ENCHIRA BIOTECHNOLOGY CORP
EXHIBIT 10.7
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>7
<FILENAME>a2043676zex-10_7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>

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                                                                    EXHIBIT 10.7

                                 LEASE AGREEMENT

                      VENTURE TECHNOLOGY CENTER V BUILDING

                     THE WOODLANDS, MONTGOMERY COUNTY, TEXAS

STATE OF TEXAS

COUNTY OF MONTGOMERY

         THIS LEASE AGREEMENT (the "Lease") is made and entered into on this the
24th day of May, 1993, between THE WOODLANDS CORPORATION, a Delaware
corporation, whose address for purposes hereof is 2201 Timberloch Place, The
Woodlands, Texas 77380 ("Lessor"), and ENERGY BIOSYSTEMS CORPORATION, a Delaware
corporation, whose address, for the purposes hereof, is 4200 Research Forest
Drive, Bays 1-9, The Woodlands, Texas 77380 ("Lessee").

W I T N E S S E T H:

         1. LEASED PREMISES. Lessor hereby leases to Lessee and Lessee hereby
takes from Lessor, 23,851 net rentable square feet, together with all
appurtenances thereto, as shown outlined in red on a drawing identified by the
parties and attached hereto as Exhibit "A" (the "Premises") , in a building
known and referred to as Venture Technology Center V Building (the "Building"),
located at 4200 Research Forest Drive, The Woodlands, Montgomery County, Texas,
and which contains a total of 59,952 net rentable square feet of floor space.
The Building is located on that certain 3.5904 acre tract of land in Montgomery
County, Texas, described in Exhibit A-1 attached hereto and made a part hereof
for all purposes (the "Land"). Lessor reserves the right to change the name
and/or street address of the Building whenever it desires without any liability
or consent of Lessee.

         2. Parking. Lessor shall provide and keep in good condition through the
term of this Lease, parking areas for and vehicular access ways to the Premises,
which shall be available for the non-exclusive use of Lessee, its employees and
invitees. Lessee shall have the right to use up to sixty-five (65) parking
spaces. As a part of the sixty-five (65) parking spaces, Lessee shall have the
right to reserve for its exclusive use certain parking spaces, in an area shown
on Exhibit "A" of this Lease, and Lessor, at Lessee's expense, shall provide
twenty (20) marked curbstops designating such parking spaces as reserved for
Lessee. 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 (the "Term") shall commence on the
earlier of July 1, 1993, or the day upon which Lessee occupies the premises for
the purpose of conducting business, and expire on the last day of the sixtieth
(60th) full calendar month following the commencement of the Term, subject to
earlier termination as hereinafter provided. If Lessor is delayed in delivering
possession of the Premises to Lessee on or before the Commencement Date set out
above, the Term of this Lease shall begin on the date when Lessor tenders to
Lessee possession of the Premises with all work to be performed by Lessor
pursuant to the Tenant Improvement Addendum (attached hereto as Exhibit "B")
substantially completed and terminate sixty (60) months thereafter. Lessor shall
not be liable or responsible for any claims, damages or liabilities of any

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nature whatsoever in connection with or by reason of any delayed possession.
Lessee agrees to execute a recordable memorandum setting forth the commencement
date ("Commencement Date") and the date of expiration of the Term of this Lease
on or prior to the commencement of the Term.

         4. USE. Lessee shall use the Premises solely for biomedical laboratory
testing and development activities, and general office use, and for no other
use.

         5. ACCEPTANCE OF THE PREMISES. Upon taking possession of all or any
portion of the Premises, Lessee shall be deemed to have accepted the Premises,
to have acknowledged that the same are in the condition called for hereunder and
to have agreed that the obligations of the Lessor imposed by Exhibit "B"
attached hereto have been fully performed, subject to (i) latent defects, and
{ii) a punchlist of improvements not completed, which punchlist shall be
prepared in accordance with industry standards and approved by Lessee's
architect. Lessee hereby waives any implied warranty of Lessor that the Premises
are suitable for their intended commercial purpose and acknowledges and agrees
that all of Lessee's obligations hereunder (including without limitation, the
obligation to pay rent) are independent of any such implied warranty and agrees
to perform all such obligations and pay rent notwithstanding any breach or
allegation of breach by Lessor of any such implied warranty (which implied
warranty as aforesaid is hereby waived by Lessee).

