WITHOUT LIMITATION, INJURY TO OR DEATH OF ANY PERSON, OR
FOR DAMAGE TO ANY PROPERTY, KNOWN OR UNKNOWN, FIXED OR CONTINGENT, ASSERTED
AGAINST OR INCURRED BY LESSOR AT ANY TIME AND FROM TIME TO TIME BY REASON OF OR
ARISING OUT OF THE CONSTRUCTION OF THE APPROVED ALTERATIONS BY LESSEE, LESSEE’S
CONTRACTOR AND LESSEE’S SUBCONTRACTORS OR FROM LESSOR’S FAILURE TO COMPLY WITH
THE TERMS OF THIS EXHIBIT “B-1”.

 

B-5

 

Additionally, Lessee shall discharge as soon
as commercially reasonable (but in no event later than any date specified in
any mortgage indebtedness secured by the Premises), or bond or otherwise secure
against all liens and attachments which are filed in connection with the
construction of the Approved Alterations by the contractor or any materialman,
supplier, or subcontractor, and shall indemnify, protect, defend and hold
Lessor harmless from and against all claims, demands, causes of action, loss,
damage, liability, costs and expenses (including attorneys fees and court
costs) relating to such liens and attachments.

 

13.           The Woodlands Covenants and Standards.  Lessee shall cause all construction to be in
accordance with The Woodlands Covenants and the Commercial/Industrial
Development Standards (“Standards”) adopted by the Committee under authority
granted by The Woodlands Covenants, and any other applicable standards.  The Woodlands Covenants shall mean and refer
to:

 

·      the Covenants, Restrictions,
Easements, Charges and Liens of The Woodlands, which are imposed upon the Land
and recorded in the Real Property Records of Montgomery County, Texas, and
which are substantially similar in form and substance as those recorded under (i) County
Clerk File No. 9210558 of the Real Property Records of Montgomery County,
Texas (WCA); and (ii) County Clerk’s File No. 9348561 of the Real
Property Records of Montgomery County, Texas (TWA).

 

·      the Declaration of Covenants
and Restrictions of The Woodlands Commercial Owners Association which are
imposed upon the Land and recorded in the Real Property Records of Montgomery
County, Texas, and are substantially similar in form and substance as those
recorded under County Clerk’s File No. 9357930 of the Real Property
Records of Montgomery County, Texas.

 

“Committee” as used herein shall mean and
refer to the committee organized pursuant to The Woodlands Covenants for the
purpose of establishing rules, regulations, policies and procedures governing
the improvement of property in The Woodlands.

 

Approval of plans by the Committee shall not
entitle Lessee to rely thereon with respect to conformity with laws,
regulations, codes or ordinances, or with respect to the physical condition of
the Property.  Lessee hereby waives any
claims, demands, or causes of action growing out of any plan approvals by the
Committee.

 

B-6

 

14.           Approval of Improvements to the Premises.  Lessee understands that when it performs any
construction, renovation, modification or alteration on the Premises which is
expected to cost $50,000.00 or more, Lessee must (i) submit its plans and
specifications to the Texas Department of Licensing and Regulation for its
review and approval before commencing such work, (ii) provide evidence to
Lessor of such submission to and approval by this department, and (iii) indemnify,
defend and hold Lessor harmless against any liability, claim, loss, damage or
penalty (including court costs and reasonable attorneys fees and court costs)
resulting from Lessee’s failure to comply with the Texas Elimination of
Architectural Barriers, as amended from time to time, or its associated rules and
regulations.

 

B-7

 

EXHIBIT “C”

 

RENEWAL OPTIONS

 

(a)           Provided that (i) the Lease is in full force and
effect as of the date of the applicable Renewal Notice (as such term is
hereinafter defined), and (ii) Lessee shall not be in default beyond any
applicable notice and cure period under the Lease, Lessee shall have the option
to extend the Term of the Lease for two (2) additional terms of five (5) years
each (each, a “Renewal
Term”), commencing on the day after the expiration of the
initial term of this Lease or the day after the expiration of the first Renewal
Term, as applicable (each, an “Expiration Date”). 
Lessee’s option with respect to a Renewal Term shall be exercisable by
written notice (the “Renewal
Notice”), to Lessor given not more than eight (8) months
nor less than four (4) months prior to the applicable Expiration
Date.  Each Renewal Term shall constitute
an extension of the Term of the Lease and shall be upon all of the same terms
and conditions as the initial Term, except that (i) there shall be
no further option to renew the Term of the Lease after the expiration of the
second Renewal Term, (ii) Lessor shall not be required to furnish any
materials or perform any work to prepare the Premises for Lessee’s occupancy and
Lessor shall not be required to make any Allowance or reimburse Lessee for any
improvements made or to be made by Lessee, or grant Lessee any rent concession,
and (iii) the Base Rent for each Renewal Term shall be as determined
pursuant to the provisions of (b), (c) and (d), below, and shall
commence on the first day of the applicable Renewal Term.

