<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): NOVEMBER 19, 1999
i2 TECHNOLOGIES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-28030 75-2294945
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
909 E. LAS COLINAS BLVD., 16TH FLOOR, 75039
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
Company's telephone number, including area code: (214) 860-6000
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ITEM 5. OTHER EVENTS.
This report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that involve risks and uncertainties, such as statements
concerning: growth and future operating results; developments in our markets and
strategic focus; new products and product enhancements; potential acquisitions
and the integration of acquired businesses, products and technologies; strategic
relationships; and future economic, business and regulatory conditions. Such
forward-looking statements are generally accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate," "may"
or other words that convey uncertainty of future events or outcomes. These
forward-looking statements and other statements made elsewhere in this report
are made in reliance on the Private Securities Litigation Reform Act of 1995.
The sections below entitled "Year 2000 Issues" and "Factors That May Affect
Future Results" in Exhibit 99.2 to this report set forth certain factors that
could cause our actual future results to differ materially from these
statements.
In July 1999, i2 Technologies, Inc. (the "Registrant") acquired Sales
Marketing Administration Research Tracking Technologies, Inc. ("SMART").
Additional information regarding the acquisition is presented in the
Registrant's previously filed Current Reports on Form 8-K, dated May 12, and
July 15, 1999.
The acquisition was accounted for as a pooling of interests. In
accordance with SEC requirements, the Registrant is providing selected financial
data, management's discussion and analysis of financial condition and results of
operations and consolidated financial statements which include the combined
operations of the Registrant and SMART for all periods presented. The Registrant
is also providing a description of its business to reflect the acquisition of
SMART and other developments during 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the Year Ended December 31, 1996.
27.2 Financial Data Schedule for the Year Ended December 31, 1997.
27.3 Financial Data Schedule for the Year Ended December 31, 1998.
27.4 Financial Data Schedule for the Nine Months Ended September
30, 1998.
99.1 Selected Financial Data of the Registrant as of and for the
Years ended December 31, 1994, 1995, 1996, 1997 and 1998.
99.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Registrant for the Years
ended December 31, 1996, 1997 and 1998.
99.3 Business of the Registrant.
99.4 The following Consolidated Financial Statements of the
Registrant:
<TABLE>
<CAPTION>
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<S> <C>
1. Report of Independent Public Accountants........................................ F-1
2. Consolidated Balance Sheets as of December 31, 1997 and
1998............................................................................ F-2
3. Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998................................................ F-3
4. Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998.................................... F-4
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998................................................ F-5
6. Notes to Consolidated Financial Statements...................................... F-6
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
99.5 Consolidated Financial Statement Schedules:
Report of Independent Public Accountants............................................. S-1
Schedule II -- Valuation and Qualifying Accounts..................................... S-2
Schedules other than the one listed above are omitted as the
required information is inapplicable or the information is
presented in the consolidated financial statements or related
notes.
99.6 Lease (One Colinas Crossing) dated as of March 24, 1999
between Colinas Crossing LP and the Registrant.
The exhibits, riders and schedules to this agreement
identified in the table of contents have not been filed as
they do not, in the judgment of the Registrant, contain
information that is material to an investment decision and
that is not otherwise disclosed in this agreement. The
Registrant undertakes to furnish supplementally a copy of any
such omitted document to the Commission upon request.
99.7 Lease (Two Colinas Crossing) dated as of August 3, 1999
between Colinas Crossing LP and the Registrant.
The exhibits, riders and schedules to this agreement
identified in the table of contents have not been filed as
they do not, in the judgment of the Registrant, contain
information that is material to an investment decision and
that is not otherwise disclosed in this agreement. The
Registrant undertakes to furnish supplementally a copy of any
such omitted document to the Commission upon request.
</TABLE>
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
i2 TECHNOLOGIES, INC.
By: /s/ WILLIAM M. BEECHER
----------------------------------
William M. Beecher
Chief Financial Officer
Dated: November 30, 1999
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the Year Ended December
31, 1996.
27.2 Financial Data Schedule for the Year Ended December
31, 1997.
27.3 Financial Data Schedule for the Year Ended December
31, 1998.
27.4 Financial Data Schedule for the Nine Months Ended September
30, 1998.
99.1 Selected Financial Data of the Registrant as of and for the
Years ended December 31, 1994, 1995, 1996, 1997 and 1998.
99.2 Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Registrant for the
Years ended December 31, 1996, 1997 and 1998.
99.3 Business of the Registrant.
99.4 The following Consolidated Financial Statements of the
Registrant:
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Report of Independent Public Accountants........................................ F-1
2. Consolidated Balance Sheets as of December 31, 1997 and
1998............................................................................ F-2
3. Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998................................................ F-3
4. Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998.................................... F-4
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998................................................ F-5
6. Notes to Consolidated Financial Statements...................................... F-6
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
99.5 Consolidated Financial Statement Schedules:
Report of Independent Public Accountants............................................. S-1
Schedule II -- Valuation and Qualifying Accounts..................................... S-2
Schedules other than the one listed above are omitted as the
required information is inapplicable or the information is
presented in the consolidated financial statements or related
notes.
99.6 Lease (One Colinas Crossing) dated as of March 24, 1999
between Colinas Crossing LP and the Registrant.
The exhibits, riders and schedules to this agreement
identified in the table of contents have not been filed as
they do not, in the judgment of the Registrant, contain
information that is material to an investment decision and
that is not otherwise disclosed in this agreement. The
Registrant undertakes to furnish supplementally a copy of any
such omitted document to the Commission upon request.
99.7 Lease (Two Colinas Crossing) dated as of August 3, 1999
between Colinas Crossing LP and the Registrant.
The exhibits, riders and schedules to this agreement
identified in the table of contents have not been filed as
they do not, in the judgment of the Registrant, contain
information that is material to an investment decision and
that is not otherwise disclosed in this agreement. The
Registrant undertakes to furnish supplementally a copy of any
such omitted document to the Commission upon request.
</TABLE>
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 8-K, into the Company's previously filed
registration statements, Reg. Nos. 333-85791, 333-57531, 333-53667, 333-28147,
333-27009 and 333-03703.
/s/ ARTHUR ANDERSEN LLP
November 29, 1999
Dallas, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 41,663
<SECURITIES> 18,031
<RECEIVABLES> 36,700
<ALLOWANCES> 1,269
<INVENTORY> 0
<CURRENT-ASSETS> 99,759
<PP&E> 16,482
<DEPRECIATION> 5,102
<TOTAL-ASSETS> 113,546
<CURRENT-LIABILITIES> 37,021
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 75,323
<TOTAL-LIABILITY-AND-EQUITY> 113,546
<SALES> 62,063
<TOTAL-REVENUES> 101,513
<CGS> 260
<TOTAL-COSTS> 93,305
<OTHER-EXPENSES> (1,671)
<LOSS-PROVISION> 1,085
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> 9,879
<INCOME-TAX> 4,705
<INCOME-CONTINUING> 5,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,174
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 137,351
<SECURITIES> 14,538
<RECEIVABLES> 76,616
<ALLOWANCES> 4,578
<INVENTORY> 0
<CURRENT-ASSETS> 237,472
<PP&E> 35,496
<DEPRECIATION> 11,712
<TOTAL-ASSETS> 264,923
<CURRENT-LIABILITIES> 69,216
<BONDS> 584
0
0
<COMMON> 17
<OTHER-SE> 193,326
<TOTAL-LIABILITY-AND-EQUITY> 264,923
<SALES> 141,766
<TOTAL-REVENUES> 221,766
<CGS> 2,746
<TOTAL-COSTS> 219,921
<OTHER-EXPENSES> (3,309)
<LOSS-PROVISION> 3,903
<INTEREST-EXPENSE> 150
<INCOME-PRETAX> 5,164
<INCOME-TAX> 6,916
<INCOME-CONTINUING> (1,752)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,752)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 62,611
<SECURITIES> 93,387
<RECEIVABLES> 127,677
<ALLOWANCES> 8,551
<INVENTORY> 0
<CURRENT-ASSETS> 298,152
<PP&E> 54,541
<DEPRECIATION> 22,913
<TOTAL-ASSETS> 344,808
<CURRENT-LIABILITIES> 114,541
<BONDS> 0
9
9
<COMMON> 18
<OTHER-SE> 229,801
<TOTAL-LIABILITY-AND-EQUITY> 344,808
<SALES> 254,316
<TOTAL-REVENUES> 369,157
<CGS> 7,967
<TOTAL-COSTS> 355,412
<OTHER-EXPENSES> (8,753)
<LOSS-PROVISION> 4,640
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 22,498
<INCOME-TAX> 17,279
<INCOME-CONTINUING> 5,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,219
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 97,733
<SECURITIES> 67,465
<RECEIVABLES> 103,025
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 280,664
<PP&E> 47,709
<DEPRECIATION> 19,469
<TOTAL-ASSETS> 316,791
<CURRENT-LIABILITIES> 98,984
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 217,273
<TOTAL-LIABILITY-AND-EQUITY> 316,791
<SALES> 160,514
<TOTAL-REVENUES> 255,565
<CGS> 5,681
<TOTAL-COSTS> 249,491
<OTHER-EXPENSES> (7,090)
<LOSS-PROVISION> 3,138
<INTEREST-EXPENSE> 340
<INCOME-PRETAX> 13,164
<INCOME-TAX> 11,450
<INCOME-CONTINUING> 1,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,714
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this report. The following statement of operations
data for the years ended December 31, 1996, 1997 and 1998 and the balance sheet
data as of December 31, 1997 and 1998 have been derived from consolidated
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report included elsewhere in this
report. The balance sheet data as of December 31, 1996 has been derived from
consolidated financial statements which have been audited by Arthur Andersen LLP
and the statement of operations data for the years ended December 31, 1994 and
1995 and the balance sheet data as of December 31, 1994 and 1995 have been
derived from unaudited consolidated financial statements. Amounts shown are in
thousands, except per share data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software licenses.................................... $11,178 $24,162 $ 62,063 $141,766 $234,316
Services............................................. 5,013 10,837 30,569 58,218 91,726