         6. 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
of Twenty two thousand four hundred fifty nine and 69/100 Dollars ($22,459.69)
per month, 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.

         7. ADDITIONAL RENT. Lessor agrees to pay all operating Expenses (as
defined in section 9 below) up to a maximum amount of $3.10 per year for each
square foot of rentable floor area in the Building (the "Operating Cost
Allowance") .In the event the Operating Expenses shall, in any fiscal year
(ending January 31) exceed the Operating Cost Allowance (pro-rated 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 (the
"Excess operating Expenses") .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 rentable square feet in the Premises, and the denominator
of which shall be the rentable square footage in the Building (as set out in
section 1 above) .Within ninety (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 portion 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 forty-five (45) 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 the next
rental payment(s) due. Lessee agrees to pay Additional Rent each month
thereafter, in addition to, Base Rent, in an amount reasonably necessary to
amortize the estimated Excess Operating Expenses for the then current fiscal
year over a period equal to the lesser of (i) the number of months remaining in
the lease Term or (ii) the number of months remaining in the current fiscal
year. Notwithstanding that the lease Term has expired or been terminated, Lessee

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shall remain liable for and agrees to pay to Lessor within thirty (30) days
following receipt of an invoice therefor, its pro-rata portion of Excess
Operating Expenses for the fiscal year (or portion thereof) during which the
Term of this lease expired or was terminated. Lessee shall have the right, at
its expense and at a reasonable time, to audit Lessor's books relevant to the
Additional Rent due under this section. Lessor shall reimburse Lessee for the
cost of such audit if the audit reveals an overstatement of operating expense
for more than five percent (5%) during the period of the review.

         8. PAYMENT OF RENTALS. Lessee covenants to promptly pay all rentals
within five (5) days of the date such rentals are due and payable. A late charge
of One thousand five hundred and 00/lOO Dollars ($1,500.00) shall be added to
any payment of rental or additional rental which is more than ten (10) days past
due in order to compensate Lessor for the extra administrative expenses
incurred, provided such late charge shall only apply if Lessee has tendered late
payment more than one (1) time during the Lease Term. 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 written notice to Lessee,
be considered additional rentals payable by Lessee with the first installment of
rental thereafter to become due and payable, and may be collected or enforced as
by law provided in respect of rentals.

         9. OPERATING EXPENSES. The term "Operating Expenses", as used in this
Lease, means all of Lessor's reasonable costs to operate and maintain the Land
and the Building from time to timc, as determined in accordance with generally
accepted accounting principles. Operating Expenses shall include (to the extent
and only to the extent same are Lessor's obligation to payor furnish under the
other provisions of this Lease), but not be limited to, all sums expended by
Lessor, or in the case of major repairs or improvements having a life expectancy
in excess of one year, an amortized portion of such sums, whether or not such
repair or improvement is properly chargeable to capital expenses or capital
improvements under generally accepted accounting principles, in connection with
the Building, and the parking and common areas and other improvements on the
Land, for general maintenance and repairs, improvements, resurfacing, exterior
painting, restriping, cleaning, sweeping, janitorial services, any personnel or
services deemed necessary by Lessor, trash removal, planting, landscaping,
lighting, water and other utilities paid for by Lessor and directional signs and
other markers, bumpers, and personnel to implement such services. Operating
Expenses shall also lnclude all ad valorem taxes or assessments and Annual
Assessments of The Woodlands Community Association, Inc. ("WCA"), which accrue
against the Building or the Land during the Term, all insurance premiums, if
any, which Lessor is required to payor deems necessary to pay, with respect to
the Building or the Land, and a building management fee equal to five percent
(5%) of the full Base Rent without regard to abatement. The current WCA
assessment is $0.54 per $100.00 of assessed valuation and is subject to change
for each calendar year. Notwithstanding anything contained herein to the
contrary, there is expressly excluded from Operating Expenses each of the items
set out in Exhibit "D" attached hereto.

         Further, notwithstanding any other provision herein to the contrary, it
is agreed that in the event not more than ninety-five percent (95%) of the
rentable area in the Building is occupied during any fiscal year or in the event
not more than ninety-five (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 the Operating
Expenses shall be computed for such year as though the Building had been
ninety-five percent (95%) occupied during such year and as though ninety-five
percent (95%)

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of the Building had been provided with building standard services during such
year.