 

(b)           The annual Base Rent for the Premises for each Renewal
Term shall be an amount equal to ninety-five percent (95%) of the Market Rental
Rate.  “Market Rental Rate” means
the effective rental rate (as of the first day of the applicable Renewal Term)
for comparable space in Class “A”, single story flex buildings in the
Research Forest area of The Woodlands, Texas that a willing lessee would pay
and a willing lessor would accept for the Premises during the applicable
Renewal Term, in arms length, bona fide negotiations, for a new lease of the
Premises, based upon other lease transactions made in the Building and other
comparable office buildings in The Woodlands submarket, taking into
consideration all relevant terms and conditions of any comparable leasing
transactions, including, without limitation: 
(i) location, quality and age of the building; (ii) use and
size of the space in question; (iii) location and/or floor level within
the building; (iv) extent of leasehold improvement allowances; (v) the
amount of any abatement of rental or other charges; parking charges or
inclusion of same in rental; (vi) lease takeovers/assumptions; (vii) club
memberships; (viii) relocation allowances; (ix) refurbishment and
repainting allowances; (x) any and all other concessions or inducements;
(xi) extent of services provided or to be provided; (xii) distinction between “gross”
and “net” lease; (xiii) base year or dollar amount for escalation purposes
(both operating costs and ad valorem/real estate taxes); (xiv) any other
adjustments (including by way of indexes) to base rental; (xv) credit standing
and financial stature of the tenant; and (xvi) length of term.  As used herein, “effective rental rate” means
the stated net base rental rate (i.e., the base rental exclusive of any “expense
stop” or “base year” operating expense amount).

 

C-1

 

(c)           If Lessee timely exercises the renewal option pursuant
to this Exhibit “C”,
Lessor shall notify Lessee (the “Rent Notice”), not later than 30 days after
receipt of the Renewal Notice, of Lessor’s determination of the Market Rental
Rate (“Lessor’s
Determination”).  Lessee
shall notify Lessor (“Lessee’s
Notice”), within 30 days after Lessee’s receipt of the Rent
Notice, whether Lessee accepts or disputes Lessor’s Determination, and if
Lessee disputes Lessor’s Determination, Lessee’s Notice shall set forth Lessee’s
determination (“Lessee’s
Determination”) of the Market Rental Rate.  If Lessee fails to give Lessee’s Notice
within such 30 day period, Lessee shall be deemed to have accepted Lessor’s
Determination.

 

(d)           If Lessee timely disputes Lessor’s Determination, and
Lessor and Lessee fail to agree as to the Market Rental Rate within 30 days
after the giving of Lessee’s Notice, then the Market Rental Rate shall be
determined as follows:  An MAI member of
the Houston chapter of the Appraisal Institute (the “Baseball Arbitrator”),
shall be selected and paid for jointly by Lessor and Lessee.  If Lessor and Lessee are unable to agree upon
the Baseball Arbitrator, then the same shall be designated by the American
Arbitration Association (the “AAA”).  The
Baseball Arbitrator selected by the parties or designated by the AAA shall have
at least five years experience in (i) the leasing of first class office
space in The Woodlands, Texas, or (ii) the appraisal of Class “A”
office buildings in The Woodlands, Texas. 
Lessor and Lessee shall each submit to the Baseball Arbitrator, and to
the other, Lessor’s Determination and Lessee’s Determination of the Market
Rental Rate of the Premises.  The
Baseball Arbitrator shall determine which of the two rent determinations more
closely represents the Market Rental Rate of the Premises.  The Baseball Arbitrator may not select any
other rental value for the Premises other than one submitted by Lessor or
Lessee.  The determination of the party so
selected or designated shall be binding upon Lessor and Lessee and shall serve
as the basis for the determination of the Base Rent payable for the Renewal
Term, subject to further adjustment as provided in the Lease.  After a determination has been made of the
Market Rental Rate, the parties shall execute and deliver an instrument setting
forth the Market Rental Rate, but the failure to so execute and deliver any
such instrument shall not affect the determination of Market Rental Rate.