Maintenance.......................................... 1,168 3,462 8,881 21,792 43,115
------- ------- -------- -------- --------
Total revenues................................. 17,359 38,461 101,513 221,776 369,157
------- ------- -------- -------- --------
Costs and expenses:
Cost of software licenses............................ 366 390 260 2,746 7,967
Cost of services and maintenance..................... 3,196 7,601 21,761 48,422 77,459
Sales and marketing.................................. 4,780 10,487 35,484 77,071 129,978
Research and development............................. 3,644 8,503 23,559 57,392 94,199
General and administrative........................... 2,188 5,286 11,108 24,984 38,191
In-process research and development and
acquisition-related expenses(1).................... -- -- 1,133 9,306 7,618
------- ------- -------- -------- --------
Total costs and expenses....................... 14,174 32,267 93,305 219,921 355,412
------- ------- -------- -------- --------
Operating income...................................... 3,185 6,194 8,208 1,855 13,745
Other income (expense), net........................... (127) (167) 1,671 3,309 8,753
------- ------- -------- -------- --------
Income before income taxes............................ 3,058 6,027 9,879 5,164 22,498
Provision for income taxes............................ 1,306 2,054 4,705 6,916 17,279
------- ------- -------- -------- --------
Net income (loss)..................................... $ 1,752 $ 3,973 $ 5,174 $ (1,752) $ 5,219
======= ======= ======== ======== ========
Net income (loss) per share........................... $ 0.04 $ 0.09 $ 0.09 $ (0.03) $ 0.07
======= ======= ======== ======== ========
Net income (loss) per share, assuming dilution........ $ 0.03 $ 0.07 $ 0.08 $ (0.03) $ 0.07
======= ======= ======== ======== ========
Weighted average common shares outstanding............ 43,730 45,328 59,790 64,442 71,794
Weighted average common shares outstanding,
assuming dilution.................................. 55,320 60,894 68,116 64,442 78,530
</TABLE>
(footnote on following page)
1
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<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 4,066 $ 8,122 $ 59,694 $151,889 $155,998
Working capital.......................... 1,814 7,408 62,738 168,256 183,611
Total assets............................. 11,366 28,251 113,546 264,923 344,808
Total debt............................... -- -- 600 2,114 5,032
Total stockholders' equity............... 2,598 10,378 75,338 193,343 229,819
</TABLE>
---------------
(1) We incurred acquisition-related expenses related to business combinations of
$1.1 million in 1996, $9.3 million in 1997 and $7.6 million in 1998,
including write-offs of in-process research and development of $1.1 million
in 1996, $4.6 million in 1997 and $4.7 million in 1998. The remaining
costs included amortization of goodwill and acquired technology and
investment banking, legal and accounting fees and expenses. Excluding these
expenses, net income and net income per share, assuming dilution, would have
been $6.3 million and $0.09 per share in 1996, $5.0 million and $0.07 per
share in 1997 and $12.8 million and $0.16 per share in 1998.
2
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EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of intelligent eBusiness solutions that help
enterprises optimize business processes both internally and among trading
partners. Our solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business interactions over the Internet. Our
RHYTHM product suite principally includes solutions for supply chain management,
customer management, product lifecycle management, inter-process planning and
strategic planning. We recently began launching our Marketplace Services,
through which we provide our RHYTHM software applications to public and private
Internet-based marketplaces consisting of communities of trading partners. In
addition, our recently announced TradeMatrix portal is designed to provide
value-added services to participants spanning multiple digital marketplaces. We
also provide services such as consulting, training and maintenance in support of
these offerings.
In July 1999, we acquired Sales Marketing Administration Research
Tracking Technologies, Inc., or SMART. Under the terms of the acquisition
agreement, we agreed to issue up to 2.1 million shares of common stock for all
of the outstanding capital stock and options of SMART. In connection with the
SMART acquisition, we incurred expenses of $2.1 million that included, among
other things, investment banking, legal and accounting fees and expenses. The
transaction was accounted for as a pooling of interests. Accordingly, our
financial statements include the financial position, results of operations and
cash flows of SMART for all periods presented.
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<PAGE> 2
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages of total revenues represented by certain items reflected in our
consolidated statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses ...................... 61.1% 63.9% 63.5%
Services ............................... 30.1 26.3 24.8
Maintenance ............................ 8.8 9.8 11.7
------- ------- -------
Total revenues ................... 100.0 100.0 100.0
------- ------- -------
Costs and expenses:
Cost of software licenses .............. 0.3 1.2 2.2
Cost of services and maintenance ....... 21.4 21.8 21.0
Sales and marketing .................... 35.0 34.8 35.2
Research and development ............... 23.2 25.9 25.5
General and administrative ............. 10.9 11.3 10.3
In-process research and development
and acquisition-related expenses .... 1.1 4.2 2.1
------- ------- -------
Total costs and expenses ......... 91.9 99.2 96.3
------- ------- -------
Operating income ............................ 8.1 0.8 3.7
Other income, net ........................... 1.6 1.5 2.4
------- ------- -------
Income before income taxes .................. 9.7 2.3 6.1
Provision for income taxes .................. 4.6 3.1 4.7
------- ------- -------
Net income (loss) ........................... 5.1% (0.8)% 1.4%
======= ======= =======
</TABLE>
Years Ended December 31, 1998, 1997 and 1996
Revenues
Total revenues increased 66.5% to $369.2 million in 1998 from $221.8
million in 1997, and increased 118.5% in 1997 from $101.5 million in 1996. We
derive substantially all of our revenues from licenses associated with our
RHYTHM suite of software products, as well as related services and maintenance.
Software Licenses. Revenues from software licenses increased 65.3% to
$234.3 million in 1998 from $141.8 million in 1997, and increased 128.4% in 1997
from $62.1 million in 1996. Software license revenues constituted 63.5% of total
revenues in 1998, 63.9% in 1997 and 61.1% in 1996. The increases in the dollar
amount of software license revenues were due to increased customer awareness of
the potential benefits derived from deploying our software solutions and
continued strength in key targeted vertical markets. To date, sales of software
licenses have been derived principally from direct sales to customers. Although
we believe that direct sales will continue to account for a majority of software
license revenues, our strategy is to increase the level of indirect sales
activities. We expect that sales of our software products through sales
alliances, distributors, resellers and other indirect channels will increase as
a percentage of software license revenues. However, our efforts to expand
indirect sales may not be successful, or these relationships may not continue in
the future.
Services. Revenues from services increased 57.6% to $91.7 million in
1998 from $58.2 million in 1997, and increased 90.4% in 1997 from $30.6 million
in 1996. Service revenues constituted 24.8% of total revenues in 1998, 26.3% in
1997 and 30.1% in 1996. The increases in the dollar amount of service revenues
were primarily due to an increase in the number of RHYTHM licenses sold and a
significant investment in our consulting organization as a result of the
increased demand for our solutions. The increases were also due to an increase
in the use of third-party consultants to provide implementation services to our
customers, which has allowed us to more rapidly penetrate international markets.
Service
2
<PAGE> 3
revenues as a percentage of total revenues have fluctuated, and are expected to
continue to fluctuate on a period-to-period basis based upon the demand for
implementation, training and consulting services.
Maintenance. Revenues from maintenance increased 97.8% to $43.1 million
in 1998 from $21.8 million in 1997, and increased 145.4% in 1997 from $8.9
million in 1996. Maintenance revenues constituted 11.7% of total revenues in
1998, 9.8% in 1997 and 8.8% in 1996. The increases in the dollar amount of
maintenance revenues were primarily due to the continued increase in the number
of RHYTHM licenses sold and a high percentage of maintenance agreement renewals.
We expect that maintenance revenues both in dollar amount and as a percentage of
total revenues will continue to increase from the levels achieved in 1998.
Concentration of Revenues. During 1996, one customer accounted for
approximately 11% of total revenues. While on an annual basis no individual
customer accounted for more than 10% of total revenues in 1998 or 1997, we
generally derive a significant portion of our software license revenues in each
quarter from a small number of relatively large sales. For example, in the last
three quarters of 1998 and in each quarter of 1997 and 1996, one or more
customers individually accounted for at least 15% of total software license
revenues. While we believe that the loss of any one of these customers would not
seriously harm our business, operating results or financial condition, an
inability to consummate one or more substantial license sales in any future
period could seriously harm our operating results for that period.
International Revenues. We recognized $73.2 million of revenues from
international sources in 1998, representing approximately 20% of total revenues,
$66.7 million in 1997, representing approximately 30% of total revenues, and
$21.8 million in 1996, representing approximately 21% of total revenues. Our
revenues from international sources were primarily generated from customers
located in Asia, Canada and Europe. Revenues from customers located in Europe
accounted for approximately 11% of total revenues in 1998, 15% in 1997 and 11%
in 1996. The decrease in revenues from international sources as a percentage of
total revenues in 1998 was due primarily to the strength of sales efforts in the
U.S., reorganization of our international management team which resulted in a
lower than expected level of sales execution, and overall weakness in certain
international economies primarily in the Asia region, resulting in decreased
levels of customer spending in those markets. We believe that continued growth
and profitability may require further expansion in international markets. To
increase the level of international sales, we have utilized and may continue to
utilize substantial resources to expand existing international operations and
establish additional international operations. We cannot be certain that our
investments in international operations will produce desired levels of revenues
or profitability.
Costs and Expenses
Cost of Software Licenses. Cost of software licenses consists primarily
of:
o commissions paid to third parties in connection with joint marketing
and other related agreements;
o royalty fees associated with third-party software included with sales
of RHYTHM;
o the cost of user documentation; and
o the cost of reproduction and delivery of the software.