         10. UTILITIES. Lessor shall make available to the Premises gas,
electricity and water. Lessee agrees to assume all costs and expenses for water
and sewer, gas, electricity, telephone, garbage, and any other service needed
for its use at the Premises, including any license or deposit required to
establish or maintain such services, and the costs of installation, hook-up and
metering. Lessee shall promptly pay for all utility services furnished to the
Premises during the term of this Lease. Lessor shall under no circumstances be
liable to Lessee in damage or otherwise for any interruption in service of
water, electricity, heating, air conditioning or other utilities or services
caused by governmental regulation, emergencies, Acts of God, by the making of
any necessary repairs or improvements, or by any cause beyond Lessor's
reasonable control; provided, however, if such interruption of services is
caused by the willful misconduct or gross negligence of Lessor, Lessee shall be
entitled to abatement of the Base Rent during the period of such interruption.
Lessor shall endeavor in good faith to give at least twenty-four (24) hours
notice to Lessee when any necessary interruption in service during normal
business hours will be made by Lessor.

         11. PEACEFUL ENJOYMENT. Lessee shall and may peacefully have, hold and
enjoy the Premises, 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.

         12. TENANT 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 or delayed. 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
"8" hereto, shall be made at Lessee's sole expense. All such alterations,
additions or improvements shall, upon completion, 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 8uildir.g or the Premises.

         13. EXTERIOR REPAIRS. Lessor will keep the exterior of the Building,
including any doors, windows, or glass, in repair, pro- vided 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 uninsured portion of the cost. Lessor shall be
under no liability for repair, maintenance, alteration or any 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.

         14. 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)

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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; (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; and (i) 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, which consent shall not be unreasonably
withheld or delayed; (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 Lessee
agrees to reimburse Lessor for the reasonable cost incurred in providing such
service within thirty (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.

         Lessee shall promptly comply, at its own expense, with all other
present and future laws, ordinances, order, rules and regulations of all state,
federal, municipal and other agencies or bodies having jurisdiction over the
Premises and Lessee's use thereof. Lessee warrants that the plans for the
leasehold improvements being made to the Premises pursuant to Exhibit "B"
attached hereto comply with the Americans with Disabilities Act of 1990. Lessee
will comply with the Rules and Regulations of the Building, a copy of which are
attached hereto as Exhibit "C". Lessor may amend said rules, 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 paragraph. Lessor
shall promptly comply with all present and future laws relating to the Building
and the Land, except the Premises and Lessee's use thereof, including without
limitation the American with Disabilities Act of 1990.

<PAGE>

         15. INTERIOR REPAIRS. Lessee will 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 and casualty
damage unless caused by Lessee, its agents, employees or contractors. 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 or delayed),
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 property, regardless of
fault or by whom such damage was caused, unless caused by Lessor, its agents,
employees or contractors. If Lessee fails to make such repairs, Lessor may make
same, and Lessee agrees to pay, as additional rent, the cost thereof to Lessor
promptly upon Landlord's demand therefor, provided such costs do not exceed the
lowest acceptable bid from qualified contractors.

         16. USE OF ROOF. Lessee shall have no right to penetrate or erect
improvements on the roof of the Building without the prior written consent of
Lessor. Lessee shall be liable in damages to Lessor for any breach of this
provision, including damages for loss of any and all warranties. Lessor
covenants and agrees to grant to Lessee a license to install and maintain on the
roof of the Building an antenna, provided that the plans, specifications and
location of the antenna are first approved by Lessor and the Development
Standards Committee established pursuant to the Covenants, Restrictions,
Easements, Charges and Liens of The 1'l00dlands, covering the Land. The License
Agreement shall be in the form attached hereto as Exhibit "E".

         17. 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,
which approval shall not be unreasonably withheld or delayed. Lessee will
maintain any approved sign, decoration, lettering, advertising matter or other
thing in good condition and repair at all times.

         18. ENTRY BY LESSOR. Lessee shall permit Lessor and any current or
prospectiye mortgagee or purchaser, and their agents or representatives, upon
reasonable notice, to enter into and upon any part of the Premises, after
reasonable notice and during normal business hours, to inspect the Premises, or
clean, make repairs, alterations or additions thereto as Lessor may deem
necessary or desirable, and Lessee shall not be entitled to any abatement or
reduction of rent by reason thereof.