 

(e)           If Lessee disputes Lessor’s Determination and if the
final determination of Market Rental Rate shall not be made on or before the
first day of the applicable Renewal Term then, Lessee shall have the option
to:  (i) withdraw the Renewal Notice
prior to the first day of such Renewal Term and not be obligated to pay any
Base Rent applicable to the Premises due under such Renewal Term (and the Lease
shall expire as of the end of the Extension Term or, if previously exercised in
accordance with the terms hereof, the first Renewal Term), or (ii) pending
such final determination, pay as Base Rent for the Renewal Term, an amount
equal to the Lessor’s Determination, and if based upon the final determination
of the Market Rental Rate, the Base Rent payments made by Lessee for such
portion of the Renewal Term were (i) less than the Market Rental Rate
payable for the Renewal Term, Lessee shall pay to Lessor the amount of such
deficiency within 10 days after demand therefor, or (ii) greater than the
Market Rental Rate payable for the Renewal Term, Lessor shall credit the amount
of such excess against installments of Base Rent and/or Additional Rent payable
by Lessee next coming due.

 

It
is an express condition of the option granted to Lessee pursuant to the terms
of this Exhibit “C”
that time is of the essence with respect to Lessee’s exercise of such option by
the date specified in this Exhibit “C”.

 

C-2

 

EXHIBIT “D”

 

PREFERENTIAL LEASE RIGHT

 

(a)           As used herein:

 

“Available” means, as to any space, that (i) the
existing tenant’s lease expires within the next twelve (12) months and is not
subject to any extension option that may validly be exercised by the tenant, (ii) Lessor
has the right to cancel an existing lease or “recapture” any space due to a
tenant’s request for Lessor’s consent to a proposed assignment or subletting,
and such cancellation occurs prior to or simultaneous with the Offer Notice as
herein after defined, (iii) Lessor terminates an existing lease by mutual
agreement with the tenant or by exercise of its remedies following a default
thereunder by the tenant, or (iv) the space is unleased.  Anything to the contrary contained herein
notwithstanding, Lessee’s right of first offer pursuant to this Exhibit “D” is subordinate to (i) any
right of offer, right of first refusal, preferential lease right, expansion
option, renewal right or similar right or option in favor of any other tenant
existing as of the First Amendment Effective Date, (ii) Lessor’s right to
extend the term of lease of existing occupants on a floor located within the
Offer Space (as defined below), whether or not such occupant occupies such
space as of the date hereof or pursuant to an agreement entered into after the
date hereof for Offer Space that Lessee failed to exercise its right to lease,
and whether or not pursuant to an option to renew, and (iii) any right of
offer, right of first refusal, preferential lease right, expansion option,
renewal right or similar right or option in favor of any other tenant who has a
right to occupy all or a portion of the Offer Space.  Items (i) – (iii) collectively are referred
to as “Senior Rights”.

 

“Offer Space” means the space in the Building
that is not leased to Lessee as of the date of this First Amendment.  As hereinafter used in this Exhibit “D”, the terms “such Offer
Space” and “applicable Offer Space” and “Offer Space”, where the context so
requires, shall refer to the particular portion of the entire Offer Space that
is set forth in the applicable Offer Notice from time to time.  If the Offer Space is the subject of lease
negotiations which include other portions of the Building, the Offer Space
Option, as hereinafter defined, shall, at Lessor’s option, apply to the entire
space which is subject to such negotiations, and, at Lessor’s option, Lessee
shall be obligated to either accept or refuse the opportunity to lease such
entire space on the terms provided in the Offer Notice.

 

(b)           Provided (i) the Lease shall not have been
terminated, (ii) Lessee shall not be in default beyond any applicable
notice and grace period provided under the Lease, (iii) as of the
Anticipated Inclusion Date, there shall be at least two (2) years
remaining in the Term or any Renewal Term if Lessee shall have exercised any
Renewal Option, and (iv) Lessee shall physically occupy the entire
rentable area of the Premises, if at any time during the Term, either the Offer
Space becomes, or Lessor reasonably anticipates that the Offer Space will
become, Available, Lessor shall give to Lessee notice (an “Offer Notice”)
thereof, specifying (A) the location and rentable square footage of such
Offer Space, (B) Lessor’s determination of the Fair

 

D-1

 