Cost of software licenses was $8.0 million in 1998, representing 3.4% of
software license revenues, $2.7 million in 1997, representing 1.9% of software
license revenues and $0.3 million in 1996, representing 0.4% of software license
revenues. The increases in cost of software licenses were primarily due to an
increase in commissions paid to third parties in connection with joint marketing
and other related agreements. We expect the cost of software licenses to vary in
the future depending upon the amount of commissions due to other third parties
in connection with joint marketing and other related agreements and the amount
of royalty fees associated with third-party software included with the sales of
RHYTHM.
Cost of Services and Maintenance. Cost of services and maintenance was
$77.5 million in 1998, representing 57.4% of total services and maintenance
revenues, $48.4 million in 1997, representing 60.5%
3
<PAGE> 4
of total services and maintenance revenues, and $21.8 million in 1996,
representing 55.2% of total services and maintenance revenues. The dollar
increases in cost of services and maintenance were due to an increase in the
number of consultants, product support and training staff and the increased use
of third-party consultants to provide implementation services. In addition,
consulting and support centers were established and expanded in Europe, Canada
and Asia in recent years. We expect to continue to increase the number of our
consulting, product support and training personnel in the foreseeable future as
a means to expand into different geographic and vertical markets. Consequently,
the cost of services and maintenance as a percentage of total services and
maintenance revenues may increase in the future. To the extent that our revenues
do not increase at anticipated rates, the hiring of additional personnel could
seriously harm our profit margins.
Sales and Marketing. Sales and marketing expenses were $130.0 million
in 1998, representing 35.2% of total revenues, $77.1 million in 1997,
representing 34.8% of total revenues, and $35.5 million in 1996, representing
35.0% of total revenues. The increases in the dollar amount of sales and
marketing expenses were due to continued expansion of our direct sales force,
increased sales commissions as a result of the higher revenue levels, continued
investment in strengthening our international selling presence and increased
marketing and promotional activities as a result of our expanded suite of
intelligent eBusiness solutions. We expect these expenses will continue to
increase in absolute dollars and may increase as a percentage of total revenues
from the levels experienced in 1998.
Research and Development. Research and development expenses were $94.2
million in 1998, representing 25.5% of total revenues, $57.4 million in 1997,
representing 25.9% of total revenues, and $23.6 million in 1996, representing
23.2% of total revenues. The increases in the dollar amount of research and
development expenses were due to the hiring of additional research and
development personnel and other related costs incurred to support our growing
product footprint. We expect that the dollar amount of research and development
expenses will increase as we continue to invest in developing new products,
applications and product enhancements for existing and new vertical markets.
In accordance with Statement of Financial Accounting Standards, or
SFAS, No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed," software development costs are expensed as incurred
until technological feasibility has been established, at which time such costs
are capitalized until the product is available for general release to customers.
To date, the establishment of technological feasibility of our products and
general release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been insignificant
and we have not capitalized any software development costs.
General and Administrative. General and administrative expenses were
$38.2 million in 1998, representing 10.3% of total revenues, $25.0 million in
1997, representing 11.3% of total revenues, and $11.1 million in 1996,
representing 10.9% of total revenues. The increases in the dollar amount of
general and administrative expenses were primarily the result of increased
staffing and related costs associated with the growth of our business. The
decrease in general and administrative expenses as a percentage of total
revenues in 1998 was primarily due to the increase in revenues and our ability
to leverage our base of resources to support a larger organization. We expect
that the dollar amount of general and administrative expenses will continue to
increase in the foreseeable future.
In-Process Research and Development and Acquisition-Related Expenses.
In the recent past, we have sought to expand the depth of our current product
offerings through various technology or business acquisitions. Some of these
acquisitions involve technology that is not yet determined to be technologically
feasible and has no alternative future use in its then-current stage of
development. In such instances, in accordance with appropriate accounting
guidelines, the portion of the purchase price allocated to in-process research
and development is expensed immediately upon acquisition. Further, the final
purchase price on certain transactions is ultimately dependent upon certain
events such as payouts based on the attainment of specified revenue targets for
the acquired products or technologies. Such future earnouts, if any, may be
considered additional cost of the acquired company. We acquired SMART in 1999,
InterTrans Logistics Solutions Limited, or ITLS, in April 1998 and Think Systems
Corporation and Optimax Systems Corporation in 1997. These acquisitions were
each accounted for as a pooling of interests. Accordingly,
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our consolidated financial statements include the financial position, results of
operations and cash flows of these companies. Additionally, in 1998 and 1997, we
completed other business acquisitions which were accounted for using the
purchase method.
We incurred $7.6 million in 1998, $9.3 million in 1997 and $1.1 million
in 1996 in certain acquisition-related expenses, of which $4.7 million in 1998,
$4.6 million in 1997 and $1.1 million in 1996 represented the write-off of
in-process research and development. The remaining costs primarily consisted of
investment banking, legal and accounting fees and expenses and amortization of
intangibles. See Note 3 in the Notes to Consolidated Financial Statements for
further discussion.
Other Income, Net
Other income, net was $8.8 million in 1998, representing 2.4% of total
revenues, $3.3 million in 1997, representing 1.5% of total revenues, and $1.7
million in 1996, representing 1.6% of total revenues. The increases in the
dollar amount of other income, net were primarily due to interest earned on
higher balances of cash, cash equivalents and short-term investments resulting
from net proceeds of our public offerings of common stock in 1997 and 1996.
Included in other income, net for 1998 was a gain of $1.8 million on the sale of
SMART's hosting business.
Provision for Income Taxes
We recorded income tax expense of $17.3 million in 1998, $6.9 million
in 1997 and $4.7 million in 1996. Our effective income tax rates were 76.8% in
1998, 133.9% in 1997 and 47.6% in 1996. The fluctuations in our effective income
tax rates were primarily due to the non-deductibility of certain subsidiaries'
losses, the in-process research and development and certain other
acquisition-related expenses. Excluding the effects of certain subsidiaries'
losses, the in-process research and development and certain other
acquisition-related expenses, our effective tax rate was 38.5% in 1998, 34.2% in
1997 and 37.2% in 1996.
Net Income Per Share
Net income per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share." This method requires calculation of both net income per
share and net income per share, assuming dilution. Net income per share excludes
the potentially dilutive effect of common stock equivalents such as stock
options, while net income per share, assuming dilution includes such potentially
dilutive effects. Future weighted-average shares outstanding calculations will
be impacted by the following factors:
o the ongoing issuance of common stock associated with stock option
exercises;
o the issuance of common shares associated with our employee stock
purchase program;
o any fluctuations in our stock price, which could cause changes in
the number of common stock equivalents included in the net income
per share, assuming dilution computation; and
o the issuance of common stock to effect business combinations should
we enter into such transactions.
LIQUIDITY AND CAPITAL RESOURCES
We historically have financed our operations and met our capital
expenditure requirements primarily through cash flows from operations and sales
of equity securities. Our liquidity and financial position consisted of $183.6
million of working capital at December 31, 1998, as compared to $168.3 million
at December 31, 1997. The increases in working capital were primarily related to
an increase in cash, cash equivalents and short-term investments to $156.0
million at December 31, 1998 from $151.9 million at December 31, 1997. Cash
flows from operations were $13.8 million in 1998, $3.9 million in 1997 and $7.1
million in 1996. Operating cash flows increased in 1998 as compared to 1997
primarily due to an increase in net
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income, deferred revenues and the tax benefit from stock option activity, offset
by an increase in accounts receivable. The tax benefit from stock option
activity is primarily the result of disqualifying dispositions of stock acquired
under our stock plans. Operating cash flows decreased in 1997 as compared to
1996 primarily due to an increase in accounts receivable partially offset by
increases in the tax benefit from stock option activity and accrued compensation
and related expenses.
Accounts receivable, net of allowance for doubtful accounts, increased
to $127.7 million at December 31, 1998 from $76.6 million at December 31, 1997
primarily due to strong fourth quarter revenues in 1998. Quarter-end days' sales
outstanding was 102 days at December 31, 1998. Accounts receivable and days'
sales outstanding can fluctuate for a variety of reasons, including:
o the amount and timing of revenues earned;
o our collection experience;
o the amount of receivables generated from international customers
which generally have longer payment terms compared to customers in
the U.S.; and
o the number of large sales for which some amounts may not be due upon
execution of the contract.
We believe that the allowance for doubtful accounts at December 31,
1998, is adequate to cover any collection difficulties with respect to accounts
receivable. However, a significant portion of our accounts receivable are
derived from sales of large licenses, often to new customers with whom we do not
have a payment history. Accordingly, there can be no assurance that the
allowance will be adequate to cover any receivables that are later determined to
be uncollectible, particularly if one or more large receivables become
uncollectible.
Cash used in investing activities was $102.7 million for 1998 as
compared to $18.0 million for 1997 and $29.2 million for 1996. Cash used in
investing activities was higher in 1998 primarily due to the January 1998
investment of the net proceeds from our public offering at the end of 1997, at
which time the proceeds were invested primarily in financial instruments
classified as cash equivalents. At December 31, 1998, we did not have any
material commitments for capital expenditures.
Cash provided by financing activities was $14.2 million for 1998 as
compared to $109.8 million for 1997 and $55.6 million for 1996. Cash provided by
financing activities for 1997 includes the net proceeds of $89.4 million from
our public offering at the end of 1997. Cash provided by financing activities
for 1996 includes net proceeds of $43.7 million from our May 1996 initial public
offering of common stock.