         19. LIENS. In the event that any mechanic's, materialmen'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

<PAGE>

cause the same to be properly bonded or released. If Lessee shall fail to cause
such lien to be bonded or released within thirty (30) 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.
Notice is hereby given that Lessor shall not be liable for any labor or
materials furnished to Lessee upon credit, and that no mechanics', materialmen'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.

         20. 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, provided, however, that the holder of any
such mortgage or deed of trust shall agree that Lessee shall not be disturbed in
its possession of the Premises or its rights hereunder terminated or amended by
the mortgagee, any purchaser at or in lieu of fore- closure or other party so
long as Lessee is not in default under this Lease. 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 mort- gage 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, 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 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) arty 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.

         Within fifteen days after Lessor's request, Lessee agrees to execute an
estoppel certificate or other agreement certifying to Lessor and/or any current
or prospective mortgagee or purchaser of the Building such facts with respect to
this Lease and agreeing to such reasonable notice provisions and other matters
(not affecting Lessee's rights or obligations under this Lease) as such
mortgagee or purchaser may request in connection with Lessor's sale or
financing, subject, however, to the n9n-disturbance rights of Lessee above
described. The estoppel certificate or other document shall be deemed approved
after the expiration of the fifteen (15) day period.

         21. 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 and Additional Rent payable hereunder shall
be reduced proportionately to the portion of the Premises so taken. If any part

<PAGE>

of the Land or the Building shall be taken under the power of eminent domain and
such taking 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 Lessor is dispossessed, effective as of the date when Lessor is
required to yield possession. All compensation awarded for any taking shall
belong to and be the property of Lessor. Lessee shall be entitled to any award
for Lessee's loss by independently petitioning for same.

         22. FIRE AND CASUALTY. In the event of a fire or other casualty in or
affecting the Premises, Lessee shall immediately give notice thereof to Lessor.
If the Premises, through no fault or neglect of Lessee, its agents, employees,
invitees, licensees or visitors, shall be destroyed by fire or other casualty so
as to render the Premises untenantable, the rental herein shall cease thereafter
until such time as the Premises are made tenantable by Lessor. Within thirty
(30) days after the date of the casualty, Lessor shall deter~ine and notify
Lessee if Lessor has elected to rebuild and if the Premises can reasonably be
repaired within 120 days after the casualty date. If Lessor elects to rebuild
but the Premises cannot reasonably be repaired within 120 days after the
casualty date, Lessee may terminate this Lease by written notice to Lessor
within thirty (30) days after receipt of Lessor's notice. If from such cause the
Building shall be so damaged that Lessee shall decide not to rebuild, or if the
Premises cannot reasonably be repaired within 120 days after the casualty date
and Lessee elects to terminate, 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.

         23. CASUALTY INSURANCE. Lessor shall, at all times during the term of
this Lease, 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 within
the coverage of a Texas standard form of fire and extended coverage policy, for
the full replacement value thereof, with payments for losses thereunder payable
solely to Lessor or its designee. Lessee shall maintain in force a like policy
insuring Lessee's interest in any furniture, equipment, machinery, goods or
supplies which Lessee may bring or obtain upon the Premises, or any improvements
which Lessee may construct thereon.

         24. LIABILITY INSURANCE. Lessee shall maintain, at its expense, a
policy or policies of comprehensive general liability 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, such insurance
to afford minimum protection of not less than One Million Dollars ($1,000,000)
combined single limit bodily injury and property damage per occurrence. Said
policy or policies shall name Lessor as an additional insured. Lessee shall
provide Lessor a copy of the required policy or a certificate evidencing the
required coverage before beginning any work in the Premises or taking occupancy
of same. Lessor shall maintain (i) fire and extended coverage insurance on the
Building (excluding non-Building standard improvements) and on all Building
standard improvements in an amount not less than the full replacement cost
thereof, and (ii) comprehensive general liability insurance to afford minimum
protection of not less than One Million Dollars ($1,000,000) combined single
limit bodily injury and property damage per occurrence, such policies to be
issued and binding upon some solvent insurance company licensed to do business
in the State of Texas.