Offer
Rental for such Offer Space, which shall constitute the maximum thereof Lessor
can claim as the Fair Offer Rental for such space in any arbitration thereof (“Lessor’s Maximum Offer Determination”),
and (C) the date or estimated date that such offer space has or shall
become Available (the “Anticipated
Inclusion Date”).  “Fair Offer Rental”
means the fixed annual rent that a willing lessee would pay and a willing
lessor would accept for the applicable Offer Space, taking into account all
relevant factors, including, but not limited to:  (i) location, quality and age of the
building; (ii) use and size of the space in question; (iii) location
and/or floor level within the building; (iv) extent of leasehold
improvement allowances; (v) the amount of any abatement of rental or other
charges; parking charges or inclusion of same in rental; (vi) lease
takeovers/assumptions; (vii) club memberships; (viii) relocation
allowances; (ix) refurbishment and repainting allowances; (x) any and
all other concessions or inducements; (xi) extent of services provided or to be
provided; (xii) distinction between “gross” and “net” lease; (xiii) base year or
dollar amount for escalation purposes (both operating costs and ad valorem/real
estate taxes); (xiv) any other adjustments (including by way of indexes) to
base rental; (xv) credit standing and financial stature of the tenant; and
(xvi) length of term.

 

(c)           Provided that on the date that Lessee exercises the
Offer Space Option and on the Offer Space Inclusion Date (as hereinafter
defined) (i) the Lease, as amended, shall not have been terminated, (ii) Lessee
shall not be in default beyond any applicable notice and grace period provided
under the Lease, as amended, (iii) at the time that Lessee exercises the
Offer Space Option and on the Anticipated Inclusion Date, there shall be at
least two (2) years remaining in the Term or the Renewal Term if Lessee
shall have exercised its Renewal Option, and (iv) Lessee shall physically
occupy the entire rentable area of the Premises, Lessee shall have the option
(the “Offer Space Option”),
exercisable by notice (an “Acceptance
Notice”) given to Lessor on or before the date that is ten (10) business
days after the giving of the Offer Notice (time being of the essence) to
include the Offer Space in the Premises. 
Lessee shall not have the option to include in the Premises less than
the entire Offer Space described in the Offer Notice.  Lessee shall notify Lessor in the Acceptance
Notice whether Lessee accepts or disputes Lessor’s Maximum Offer Determination,
and if Lessee disputes Lessor’s Maximum Offer Determination, the Acceptance
Notice shall set forth Lessee’s good faith determination of the Fair Offer
Rental for such Offer Space, which shall constitute the minimum that Lessee can
claim as the Fair Offer Rental for such space in any arbitration thereof (“Lessee’s Minimum Offer Determination”).  If Lessee fails to object to Lessor’s Maximum
Offer Determination in the Acceptance Notice and to set forth therein Lessee’s
Minimum Offer Determination, then Lessee shall be deemed to have accepted
Lessor’s Maximum Offer Determination as the Fair Offer Rental for such Offer
Space.

 

(d)           If Lessee timely delivers the Acceptance Notice, then,
on the date on which Lessor delivers vacant possession of the Offer Space to
Lessee (the “Offer Space
Inclusion Date”), the Offer Space shall become part of the
Premises, upon all of the terms and conditions set forth in the Lease, except (i) Base
Rent for the Offer Space shall be equal to the Fair Offer Rental, (ii) Lessee’s
pro-rata share, proportionate share or words of like import with respect to
such Offer Space shall be a fraction, expressed as a percentage, the numerator
of which is the number of rentable square feet in the Offer Space and the
denominator of which is the number of rentable square feet in the Building,
measured according to the same methodology Lessor used to measure the size of
the Offer Space, (iii) Lessor shall not be required to, but may in Lessor’s
sole discretion, perform any Lessor’s work or any other work, pay a Lessor’s
contribution or an Allowance or any other amount, or render any services to
make the Building or the Offer Space

 

D-2

 

ready
for Lessee’s use or occupancy, and Lessee shall accept the Offer Space in its “AS
IS” condition and “WITH ALL FAULTS” on the Offer Space Inclusion Date latent
defects excepted, and (iv) the term of the lease of the Offer Space shall
be co-terminous with the Term of the Lease.

 

(e)           If, in the Acceptance Notice, Lessee disputes Lessor’s
determination of Fair Offer Rental, and Lessor and Lessee fail to agree as to
the amount thereof within 20 business days after the giving of the Acceptance
Notice, then the dispute shall be resolved consistent to the methodology
employed in the determination of the Market Rental Rate as outlined in Section (d) of
Exhibit “C”.  If the dispute shall
not have been resolved on or before the Offer Space Inclusion Date, then
pending such resolution, Lessee shall have the option to:  (i) withdraw its Acceptance Notice and
not be responsible for any Base Rent applicable to the Offer Space, or (ii) pay,
as Base Rent for the applicable Offer Space, an amount equal to Lessor’s
Maximum Offer Determination on a month-to-month basis until such time that a
resolution is reached or Lessee withdraws its Acceptance Notice.  If such resolution shall be in favor of
Lessee, then within 20 days after the final determination of Fair Offer Rental,
Lessor shall refund to Lessee any overpayment or credit Lessee against Rent
next coming due, at Lessor’s option.