At December 31, 1998, we had a $15.0 million revolving credit agreement
that expired in October 1999, was unsecured and contained customary restrictive
covenants, including covenants requiring us to maintain certain financial
ratios. The revolving credit agreement was not subject to a borrowing base
limitation and borrowings thereunder bore interest at LIBOR plus 0.75% to 1.75%,
depending on certain cash ratios. The maximum borrowings available under the
facility were reduced by the value of outstanding letters of credit issued by
the lender on our behalf, $6.7 million of which were outstanding at December 31,
1998. At December 31, 1998, there were no borrowings outstanding under this
agreement and we were in compliance with all covenants.
In August 1999, we entered into one-year revolving credit facilities
with an aggregate borrowing capacity of $30.0 million with substantially the
same terms as the prior credit facility.
We may in the future pursue additional acquisitions of businesses,
products and technologies, or enter into joint venture arrangements, that could
complement or expand our business. Any material acquisition or joint venture
could result in a decrease to our working capital depending on the amount,
timing and nature of the consideration to be paid.
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We believe that existing cash and cash equivalent balances, short-term
investment balances, available borrowings under revolving credit agreements and
potential cash flows from operations will satisfy our working capital and
capital expenditure requirements for the next twelve months. However, any
material acquisitions of complementary businesses, products or technologies or
joint venture arrangements could require us to obtain additional equity or debt
financing. There can be no assurance that such financing would be available on
acceptable terms, if at all.
YEAR 2000 ISSUES
Many older computer systems and software products currently in use
accept only two-digit entries in the date code field. As a result, systems and
software that record only the last two digits of the calendar year may be unable
to determine whether "00" means the year 1900 or the year 2000. This may result
in system or software failures or the creation of erroneous results. As a
result, the computer systems and/or software used by many companies may need
upgrading to comply with the "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects associated with
such compliance. We believe that current versions of our software products,
including software licensed from third parties, are Year 2000 compliant.
However, some customers may be running earlier versions of the software products
developed by those companies that we have acquired that may not be Year 2000
compliant, and we are encouraging those customers to migrate to current product
versions. Moreover, our products are often integrated into enterprise systems
involving complicated software products developed by other vendors. Year 2000
problems inherent in a customer's transactional software programs might
significantly limit that customer's ability to realize the intended benefits of
our products and services. In the future, we may be subject to claims based on
Year 2000 problems in others' products, custom scripts created by third parties
to interface with our products or issues arising from the integration of
multiple products within an overall system. We have not been a party to any
litigation or arbitration proceeding to date involving our products or services
related to Year 2000 compliance issues. However, in the future, we may need to
defend our products or services in those proceedings, or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000-related disputes, and any liability for Year 2000-related
damages, could harm our business, operating results and financial condition.
We believe that Year 2000 issues may affect the purchasing patterns of
customers and potential customers in a variety of ways. Many companies are
expending significant resources to correct, patch or replace their current
hardware and software systems to achieve Year 2000 compliance. These
expenditures may result in reduced funds available to purchase our products and
services. Any of the foregoing could harm our business, operating results and
financial condition.
Our plan to resolve Year 2000 issues includes assessment, remediation
and testing of internal management and other information systems. As of
September 30, 1999, remediation and testing of such systems was substantially
complete. However, system compliance testing will continue in conjunction with
our overall information systems initiatives throughout the fourth quarter of
1999. We have not deferred any information technology initiatives as a result of
our Year 2000 project. Through September 30, 1999, we have incurred
approximately $400,000 of expenses related to correction of Year 2000 issues. We
currently expect additional expenses during the remainder of 1999 in connection
with the correction of Year 2000 issues to be minimal. Such expenses are being
funded through operating cash flows.
We believe that an effective plan is in place to resolve the Year 2000
issues in a timely manner. We do not believe that material exposure to
significant business interruption exists as a result of Year 2000 compliance
issues or that the cost of remedial actions would seriously harm our business,
financial condition or results of operations. We have not fully determined the
risks associated with the reasonably worst-case scenario and have not formulated
a contingency plan to address Year 2000 issues. We do not expect to have a
specific contingency plan in place in the future.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes new standards of accounting and reporting for derivative instruments
and hedging activities. SFAS 133 requires that all derivatives be recognized at
fair value in the balance sheet, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS 133 will be effective for fiscal years beginning after June 15, 2000. We do
not expect SFAS 133 to have a material effect on our financial position or
results of operations.
In December 1998, the American Institute of Certified Public
Accountants issued Statement of Position, or SOP 98-9, "Modifications of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions," which
requires recognition of revenue using the "residual method" in a multiple
element arrangement when fair value does not exist for one or more of the
undelivered elements in the arrangement. Under the "residual method," the total
fair value of the undelivered elements is deferred and subsequently recognized
in accordance with SOP 97-2, "Software Revenue Recognition." We have been in
compliance with SOP 97-2, as modified by SOP 98-9, since January 1, 1999.
FINANCIAL RISK MANAGEMENT
Foreign Exchange. Our revenues originating outside the U.S. in were 20%
of total revenues in 1998, 30% in 1997 and 21% in 1996. Revenues generated from
Europe were 11% of total revenues in 1998, 15% in 1997 and 11% in 1996.
International sales are made mostly from our foreign sales subsidiaries in the
local countries and are typically denominated in U.S. dollars. These
subsidiaries incur most of their expenses in the local currency. The effect of
foreign exchange rate fluctuations in 1998, 1997 and 1996 was not material to
our financial position or results of operations.
Interest Rates. We invest our cash in a variety of financial
instruments, including bank time deposits, and taxable and tax-advantaged
variable-rate and fixed-rate obligations of corporations, municipalities, and
local, state and national governmental entities and agencies. These investments
are denominated in U.S. dollars. Cash balances in foreign currencies overseas
are operating balances and are invested in short-term time deposits of the local
operating bank.
Interest income on our investments is carried in "Other Income, Net."
We account for our investment instruments in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." All of our
cash equivalents and short-term investments are treated as available-for-sale
under SFAS 115.
Investments in both fixed-rate and floating-rate interest earning
instruments carry a degree of interest rate risk. Fixed-rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating-rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment income may fall
short of expectations due to changes in interest rates or we may suffer losses
in principal if forced to sell securities which have seen a decline in market
value due to changes in interest rates. Our investment securities are held for
purposes other than trading. While at December 31, 1998, certain of the
investment securities had maturities in excess of one year, we liquidated such
securities within one year. The weighted-average interest rate on investment
securities at December 31, 1998, was 5.3%. The fair value of securities held at
December 31, 1998, approximated the cost of the securities because the majority
of the securities are held for a short duration. Based on our marketable
securities portfolio and current interest rates, a 200 basis point increase or
decrease in interest rates would result in no material increase or decrease in
the fair market value of our marketable securities portfolio.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the other information in this report, the following factors
should be considered in evaluating our company and our business.
OUR FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER AND WE MAY
FAIL TO MEET EXPECTATIONS, WHICH MAY NEGATIVELY IMPACT THE PRICE OF OUR STOCK.
Our operating results have varied significantly from quarter to quarter in
the past, and we expect our operating results to continue to vary from quarter
to quarter in the future, due to a variety of factors, many of which are outside
of our control. Factors that could affect quarterly operating results include:
- volume and timing of customer orders;
- length of the sales cycle;
- customer budget constraints;
- announcement or introduction of new products or product enhancements by
us or our competitors;
- changes in prices of our products and those of our competitors;
- foreign currency exchange rate fluctuations;
- market acceptance of new products;
- mix of direct and indirect sales;
- changes in our strategic relationships; and
- changes in our business strategy.
Furthermore, customers may defer or cancel their purchases of products if
they experience a downturn in their business or if there is a downturn in the
general economy. We will continue to determine our investment and expense levels
based on expected future revenues. A significant portion of our expenses are not
variable in the short term, and we cannot reduce them quickly to respond to
decreases in revenues. Therefore, if revenues are below expectations, this
shortfall is likely to adversely and disproportionately affect our operating
results. In addition, we may reduce our prices or accelerate investment in
research and development efforts in response to competitive pressures or to
pursue new market opportunities. Any of these activities may further limit our
ability to adjust spending in response to revenue fluctuations. Revenues may not
grow at historical rates in future periods, or they may not grow at all.
Accordingly, we may not maintain positive operating margins in future quarters.
Any of these factors could cause our operating results to be below the
expectations of public market analysts and investors, and the price of our
common stock may fall.
WE ANTICIPATE SEASONAL FLUCTUATIONS IN REVENUES, WHICH MAY CAUSE VOLATILITY IN
OUR STOCK PRICE.
The market price of our common stock has been volatile in the past, and the
market price of our common stock may be volatile in the future. Historically,
our revenues have tended to be strongest in the fourth quarter of the year. We
believe that our seasonality is due to the calendar year budgeting cycles of
many of our customers and our compensation policy that
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rewards sales personnel for achieving annual revenue quotas. In future periods,
these seasonal trends may cause our quarter-to-quarter operating results to
vary, which may result in failing to meet the expectations of public market
analysts and investors.
WE DEPEND ON SIGNIFICANT INDIVIDUAL LICENSE SALES. THEREFORE, OUR OPERATING
RESULTS FOR A GIVEN PERIOD COULD SUFFER SERIOUS HARM IF WE FAIL TO CLOSE THE
LARGE SALES WE TARGETED FOR THAT PERIOD.
We generally derive a significant portion of revenues in each quarter from
a small number of relatively large sales. For example, in the first three
quarters of 1999, the last three quarters of 1998 and each quarter of 1997 and
1996, one or more customers individually accounted for at least 15% of our total
software license revenues in each respective quarter. Moreover, due to customer
purchasing patterns, we typically realize a significant portion of our software
license revenues in the last few weeks of a quarter. As a result, we are subject
to significant variations in license revenues and results of operations if we
incur any delays in customer orders. If in any future period we fail to close
one or more substantial license sales that we have targeted to close in that
period, this failure could seriously harm our operating results for that period.