<PAGE>

         25. 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, its agents, officers or
employees, for any loss or damage that may occur to such persons or the Premises
or any improvements thereto, the Building or any improvements thereto, or any
personal property of any party therein, by reason of fire, the elements or any
other cause which such party is required to insure against under the terms of
this Lease, regardless (",f cause or origin, including negligence of the other
party hereto, its agents, officers or employees. Lessor and Lessee covenant that
no insurer shall hold any right of subrogation against the other party for
losses which must be insured against by the terms of this Lease. This waiver of
subrogation provision shall be effective to the full extent, but only to the
extent that, it does not impair the effectiveness of insurance policies of
Lessor and Lessee.

         26. HOLD HARMLESS. Subject to the provisions of Section 25 above,
Lessee hereby releases and agrees to defend, indemnify and hold Lessor harmless
from and against all claims or causes of action for damage or injury to persons
or property arising out of this Lease or Lessee's use or occupancy of the
Premises, including attorney's fees and court costs, except to the extent caused
by the gross negligence or willful act or omission of Lessor. Subject to the
provisions of Section 25, above, Lessor hereby releases and agrees to defend,
indemnify and hold Lessee harmless from and against all claims or causes of
action for damage or injury to persons or property occurring in or around the
Building (excluding the Premises), including attorneys' fees and court costs,
except to the extent caused by the gross negligence or willful act or omission
of Lessee.

         27. 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,
Lessee shall pay monthly rent equal to 150% of the amount of all Base Rent, and
Additional Rents 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. No holding over by
Lessee, either with or without the consent and acquiescence of Lessor, shall
operate to extend the Lease for a longer period than one (1) month. Any holding
over with the consent of Lessor in writing shall thereafter constitute this
Lease a lease from month to month.

         28. DEFAULT BY LESSEE. If (a) default shall be made in the timely
payment of any sum to be paid by Lessee under this Lease, or (b) default shall
be made in the performance of any of the other covenants or conditions which
Lessee is required to observe and to perform and such default shall continue for
twenty (20) days after written notice is delivered to Lessee or deposited in the
u. s. Mail addressed to Lessee's address above, or (c) the interest of Lessee
under this Lease shall be levied on under execution or other legal process, or
any petition shall be filed by or against Lessee to declare Lessee bankrupt or
to delay, reduce or modify Lessee's debts or obligations, or any petition under
the Bankruptcy Code shall be filed or other action taken to reorganize or modify
Lessee's capital structure, or Lessee be declared insolvent according to law, or
any general assignment of Lessee's property shall be made for the benefit of
creditors, or a receiver or trustee is appointed for Lessee or its property, and
provided that Lessee fails to vigorously contest any such levy, execution, legal
process or petition filed against Lessee and to cause same to be removed,
dismissed or vacated within thirty (30) days from the date of its entry or
filing, or (d) Lessee shall vacate or abandon the Premises, and is in monetary
default, or (e) if Lessee shall be a corporation and Lessee shall thereafter
cease to exist as a corporation in good standing in the State of Texas, or (f)

<PAGE>

if Lessee shall be a partnership or other entity and Lessee shall be dissolved
or otherwise liquidated, then Lessor may treat the occurrence of anyone or more
of the foregoing events as a breach of this Lease and thereupon, at Lessor's
option, Lessor may have anyone or more of the following described remedies, .in
addition to all other rights and remedies provided at law or in equity:

A.       Lessor may terminate this Lease and forthwith repos-sess the Premises
         and be entitled to recover (i) the cost of recovering the Premises,
         including the reasonable cost of the removal and storage of any of
         Lessee's possessions left within the Premises, (ii) the unpaid rent
         earned at the time of termination, plus interest thereon at the highest
         lawful rate from the due date, (iii) the balance of the rent for the
         remainder of the Term less the present fair market net rental value of
         the Premises for said period and (iv) any other sum of money and
         damages owed by Lessee to Lessor.