 

(f)            If Lessor is unable to deliver possession of the Offer
Space to Lessee for any reason on or before the date on which Lessor
anticipates that the Offer Space shall be Available as set forth in the Offer
Notice, the Offer Space Inclusion Date shall be the date on which Lessor is
able to so deliver possession and Lessor shall have no liability to Lessee
therefor and the Lease, as amended, shall not in any way be impaired.  Notwithstanding anything contained in this
subsection (f) to the contrary, if Lessor is delayed in the delivery of
the Offer Space due to a prior tenant’s holdover (the “Holdover Tenant”), and
such holdover exceeds 90 days, then Lessee may have the option to:  (i) cancel such Offer Space Option by
delivering to Lessor written notification of such termination and not be
responsible for any Base Rent applicable to the Offering Space, or (ii) participate
in fifty percent (50%) of the holdover proceeds payable by the Holdover
Tenant.  Lessor shall use commercially
reasonable efforts to pursue its rights under said Lease to evict, in addition
to its other remedies, the Holdover Tenant occupying the Offer Space.

 

(g)           If Lessee fails timely to give an Acceptance Notice,
then (i) Lessor may enter into one or more leases of the particular Offer
Space with respect to which Lessee did not give an Acceptance Notice with third
parties on such terms and conditions as Lessor shall determine, the Offer Space
Option with respect only to the particular space that was the subject of the
Offer Notice shall no longer be deemed Available.

 

(h)           Promptly after the occurrence of the Offer Space
Inclusion Date, Lessor and Lessee shall confirm the occurrence thereof and the
inclusion of the Offer Space in the Premises by executing an instrument
reasonably satisfactory to Lessor and Lessee; provided, that failure by
Lessor or Lessee to execute such instrument shall not affect the inclusion of
the Offer Space in the Premises in accordance with this Exhibit.

 

D-3

 

EXHIBIT “E”

 

EARLY TERMINATION RIGHT

 

(a)           Subject
to and upon the terms, provisions and conditions set forth in this Exhibit “E”, Lessee, but not any
assignee or subtenant thereof, shall have the one time right (the “Termination Right”),
to terminate the Lease as to the entire Premises, effective on the last day of
any full calendar month following the Extension Commencement Date that is prior
to the end of the seventy-second (72nd)
full calendar month after the Extension Commencement Date (the “Termination Date”).  In order to exercise the Termination Right,
Lessee must give Lessor written notice of Lessee’s exercise of the Termination
Right at least six (6) months prior to the Termination Date, and pay the
Termination Fee, as hereinafter defined, prior to the Termination Date.  If Lessee fails to give notice of exercise of
the Termination Right on or prior to the required notice date, the Termination
Right shall be deemed waived and of no further force and effect.  If Lessee gives timely notice of exercise of
the Termination Right but fails to timely pay the Termination Fee to Lessor when
due, Lessor may at its option either (i) deem the Termination Right waived
and of no further force and effect, or (ii) enforce the termination of
this Lease, effective as of the Termination Date, and Lessee’s obligation to
pay the Termination Fee.  The provisions
of this paragraph shall survive the expiration or termination of this Lease.

 

(b)           Notwithstanding
the foregoing, Lessor shall have the option to revoke and nullify any purported
exercise of the Termination Right by Lessee if at the time of exercise or
thereafter Lessee is in default under the Lease.

 

(c)           The
“Termination Fee”
shall be an amount equal to the unamortized portion of the Lease Costs (as
hereinafter defined) as of the Termination Date.  For purposes hereof, “Lease Costs” shall
mean all unamortized actual (i) lease commissions paid to Lessee’s Broker,
and (ii) construction costs, architectural and engineering fees, cabling
design and installation costs, and other costs, if any, incurred by Lessor in
connection with Lessee’s lease of the Premises, specifically including, but not
limited to, the Allowance granted to Lessee. 
For purposes of calculating Lease Costs, each component or item of Lease
Costs will be deemed to be amortized in equal monthly installments over the
remaining Lease term(s) applicable to the space(s) in question at the
rate of eight percent (8%) per annum beginning on the date that such component
or item of Lease Costs was actually paid by Lessor.

 

D-4

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00152-of-00352.parquet"}]]