WE MAY NOT REMAIN COMPETITIVE, AND INCREASED COMPETITION COULD SERIOUSLY HARM
OUR BUSINESS.
Our competitors offer a variety of solutions addressed at various segments
of the supply chain as well as other eBusiness processes. These competitors
include:
- enterprise resource application software vendors such as Baan, JD
Edwards, Oracle, PeopleSoft and SAP, each currently offering or marketing
competitive software solutions;
- vendors of products and services for eBusiness;
- other software vendors who may broaden their product offerings by
internally developing, or by acquiring or partnering with independent
developers of, eBusiness solutions;
- supply chain software vendors, including Manugistics and Logility; and
- corporate information technology departments, which may develop their own
eBusiness solutions.
Historically, a number of enterprise resource planning vendors have jointly
marketed our products as a complement to their own systems. However, as we
attempt to increase our market share and expand our product offerings, and as
enterprise resource planning vendors expand their own product offerings, our
relationships with these vendors have and may continue to become more
competitive. We believe that enterprise resource planning vendors are focusing
significant resources on increasing the functionality of their own planning and
scheduling products.
Relative to us, many of our competitors have:
- longer operating histories;
- significantly greater financial, technical, marketing and other
resources;
- greater name recognition;
- a broader range of products to offer; and
- a larger installed base of customers.
Current and potential competitors have established, or may establish,
cooperative relationships among themselves or with third parties to enhance
their products, which may result in increased competition. In addition, we
expect to experience increasing price competition as we compete for market
share, and we may not be able to compete successfully with our existing or
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new competitors. If we experience increased competition, substantial harm may
result to our business, operating results and financial condition.
OUR STRATEGIES OF ESTABLISHING AND PROMOTING OUR MARKETPLACE SERVICES IN DIGITAL
TRADING COMMUNITIES AND OUR TRADEMATRIX PORTAL ARE UNPROVEN AND MAY BE
UNSUCCESSFUL.
As part of our business strategy, we are offering our Marketplace Services
to trading community participants in digital marketplaces. In addition, we are
offering our TradeMatrix services to link and provide value-added services to
digital marketplaces. This strategy is unproven, and currently we are providing
our Marketplace Services in only a small number of digital trading communities
and currently are providing only a limited portion of our intended TradeMatrix
services. We have limited experience developing and operating digital
marketplaces, and we cannot assure you that these trading communities will be
operated effectively, that enterprises will join and remain in these trading
communities, that we will develop and provide successfully all intended
TradeMatrix services, or that we will generate significant revenues from these
services. To date, we have not generated significant revenues from these
services. If this business strategy is flawed, or if we are unable to execute it
effectively, our business, operating results and financial condition could be
substantially harmed.
In addition, we expect to rely on third parties' efforts to promote our
Marketplace Services and TradeMatrix portal. Because our revenues from these
sources are likely to be largely based on subscriptions to or utilization of our
digital marketplaces, any failure by these third parties to successfully promote
our Marketplace Services or TradeMatrix portal, or any reluctance to participate
in our digital marketplaces or TradeMatrix on the part of suppliers,
manufacturers, distributors, logistics providers or customers, could harm our
business, results of operations and financial condition.
Furthermore, our Marketplace Services and TradeMatrix portal may be unable
to support large numbers of trading community participants. We currently use
third-party service providers to host these services, and we intend to
internally host some or all of these services in the future. We may be liable to
trading community participants for damages, or these marketplaces may experience
service interruptions, if we or third-party service providers suffer system
failures or if a digital marketplace or TradeMatrix otherwise becomes
inoperable.
RAPID GROWTH IN OUR OPERATIONS COULD CONTINUE TO STRAIN OUR MANAGERIAL AND
OPERATIONAL RESOURCES.
We have experienced rapid growth. Revenues have increased to $395.8 million
in the nine months ended September 30, 1999 from $255.6 million in the nine
months ended September 30, 1998, and to $369.2 million in 1998 from $221.8
million in 1997 and from $101.5 million in 1996. Our employee count has
increased to approximately 2,650 at September 30, 1999 from 2,244 at December
31, 1998 and from 1,191 at December 31, 1997. We have also increased the scope
of our operating and financial systems and the geographic distribution of our
operations and customers. This growth has strained our management and
operations, and they will continue to be strained if rapid growth continues. Our
officers and other key employees will need to implement and improve our
operational, customer support and financial control systems and effectively
expand, train and manage our employee base. Further, we expect that we will be
required to manage an increasing number of relationships with various customers
and other third parties. We may not be able to manage future expansion
successfully, and our inability to do so would harm our business, operating
results and financial condition.
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ANY DECREASE IN DEMAND FOR OUR RHYTHM SUITE OF PRODUCTS AND SERVICES COULD
SIGNIFICANTLY REDUCE OUR REVENUES.
We derive substantially all of our revenues from licenses of our RHYTHM
suite of products and related services. RHYTHM-related revenues, including
maintenance and consulting contracts, will continue to account for substantially
all of our revenues for the foreseeable future. As a result, our future
operating results will depend upon continued market acceptance of RHYTHM and
enhancements thereto. However, RHYTHM may not achieve continued market
acceptance. Competition, technological change or other factors could decrease
demand for, or market acceptance of, RHYTHM. Any decrease in demand or market
acceptance of RHYTHM could substantially harm our business, operating results
and financial condition.
WE ARE INVESTING SIGNIFICANT RESOURCES IN DEVELOPING AND MARKETING OUR
INTELLIGENT EBUSINESS SOLUTIONS. THE MARKET FOR THESE SOLUTIONS IS NEW AND
EVOLVING, AND, IF THIS MARKET DOES NOT DEVELOP AS WE ANTICIPATE OR IF WE ARE
UNABLE TO DEVELOP ACCEPTABLE SOLUTIONS, SERIOUS HARM WOULD RESULT TO OUR
BUSINESS.
We currently derive a substantial portion of our revenues from licenses for
decision-support software products associated with supply chain management
software and related services. However, we are investing significant resources
in further developing and marketing enhanced products and services to facilitate
eBusiness over public and private networks. For the first few months after we
introduce new products and services, the demand for and market acceptance of
those products and services are subject to a high level of uncertainty,
especially where acquisition of our products or services requires a large
capital commitment or other significant commitment of resources. Adoption of
eBusiness software solutions, particularly by those individuals and enterprises
that have historically relied upon traditional means of commerce and
communication, will require a broad acceptance of new and substantially
different methods of conducting business and exchanging information. These
products and services involve a new approach to the conduct of business, and, as
a result, intensive marketing and sales efforts may be necessary to educate
prospective customers regarding the uses and benefits of these products and
services in order to generate demand. The market for this broader functionality
may not develop, competitors may develop superior products and services, or we
may not develop acceptable solutions to address this functionality. Any one of
these events could seriously harm our business, operating results and financial
condition.
RAPID ADOPTION OF OUR MARKETPLACE SERVICES AND TRADEMATRIX SERVICES COULD REDUCE
OUR SOFTWARE LICENSING REVENUES.
Our customers may rapidly adopt our Marketplace Services and TradeMatrix
services. Revenues from these services will be based on subscriptions to or
utilization of digital marketplaces. This pricing model differs from our
historical model of deriving revenues from licenses of the RHYTHM suite of
products, which we largely recognize upon executing a contract and delivering
software. Although our revenue from digital marketplaces and TradeMatrix has
been immaterial to date, our business model calls for a growing portion of our
revenues in the future to be based upon subscription and utilization fees from
these services. To the extent that our customers choose to use our Marketplace
Services and TradeMatrix services in lieu of licensing the RHYTHM suite of
products, we may recognize lower revenues in the initial periods of our
relationships with these customers.
THE MARKETS IN WHICH WE COMPETE EXPERIENCE RAPID TECHNOLOGICAL CHANGE. IF WE DO
NOT RESPOND TO THE TECHNOLOGICAL ADVANCES OF THE MARKETPLACE, WE COULD SERIOUSLY
HARM OUR BUSINESS.
Enterprises are increasing their focus on decision-support solutions for
eBusiness challenges. As a result, they are requiring their application software
vendors to provide greater
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levels of functionality and broader product offerings. Moreover, competitors
continue to make rapid technological advances in computer hardware and software
technology and frequently introduce new products, services and enhancements. We
must continue to enhance our current product line and develop and introduce new
products and services that keep pace with the technological developments of our
competitors. We must also satisfy increasingly sophisticated customer
requirements. If we cannot successfully respond to the technological advances of
others, or if our new products or product enhancements and services do not
achieve market acceptance, these events could seriously harm our business,
operating results and financial condition.
IF USE OF THE INTERNET FOR COMMERCE AND COMMUNICATION DOES NOT INCREASE AS WE
ANTICIPATE, OUR BUSINESS WILL SUFFER.
We are offering new and enhanced products and services, some of which, such
as Marketplace Services and TradeMatrix, depend on increased acceptance and use
of the Internet as a medium for commerce and communication. Rapid growth in the
use of the Internet is a recent phenomenon. As a result, acceptance and use may
not continue to develop at historical rates, and a sufficiently broad base of
business customers may not adopt or continue to use the Internet as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty, and there
exist few proven services and products.
Our business could be seriously harmed if:
- use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
- the necessary communication and computer network technology underlying
the Internet and other online services does not effectively support any
expansion that may occur;
- new standards and protocols are not developed or adopted in a timely
manner; or
- for any other reason -- such as concerns about security, reliability,
cost, ease of use, accessibility or quality of service -- the Internet
does not create a viable commercial marketplace, inhibiting the
development of electronic commerce and reducing the need for and
desirability of our products and services.
FUTURE REGULATION OF THE INTERNET MAY SLOW ITS GROWTH, RESULTING IN DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES AND INCREASED COSTS OF DOING BUSINESS.