B.       Lessor may terminate Lessee's right of possession, and repossess the
         Premises by forcible entry and detainer suit without demand or notice
         of any kind to Lessee and without terminating this Lease, in which
         event Lessor may, but shall have no obligation to, relet the same for
         the account of Lessee, for such rent and upon such terms as shall be
         satis- factory to Lessor. For the purpose of such reletting, Lessor is
         authorized to decorate or make any repairs, changes, alterations or
         additions in or to the Premises that may be necessary. If (i) Lessor
         shall fail to relet the Premises, or (ii) the same are relet and a
         sufficient sum shall not be realized from such rcletting to pay the due
         and unpaid Base Rent and Additional Rent, the accrued interest thereon,
         the cost of recovering possession, the costs and expenses of all
         decorations, repairs, changes, alterations and additions deemed
         necessary in the reasonable judgment of Lessor and the expense of such
         reletting and of the collection of the rent accruing therefrom, then
         Lessee shall pay to Lessor as damages a sum equal to the amount of the
         rent provided for in this Lease for such period or periods, or if the
         Premises have been relet, the Lessee shall satisfy and pay any such
         deficiency upon demand therefor from time to time. Lessee agrees that
         Lessor may file one or more suits to recover any sums falling due under
         the terms of this section from time to time. No such re letting shall
         be construed as an election on the part of Lessor to terminate this
         Lease unless a written notice of such intention is given to Lessee by
         Lessor. Notwithstanding any such reletting without termination, Lessor
         may at any time thereafter elect to terminate this Lease for such
         previous breach.

C.       Lessor may change the locks on the Premises and not return the new key
         to Lessee unless the Lessee cures the default; the Lessor will not have
         to give the Lessee a new key unless the Lessee cures all defaults;
         provided, however, that in any such instance, during Lessor's normal
         business hours and at the convenience of Lessor, and upon the written
         request of Lessee accompanied by such written waivers and releases as
         Lessor may require, Lessor will escort Lessee or its authorized
         personnel to the Premises to retrieve any personal belongings or other
         property of Lessee; and the new key will only be provided during the
         Lessor's regular business hours.

D.       Notwithstanding anything contained in this Section 28 to the contrary,
         in the event of default by Lessee, Lessor shall use reasonable efforts
         to mitigate its damage or any losses incurred by Lessor as a result of
         Lessee's default.

<PAGE>

         29 WAIVER. Failure of Lessor or Lessee to declare any default
immediately upon occurrence thereof, or delay in taking any action in connection
therewith, shall not waive such default, but such party 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.

         30. LIEN FOR RENT. Notwithstanding anything contained in this Lease to
the contrary, Lessor agrees to waive its lien for rent on Lessee's equipment and
fixtures not made a permanent part of the Premises.

         31. 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.

         32. ASSIGNMENT BY LESSEE. Lessee shall not assign this Lease or any
interest therein, nor sublet the Premises or any part thereof or any right or
privilege appurtenant thereto, nor permit any other person, firm or entity to
occupy or use the Premises or any portion thereof without first obtaining the
written consent of Lessor. Lessor shall have the right, at its option, to
terminate this Lease as to any portion of the Premises covered by a proposed
assignment or sublease, or to approve any such assignment or sub- lease only
upon the condition that a) all rentals paid by the sublessee in excess of the
rentals due from Lessee hereunder shall be shared equally by Lessor and Lessee,
b) the proposed sublessee or assignee is financially capable of assuming
Lessee's obligations hereunder, in the sole reasonable discretion of Lessor, and
c) the proposed sublessee or assignee agrees to use the premises only for the
uses permitted of Lessee under this Lease, and to comply with all of the other
terms and conditions of this Lease. Otherwise, Lessor's consent to any proposed
sublease or assignment shall not be unreasonably withheld or delayed. Consent by
Lessor to one assignment, subletting, occupation or use by another person shall
not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by the same or another person. Consent to an assignment or
sublease shall not release Lessee from liability for the continued performance
of the terms and provisions to be kept and performed by Lessee hereunder, unless
Lessor expressly and in writing releases Lessee from said liability. Any
assignment or subletting by operation of law or otherwise, (including without
limitation, a transfer of controlling interest in Lessee to any other person,
firm or entity) without theprior written consent of Lessor, shall be void
and"shall, at the option of Lessor, terminate this Lease. Lessee covenants and
agrees that when the pl-ior written consent of Lessor is obtained, and in the
event the subletting or assignment is to be arranged through public
advertisement or listing of any kind, Lessee will treat all applications for
sublease or assignment in a uniform manner and will award leases according to
objective standards. No decision on any application shall be made on the ground
of the applicant's race, color, religion, sex or national origin.
Notwithstanding the foregoing provisions of this Section 32, Lessee shall have
the right to sublease the Premises to an "Affiliate" (as hereinafter defined) of
Lessee, subject to Lessor's right to approve the sublease document. "Affiliate"
shall mean a corpora- tion or other entity which controls, is Gontrolled by, or
is under common control with, Lessee.