Due to increasing popularity and use of the Internet, it is possible that
state and federal regulators could adopt laws and regulations that impose
additional burdens on companies conducting business online. For example, the
growth and development of the market for Internet-based services may prompt
calls for more stringent consumer protection laws. Moreover, the applicability
to the Internet of existing laws in various jurisdictions governing issues such
as property ownership, sales tax, libel and personal privacy is uncertain and
may take years to resolve. Any new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services could decrease the expansion of the Internet, causing
our costs to increase and our growth to be harmed.
CONCERNS THAT OUR PRODUCTS DO NOT ADEQUATELY PROTECT THE PRIVACY OF CONSUMERS
COULD INHIBIT SALES OF OUR PRODUCTS.
One of the principal features of our customer management software
applications is the ability to develop and maintain profiles of consumers for
use by businesses. Typically, these products capture profile information when
consumers, business customers and employees visit a Web site
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and volunteer information in response to survey questions concerning their
backgrounds, interests and preferences. Our products augment these profiles over
time by collecting usage data. Although we have designed our customer management
products to enable the development of applications that permit Web site visitors
to prevent the distribution of any of their personal data beyond that specific
Web site, privacy concerns may nevertheless cause visitors to resist providing
the personal data necessary to support this profiling capability. If we cannot
adequately address consumers' privacy concerns, these concerns could seriously
harm our business, financial condition and operating results.
IF OUR ENCRYPTION TECHNOLOGY FAILS TO ENSURE THE SECURITY OF OUR CUSTOMERS'
ONLINE TRANSACTIONS, SERIOUS HARM TO OUR BUSINESS COULD RESULT.
The secure exchange of value and confidential information over public
networks is a significant concern of consumers engaging in online transactions
and interaction. Our customer management software applications use encryption
technology to provide the security necessary to effect the secure exchange of
value and confidential information. Advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments could
result in a compromise or breach of the algorithms that these applications use
to protect customer transaction data. If any compromise or breach were to occur,
it could seriously harm our business, financial condition and operating results.
WE MAY NOT SUCCESSFULLY INTEGRATE OR REALIZE THE INTENDED BENEFITS OF OUR RECENT
ACQUISITIONS.
We acquired ITLS in April 1998 and SMART in July 1999. In addition, we have
acquired other businesses and products to help broaden and strengthen our
product portfolio. The success of these acquisitions will depend primarily on
our ability to:
- retain, motivate and integrate the acquired personnel;
- integrate multiple information systems; and
- integrate acquired software with our existing products and services.
We may encounter difficulties in integrating our operations and products with
those of ITLS, SMART and others. We may not realize the benefits that we
anticipated when we made these acquisitions. Our failure to successfully
integrate our operations and products with those of ITLS, SMART and others could
seriously harm our business, operating results and financial condition.
WE MAY MAKE FUTURE ACQUISITIONS OR ENTER INTO JOINT VENTURES THAT MAY NOT BE
SUCCESSFUL.
In the future, we may acquire additional businesses, products and
technologies, or enter into joint venture arrangements, that could complement or
expand our business. Management's negotiations of potential acquisitions or
joint ventures and management's integration of acquired businesses, products or
technologies could divert their time and resources. Any future acquisitions
could require us to issue dilutive equity securities, incur debt or contingent
liabilities, amortize goodwill and other intangibles, or write off in-process
research and development and other acquisition-related expenses. Further, we may
not be able to integrate any acquired business, product or technology with our
existing operations or train, retain and motivate personnel from the acquired
business. If we are unable to fully integrate an acquired business, product or
technology or train, retain and motivate personnel from the acquired business,
we may not receive the intended benefits of that acquisition.
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WE FACE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS THAT COULD HARM
OUR COMPANY.
Our international operations are subject to risks inherent in international
business activities. In addition, we may expand our international operations in
the future, which would increase our exposure to these risks. The risks we face
internationally include:
- difficulties and costs of staffing and managing geographically disparate
operations;
- longer accounts receivable payment cycles in certain countries;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements;
- overlap of different tax structures;
- greater difficulty in safeguarding intellectual property;
- import and export licensing requirements;
- trade restrictions;
- changes in tariff rates;
- political instability; and
- general economic conditions in international markets.
CHANGES IN THE VALUE OF THE U.S. DOLLAR, AS COMPARED TO THE CURRENCIES OF
FOREIGN COUNTRIES WHERE WE TRANSACT BUSINESS, COULD HARM OUR OPERATING RESULTS.
To date, our international revenues have been denominated primarily in U.S.
dollars. The majority of our international expenses and some revenues have been
denominated in currencies other than the U.S. dollar. Therefore, changes in the
value of the U.S. dollar as compared to these other currencies may adversely
affect our operating results. As our international operations expand, we will
use an increasing number of foreign currencies, causing our exposure to currency
exchange rate fluctuations to increase. Although we have implemented limited
hedging programs to mitigate our exposure to currency fluctuations, currency
exchange rate fluctuations have caused, and will continue to cause, currency
transaction gains and losses. While these gains and losses have not been
material to date, they may harm our business, results of operations or financial
condition in the future.
WE DEPEND ON OUR STRATEGIC PARTNERS AND OTHER THIRD PARTIES. IF WE FAIL TO
DERIVE BENEFITS FROM OUR EXISTING AND FUTURE STRATEGIC RELATIONSHIPS, OUR
BUSINESS WILL SUFFER.
From time to time, we have collaborated with other companies, including IBM
and PricewaterhouseCoopers, in areas such as product development, marketing,
distribution and implementation. Maintaining these and other relationships is a
meaningful part of our business strategy. However, some of our current and
potential strategic partners are either actual or potential competitors, which
may impair the viability of these relationships. In addition, some of our
relationships have failed to meet expectations and may fail to meet expectations
in the future. We may not be able to enter into successful new strategic
relationships in the future.
THE LOSS OF ANY OF OUR KEY PERSONNEL OR OUR FAILURE TO ATTRACT ADDITIONAL
PERSONNEL COULD SERIOUSLY HARM OUR COMPANY.
We rely upon the continued service of a relatively small number of key
technical and senior management personnel. Our future success depends on
retaining our key employees and our continuing ability to attract, train and
retain other highly qualified technical and managerial
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personnel. Very few of our key technical or senior management personnel are
bound by employment agreements. As a result, our employees could leave with
little or no prior notice. In the past, we have had difficulty recruiting
qualified personnel. We may not be able to attract, assimilate or retain other
highly qualified technical and managerial personnel in the future. Our loss of
any of our key technical and senior management personnel or our inability to
attract, train and retain additional qualified personnel could seriously harm
our business, operating results and financial condition.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES.
We rely primarily on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. However, these measures afford only limited protection.
Unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Although we believe software
piracy may be a problem, we are not able to determine the extent to which piracy
of our software products exists. Policing unauthorized use of our products is
difficult, and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology. This is particularly true in foreign
countries where the laws may not protect proprietary rights to the same extent
as the laws of the United States and may not provide us with an effective remedy
against piracy.
As the number of products and competitors continues to grow, the
functionality of products in different industry segments is increasingly
overlapping. As a result, we increasingly may be subject to claims of
intellectual property infringement. Although we are not aware that any of our
products infringe upon the proprietary rights of third parties, third parties
may claim infringement by us with respect to current or future products. Any
infringement claims, with or without merit, could be time-consuming, result in
costly litigation or damages, cause product shipment delays or the loss or
deferral of sales, or require us to enter into royalty or licensing agreements.
If we enter into royalty or licensing agreements in settlement of any
litigation or claims, these agreements may not be on terms acceptable to us.
Unfavorable royalty and licensing agreements could seriously harm our business,
operating results and financial condition.
We resell some software that we license from third parties. Although we may
continue this practice, third-party software licenses may not continue to be
available to us on commercially reasonable terms. Our inability to maintain or
obtain any of these software licenses will delay or reduce our product shipments
until we can identify, license and integrate equivalent software. Any loss of
these licenses or delay or reduction in product shipments could harm our
business, operating results and financial condition.
OUR PRODUCTS' FAILURE TO REMAIN COMPATIBLE WITH EXISTING AND NEW COMPUTERS AND
SOFTWARE OPERATING SYSTEMS WOULD SERIOUSLY HARM OUR BUSINESS.
Our RHYTHM software can operate on hardware platforms from Digital
Equipment, Hewlett-Packard, IBM and Sun Microsystems and operating systems from
Sun Microsystems and Microsoft. RHYTHM can access data from most widely-used
structured query language databases, including Informix, Oracle and Sybase. If
additional hardware or software platforms gain significant market acceptance, we
may be required to attempt to adapt RHYTHM to those platforms in order to remain
competitive. However, those platforms may not be architecturally compatible with
RHYTHM's software product design, and we may not be able to adapt RHYTHM to
those additional platforms on a timely basis, or at all. Any failure to maintain
compatibility with existing platforms or to adapt to new platforms that achieve
significant market acceptance would seriously harm our business, operating
results and financial condition.
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OUR SOFTWARE IS COMPLEX AND MAY CONTAIN UNDETECTED ERRORS.
Our software programs are complex and may contain undetected errors or
"bugs." Although we conduct extensive testing, we may not discover bugs until
our customers install and use a given product or until the volume of services
that a product provides increases. On occasion, we have experienced delays in
the scheduled introduction of new and enhanced products because of bugs.
Undetected errors could result in loss of customers or reputation, adverse
publicity, loss of revenues, delay in market acceptance, diversion of
development resources, increased insurance costs or claims against us by
customers, any of which could seriously harm our business, operating results and
financial condition.
RELEASES OF AND PROBLEMS WITH NEW PRODUCTS MAY CAUSE PURCHASING DELAYS, WHICH
WOULD HARM OUR REVENUES.
Customers may delay their purchasing decisions in anticipation of our new
or enhanced products, or products of competitors. Delays in customer purchasing
decisions could seriously harm our business and operating results. Moreover,
significant delays in the general availability of new releases, significant
problems in the installation or implementation of new releases, or customer
dissatisfaction with new releases could seriously harm our business, operating
results and financial condition.
OUR FAILURE TO SUCCESSFULLY RECRUIT AND RETAIN TECHNICAL AND IMPLEMENTATION
PERSONNEL COULD REDUCE OUR LICENSE REVENUES OR LIMIT THE GROWTH OF OUR LICENSE
REVENUES.
A shortage of qualified technical sales support personnel could harm our
ability to expand sales and enter into new vertical markets. We will depend on
our trained implementation personnel or those of independent consultants to
implement our products and services. A shortage in the number of trained
implementation personnel could limit our ability to implement our software and
services on a timely and effective basis. Delayed or ineffective implementation
of our software and services may limit our ability to expand our revenues and
may result in customer dissatisfaction and harm to our reputation. Any of these
events could seriously harm our business, operating results and financial
condition.
PROBLEMS RELATING TO THE "YEAR 2000 ISSUE" COULD ADVERSELY AFFECT OUR COMPANY.
Many older computer systems and software products currently in use accept
only two-digit entries in the date code field. As a result, systems and software
that record only the last two digits of the calendar year may be unable to
determine whether "00" means the year 1900 or the year 2000. This may result in
system or software failures or the creation of erroneous results. As a result,
the computer systems and/or software that many companies use may need upgrading
to comply with the "Year 2000" requirements. Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance. We believe that current versions of our software products, including
software licensed from third parties, are Year 2000 compliant. However, some
customers may be running earlier versions of the software products developed by
companies that we have acquired that may not be Year 2000 compliant, and we are
encouraging those customers to migrate to current product versions. Moreover,
our products are often integrated into enterprise systems involving complicated
software products developed by other vendors. Year 2000 problems inherent in a
customer's transactional software programs might significantly limit that
customer's ability to realize the intended benefits of our products.
In the future, we may be subject to claims based on Year 2000 problems in
others' products, custom scripts created by third parties to interface with our
products or issues arising from the integration of multiple products within an
overall system. We have not been a party to any litigation or arbitration
proceeding to date involving products or services related to Year 2000 issues.
However, in the future, we may need to defend our products or services in those
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proceedings, or to negotiate resolutions of claims based on Year 2000 issues.
The costs of defending and resolving Year 2000-related disputes, and any
liability for Year 2000-related damages, could harm our business, operating
results and financial condition.
In addition, we believe that Year 2000 issues may affect the purchasing
patterns of customers and potential customers in a variety of ways. Many
companies are expending significant resources to correct, patch or replace their
current hardware and software systems to achieve Year 2000 compliance. These
expenditures may result in reduced funds available to purchase our products and
services. Any of the foregoing could harm our business, operating results and
financial condition.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS.
Our license agreements typically seek to limit our exposure to product
liability claims from our customers. However, these contract provisions may not
preclude all potential claims. Additionally, our general liability insurance may
be inadequate to protect us from all liability that we may face. Product
liability claims could require us to spend significant time and money in
litigation or to pay significant damages. As a result, any claim, whether or not
successful, could harm our reputation and business, operating results and
financial condition.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE VOTING CONTROL.
Our executive officers and directors together beneficially own
approximately 44% of the total voting power of our company. Accordingly, these
stockholders will be able to determine the composition of our Board of
Directors, will retain the voting power to approve all matters requiring
stockholder approval and will continue to have significant influence over our
affairs.
OUR CHARTER AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS.
Provisions of our Certificate of Incorporation and our Bylaws as well as
the Delaware General Corporation Law could make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our stockholders.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which restricts certain business combinations with interested
stockholders. The combination of these provisions may inhibit a non-negotiated
merger or other business combination.
OUR STOCK PRICE HISTORICALLY HAS BEEN VOLATILE, WHICH MAY MAKE IT MORE DIFFICULT
FOR YOU TO RESELL OUR COMMON STOCK WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE.
The market price of our common stock has been volatile in the past, and the
market price of our common stock may be volatile in the future. The following
factors may
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significantly affect the market price of the common stock:
- quarterly variations in our results of operations;
- the announcement of new products or product enhancements by us or our
competitors;
- technological innovations by us or our competitors; and
- general market conditions or market conditions specific to particular
industries.
In particular, the stock prices of many companies in the technology and emerging
growth sectors have fluctuated widely due to events unrelated to their operating
performance. These fluctuations may harm the market price of our common stock.
IF WE ARE REQUIRED TO REGISTER AS AN INVESTMENT COMPANY, WE WOULD BECOME SUBJECT
TO SUBSTANTIAL REGULATION, WHICH WOULD INTERFERE WITH OUR ABILITY TO IMPLEMENT
OUR BUSINESS PLAN.
We have substantial cash, cash equivalents and short-term investments. We
plan to continue investing these assets in short-term instruments consistent
with prudent cash management and not primarily for the purpose of achieving
investment returns. Investment in securities primarily for the purpose of
achieving investment returns could result in our being an "investment company"
under the Investment Company Act of 1940. The Investment Company Act requires
the registration of companies that are primarily in the business of investing,
reinvesting or trading securities or that fail to meet certain statistical tests
regarding their composition of assets and sources of income, even though they
consider themselves not to be primarily engaged in investing, reinvesting or
trading securities. We believe that we are primarily engaged in a business other
than investing in or trading securities and, therefore, are not an investment
company within the meaning of the Investment Company Act. If the Investment
Company Act required us to register as an investment company, we would become
subject to substantial regulation with respect to our capital structure,
management, operations, transactions with affiliated persons and other matters.
Application of the provisions of the Investment Company Act
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to us may materially and adversely affect our business, prospects and operating
results.
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EXHIBIT 99.3
BUSINESS
GENERAL
i2 is a leading provider of intelligent eBusiness solutions that help
enterprises optimize business processes both internally and among trading
partners. Our solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business interactions over the Internet. Our
RHYTHM product suite principally includes solutions for supply chain management,
customer management, product lifecycle management, inter-process planning and
strategic planning. We recently began launching our Marketplace Services,
through which we provide our RHYTHM software applications to public and private
Internet-based marketplaces consisting of communities of trading partners. In
addition, our recently announced TradeMatrix portal is designed to provide
value-added services to participants spanning multiple digital marketplaces. We
also provide services such as consulting, training and maintenance in support of
these offerings.
Our customers include leading companies in industries such as aerospace and
defense, automotive, chemicals, durable and non-durable consumer goods,
electronics, industrial equipment, logistics, metals, pulp and paper,
pharmaceuticals, retail, semiconductors, textiles and apparel and
telecommunications. Our customers include Alliant Foodservice, Amazon.com,
Barnes & Noble, Bristol-Myers Squibb, British Steel, Caterpillar, Compaq, Ford,
Frito-Lay, GE, Hewlett-Packard, IBM, Merck, 3M, Nike, Nortel, Philips, Ryder
Logistics, Siemens, Sun Microsystems, Texas Instruments, Toshiba, United
Technologies, US Steel and VF Corp.
INDUSTRY BACKGROUND
Today's increasingly competitive business environment has forced many
companies in diverse industries to increase efficiencies while improving
flexibility and responsiveness to changing market conditions. In addition to
facing higher competitive standards with respect to product quality, variety and
price, businesses also recognize the need to shorten lead times, adjust
production for frequent changes in customer requirements and quote more accurate
and reliable delivery dates. Furthermore, a company's supply chain may span
multiple continents, tying suppliers in one part of the world with a plant in
another to serve customers in yet a third location. These forces are prompting
companies to collaborate with a broad range of suppliers and customers to
improve efficiencies across multi-enterprise supply chains.
The growth of the Internet and the proliferation of middleware applications
are accelerating the changes within the supply chain by enabling a ubiquitous,
platform-independent communications network. This platform independence has
prompted demands for a dynamic, complex and highly interdependent business
environment among customers, suppliers and other trading partners. In response
to these evolving market forces, many companies have sought to re-engineer their
business processes to reduce manufacturing cycle times, shift from mass
production to order-driven manufacturing, increase the use of outsourcing and
share information more readily with vendors and customers over the Internet.
The Internet is also impacting other core business concerns, including
customer relationships and product management. Organizations are looking to
integrate and optimize new eBusiness initiatives, such as Web-based sales,
one-to-one marketing, online customer service, supply chain management and
Web-based fulfillment. To successfully achieve the desired benefits from these
eBusiness initiatives, organizations require a comprehensive end-to-end software
solution that integrates and optimizes key business processes -- from customer
management through distribution -- with real-time visibility and collaboration
capabilities among trading partners. In addition, many organizations need
solutions and services that enable them to quickly and cost-effectively deploy
and optimize Internet-based marketplace trading capabilities.
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THE i2 SOLUTION
We provide our customers with dynamic software solutions designed to
optimize and integrate key business processes such as supply chain management,
customer management, product lifecycle management, inter-process planning and
strategic planning. Our solutions also enable Web-based real-time collaboration
with business partners and provide more efficient order fulfillment
capabilities. Customers are using our solutions to design or re-engineer their
business models in pursuit of increased market share and enhanced
competitiveness. Our solutions permit our customers to conduct their businesses
intelligently, through what we call "intelligent eBusiness."
Our RHYTHM solutions for intelligent eBusiness build upon our powerful
foundation of advanced planning and optimization solutions. RHYTHM can help
build competitive advantage and profitability by combining operational
excellence, customer intimacy and product leadership. Our TradeMatrix solution
is an intelligent eBusiness portal that provides value-added services to buyers,
sellers, designers and service providers within multiple digital marketplaces by
leveraging our advanced optimization and execution capabilities.