         33. 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.

<PAGE>

         34. TRANSFER OF CONTROL. 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, and such change in control results in a
material reduction of Lessee's financial ability to meet its obligations under
this Lease, Lessee shall be in default of this Lease and Lessor may exercise its
rights in respect of default hereunder.

         35. RIQHT OF FIRST REFUSAL. During the term of this Lease Lessee shall
have a right of first refusal to lease all or a portion of the space adjoining
the Premises and outlined in blue on the attached Exhibit "A" ("Adjacent
Space"), on the following terms and conditions. If Lessor shall receive a bona
fide offer to lease all or any portion of the Adjacent Space, which offer Lessor
is willing to accept, Lessor shall give Lessee written notice thereof. Lessee
shall have the right for five (5) calendar days after receipt of notice of such
third party offer, which is acceptable to Lessor, to execute a lease covering
such space. Lessee's right of first refusal shall be paramount to any rights of
the third party in question. If Lessee shall fail to execute a lease for the
portion of the adjacent Space within the time herein specified, Lessor shall be
at liberty to make such lease to the third party. The right of Lessee under this
section shall apply s1Jccessively to each and every offer to lease all or any
portion of the Adjacent Space.

         It is understood and agreed that Lessee's right of first refusal set
forth above is conditioned upon its being in full compliance with all the terms
and conditions of this Lease at the time Lessor receives an offer from a third
party to lease any portion of the Adjacent Space. Any default or noncompliance
with this Lease existing at the time offer shall terminate of the Lessee's first
refusal rights hereunder.

         36. RENEWAL OPTION. Provided (i) Lessee is not in default in the
performance of its covenants under this Lease and (ii) Lessee provides to Lessor
a current statement of Lessee's financial condition acceptable to Lessor at the
time this renewal option is exercised, Lessee is hereby granted the option to
renew the Term of this Lease for one (1) additional term of five (5) years
("Renewal Term"), to commence at the expiration of the initial term of this
Lease. Lessee shall exercise this option to renew by delivering written notice
of such election to Lessor at least six (6) months prior to the expiration of
the Term of this Lease. The renewal of this Lease shall be upon the same terms
and conditions of this Lease, except (a) the Base Rent during the Renewal Term
shall be the same rate and conditions as that being offered by the Lessor for
new leases in the Building; (b) the Operating Cost Allowance shall be the amount
being offered by the Lessor for new leases in the Building; (c) Lessee shall
have no option to renew this Lease beyond the Renewal Term set out above; (d)
Lessee shall not have the right to assign its renewal rights to any
non-affiliate sublessee of the Premises or non-affiliate assignee of the Lease;
(e) the leasehold improvements will be provided in their then existing condition
(on an "as is" basis) at the time the Renewal Term commences, provided that
Lessor agrees to reimburse Lessee up to a maximum amount of Three and 00/100
Dollars ($3.00) per net rentable square feet of floor space then included in the
Premises, for any costs to refurbish the Premises incurred by Lessee within six
(6) months from the commencement of the Renewal Term, and (f) the "Term" as
defined in the Lease, shall include any Renewal Term that has been duly
exercised by Lessee.

<PAGE>

         37. EARLY TERMINATION OPTION. Except as hereinafter provided, Lessee
shall have the option to terminate this Lease prior to the expiration of the
Term if each of the following conditions has been met:

         (a) The first three expired; and 3 years of the primary Term have

         (b) Lessee has either (i) submitted to Lessor a written bona fide offer
         to lease ("Lessee's Offer") additional space in a Lessor-owned building
         in The Woodlands, Texas, at a location reasonably acceptable to Lessee
         at the rental rates and upon the terms and conditions then being
         offered by Lessor to third parties, and designating the net rentable
         square feet of floor space reasonably required by Lessee for the
         operation of its business ("Lessee's Offer") and Lessor has not made
         available to Lessee the space designated in Lessee's Offer or other
         reasonably similar space upon the terms set forth in Lessee's Offer
         within a reasonable period of time after the date Lessor received
         Lessee's Offer; or (ii) Lessee has purchased ("Lessee Purchase") at
         least three (3) acres of land from Lessor with bona fide plans to
         construct a building containing at least 23,000 square feet for the
         operation of its business; and

         (c) At the time of termination, Lessee pays to Lessor an amount equal
         to the sum total of (i) all rent and other sums owed hereunder by
         Lessee up to the time of termination, plus (ii) the then remaining
         unamortized portion (amortized on a straight line basis over the Term)
         of the tenant improvements, refurbishing costs, commissions, and all
         other costs and expenses incurred by Lessor in making the Premises
         available to Lessor; and

         (d) Lessee is not in default under this Lease both a) at the time of
         Lessee's Offer or Lessee Purchase and b) or at the time Lessee elects
         to terminate pursuant to this Section 37; and

         (e) Lessee exercises this right of early termination within seven (7)
         months after Lessor's receipt of Lessee's Offer or the Lessee Purchase,
         whichever is applicable; and

         (f) As of both a) the date of Lessee's Offer or the Lessee Purchase,
         whichever is applicable, and b) the effective date of the termination,
         no one individual or entity controls more than 50% of the corporate
         shares of Lessee.

         It is understood and agreed that Lessee's right to provide the Lessee's
Offer provided for in this Section 37 may be exercised only one time; and if
Lessee's right of early termination under this Section 37 accrues and Lessee
thereafter fails to exercise such right of early termination upon the terms and
conditions herein set forth, this right of early termination shall terminate and
be of no further force or effect.

         38. 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 supersede 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.

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

<PAGE>

         40. 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.

         41. 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 (financial inability 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 be extended by a period equal to the period of
such delay; provided, however, nothing in this Article 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.

         42. 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 laws 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. Lessee warrants that this Lease has been duly
authorized and executed on behalf of Lessee, and that same is valid and binding
upon Lessee. The section headings and numbers herein and the grouping of the
provisions of this Lease into separate articles, sections and paragraphs, are
for the purpose of convenience only and shall not be considered in construing
the meaning of any provision in this Lease.

         43. NOTICES: OTHER COMMUNICATIONS. Any notice or other communication
given or made pursuant to this Lease (a "Communication") shall be in writing and
shall be hand delivered (with written receipt therefor) or sent either (i)
through the United States Postal Service, or any official successor thereto,
designated as registered or certified mail, return receipt requested, bearing
adequate postage, (ii) by means of an express delivery service if it obtains a
written receipt to confirm delivery, or (iii) by means of a facsimile
transmission if a written acknowledgement of receipt is confirmed by facsimile
transmission or otherwise. Each Communication shall be effective upon the
receipt thereof by the addressee. Rejection or refusal to accept or inability to
deliver because of change of address of which no notice was given as provided
herein shall be deemed to be receipt of the Communication sent. By giving to the
other party hereto at least ten (10) days notice thereof, any party hereto shall
have the right from time to time to change its address for purposes of this
Lease to any other address within the continental United States of America.
Until notice of change of address as aforesaid, each such Communication shall be
addressed, if to Lessor, at 2201 Timberloch Place, The Woodlands, Texas 77380,
Attention: Property Management, and if to Lessee, at 3606 Research Forest Drive,
suite A-14, The Woodlands, Texas 77380.

         44. 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
Lease or the application thereof to other persons or circumstances shall not be
affected thereby.

<PAGE>

         45. CORPORATE AUTHORITY. Each of the persons executing this Lease on
behalf of Lessee represents and warrants that Lessee is a duly organized and
existing corporation, that Lessee has and is qualified to do business in Texas,
that the corporation has full right and authority to enter into this Lease, and
that all persons signing on behalf of the corporation were authorized to do so
by appropriate corporate actions.

         46. 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.

         47. EXHIBITS, RIDERS AND ADDENDA. This lease also includes and
incorporates herein for all purposes all attached Exhibits, Riders, and Addenda,
if any. IN TESTIMONY WHEREOF, the parties hereto have executed this Lease in
duplicate 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
                                                THE WOODLANDS CORPOROTION

Date: 6/4/93

                                                By:  /s/ Michael H. Richmond
                                                Michael H. Richmond
                                                Executive Vice President

                                                LESSEE
                                                ENERGY BIOSYSTEMS CORPORATION




Date: 5/24/93                                   By:  /s/ John H. Webb
                                                Name: John H. Webb
                                                Title: President


</TEXT>
</DOCUMENT>