Our approach to customer relationships is centered on the identification of
potential savings and the creation of value for customers. As part of this
dedication to providing value for our customers, in 1995 we established a goal
of generating more than $50 billion in total value for our customers by 2005,
through growth and savings.
STRATEGY
Our objectives are to expand our leadership position in providing
intelligent eBusiness solutions, continue to help create significant value for
our customers and increase our share of the market for eBusiness solutions. Our
strategy for achieving these objectives is comprised of the following elements:
Expand Intelligent eBusiness Product Offerings. We believe that we
have gained significant experience in eBusiness methodologies through our
planning and optimization product and service offerings and relationships
with customers and partners. We intend to continue to leverage this
experience, together with our expertise in advanced software technology, to
extend the scope and depth of our suite of intelligent eBusiness solutions
to enable our customers to optimize a broader range of intra- and
inter-enterprise functions.
Enhance Support for Customers' eBusiness Initiatives. Our planning and
optimization solutions have enabled emerging and established businesses to
design or re-engineer their supply chains to realize the efficiencies
resulting from their eBusiness initiatives. Our RHYTHM software
applications and Marketplace Services allow customers to use our software
in a hosted, Web-based environment for collaboration, order fulfillment and
other functions. Our RHYTHM software applications and Marketplace Services
also can be integrated with disparate systems, such as transaction-based
enterprise resource planning applications. We believe that our recently
announced TradeMatrix portal will allow us to provide value-added services
to multiple marketplaces and their participants, further advancing our
customers' eBusiness initiatives through dynamic trading and digital
marketplace facilitation and collaboration.
Expand Expertise in Targeted Vertical Markets. We are currently
focusing on selected vertical markets, such as aerospace and defense,
automotive, chemicals, consumer goods, electronics, industrial equipment,
logistics, metals, pulp and paper, pharmaceuticals, retail, semiconductors,
textiles and apparel and telecommunications. At the same time, we are
evaluating the benefits that our solutions could provide to other vertical
markets. Each industry faces unique problems and issues that must be
addressed by focused intelligent eBusiness applications. We will continue
to leverage the highly flexible nature of our core
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RHYTHM planning and optimization software to develop and maintain our
family of pre-configured templates tailored to address the particular
requirements of targeted vertical markets.
Invest Aggressively to Build Market Share. We have made and will
continue to make substantial investments to expand our sales and marketing,
research and development, consulting and administrative infrastructure. We
believe that such investments are necessary to increase our market share
and to capitalize on the growth opportunities in the emerging intelligent
eBusiness market.
Acquire or Invest in Complementary Businesses, Products and
Technologies. We believe that select acquisitions or investments may
provide opportunities to broaden our product offerings and provide more
advanced technologies for eBusiness. For example, our recently completed
acquisition of SMART enhanced our eBusiness product portfolio by providing
advanced customer management capabilities. We may in the future pursue
additional acquisitions of or investments in businesses, products and
technologies, or enter into joint ventures, which complement or expand our
business.
Continue to Form Strategic Alliances. We intend to expand and seek
additional strategic relationships with leading enterprise software and
eBusiness vendors to integrate the RHYTHM technology into their software
products and to create joint-marketing opportunities. Consistent with this
strategy, IBM recently agreed to jointly market and sell our intelligent
eBusiness solutions and to support the development of industry standards
for open data modeling to improve multi-enterprise collaboration. In
addition, we intend to augment our sales efforts by establishing and
expanding relationships with other complementary eBusiness vendors and
systems consulting and integration firms to more rapidly penetrate our
targeted markets. We currently have relationships with Andersen Consulting,
Deloitte & Touche, Ernst & Young, KPMG Peat Marwick and
PricewaterhouseCoopers. Recently, PricewaterhouseCoopers agreed to
co-develop our next generation of customer management solutions and to
jointly develop, sell and deliver end-to-end intelligent eBusiness
solutions.
PRODUCTS
Our intelligent eBusiness software products operate as flexible, integrated
solutions and are available in single- and multi-site configurations, with
various extensions. Our solutions are designed to assist our customers in
improving current business processes, return on assets, profitability and
customer service levels. As a result of these and other advantages, our
solutions enable customers to also increase market share and enhance their
competitive advantage.
RHYTHM SUITE
Our RHYTHM suite of integrated software products principally includes
solutions for supply chain management, customer management, product lifecycle
management, inter-process planning and strategic planning.
Supply Chain Management. Our supply chain management solution is
designed to achieve operational excellence throughout a customer's extended
supply chain. This solution is composed of three sub-processes:
- Demand Planning. Demand planning analyzes customers' buying
patterns and develops aggregate, collaborative forecasts. Demand
planning feeds into the supply planning process, and subsequently
the demand fulfillment process. Demand planning involves
long-term, intermediate-term and short-term time horizons.
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- Supply Planning. Supply planning optimally positions enterprise
resources to meet demand. This is a planning-level sub-process
that spans the strategic and tactical supply-planning processes.
Long-term planning, inventory planning, distribution planning,
collaborative procurement, transportation planning and supply
allocation are all part of this sub-process.
- Demand Fulfillment. Demand fulfillment provides fast, accurate
and reliable delivery date responses to customer orders. Demand
fulfillment is primarily an execution level sub-process that
includes order capturing, customer verification, order promising,
backlog management and order fulfillment.
Available extensions to our supply chain management solution include
products for data warehousing and reporting capabilities as well as
Internet-based collaboration tools that enable an enterprise and its
trading partners to share and collaborate on demand forecasts and
procurement requirements.
Customer Management. Our customer management solutions enable
increased customer intimacy and improved business process effectiveness.
These solutions are designed to improve customer satisfaction and maximize
return on marketing, sales and customer service investments. Our customer
management solutions span the following sub-processes:
- Marketing. Marketing identifies, segments and profiles customers,
delivering personalized marketing content and creating purchasing
intent through customized marketing offers that best match
customer needs.
- Commerce. Commerce configures, prices and executes sales
transactions -- either directly or through indirect
channels -- and provides real-time order fulfillment.
- Customer Care. Customer care sustains long-term customer loyalty
through high-quality customer interaction, service and
maintenance programs, while lowering overall service expenses and
assets deployed.
Product Lifecycle Management. Our product lifecycle management
solutions consist of several modules that span all the major phases in the
typical product development and product lifecycle processes, from early
concept definition, through development, test and launch, to product
phase-out and replacement. These solutions plan and optimize product
portfolios based on financial objectives, resource constraints, account
supply chain data and other product development systems. They provide
integrated information about product lifecycles, demand forecasts,
marketing efforts, production capabilities, development time and resource
bottlenecks.
Inter-Process Planning. Our inter-process planning solutions balance
resource requirements among the supply chain management, customer
management and product lifecycle management processes to achieve
enterprise-wide efficiency and responsiveness.
Strategic Planning. Our strategic planning solutions consist of
simulation tools to support supply chain network design processes such as
rationalization of distribution centers, plant closings and service
territory assignments. These solutions are designed for use in
understanding the financial impact of decisions, monitoring key metrics,
reviewing periodic strategic plans or optimizing the supply chain when
major changes occur, such as mergers or divestitures.
RHYTHM MARKETPLACE SERVICES
We recently began providing Marketplace Services, which consist of a
portfolio of shared information services, to enable public and private digital
trading communities to optimize both
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planning and trading processes. Delivered on a subscription or transaction
basis, these services provide enhanced decision-making within
business-to-consumer and business-to-business environments, from collaboration
with strategic partners to fulfilling and tracking multi-vendor orders for
customers.
Marketplace Services support strategic trading processes such as forecast
collaboration and product phase-out planning, as well as spot trading processes
such as direct or indirect supply procurement. These services also provide
access to and integration with real-time advanced planning applications, which
enables supply chain partners to work in concert to meet end-customer demand.
Marketplace Services also include intelligent comparative shopping engines that
find best price and availability, while incorporating transportation and total
delivered cost.
Selected services from the Marketplace Services portfolio are assembled
into a public or private Internet-based trading community. Private trading
communities, like the one recently announced with Sun Microelectronics, a
division of Sun Microsystems, address a known set of participants, such as a
company and its customers, suppliers or service providers. Public trading
communities, such as the one recently established in conjunction with
Hewlett-Packard for the distribution of electronic products, offer open
participation for a target industry, such as automotive, consumer goods,
high-tech electronics or retail, or for a specific business function, such as
logistics or procurement. Marketplace Services are implemented in a shared
environment with one of our application hosting partners or may in the future be
hosted by us.
TRADEMATRIX
TradeMatrix is an intelligent Internet business portal that offers
value-added services tailored for buyers, sellers, designers, service providers
and end-customers spanning multiple digital marketplaces. Its Web site is
www.tradematrix.com. TradeMatrix uniquely leverages our advanced optimization
and execution capabilities to improve decision-making across these multiple
digital marketplaces. We believe that TradeMatrix will be unique in its ability
to intuitively handle diverse workflows and market mechanisms that will allow it
to become a one-stop destination for many dynamic trading activities.
TradeMatrix will enable buyers to procure both direct and indirect materials,
provide sellers with services to expand market presence and enhance brand
management, offer designers services focused on product development to reduce
time-to-market, and provide value-added service providers with tools to enhance
customer relationships. TradeMatrix is built on open standards, enabling the
participation of leading marketplace partners and technologies.
PRODUCT DEVELOPMENT
We originally introduced our RHYTHM software in 1992 and have subsequently
added a number of new products and product enhancements. We have adopted a
strategy of periodically reinventing our products in order to meet our
customers' needs, and we strive to ensure that each new generation of RHYTHM is
compatible with previous releases. We focus our on-going product development
efforts on broadening the functionality of our RHYTHM suite of products and
services to more fully address various eBusiness initiatives.
Our internal development staff has developed the RHYTHM products through
small project teams focused on independent components of the software under
development. We maintain product release planning procedures to ensure
integration, testing and version control among the different project development
teams. We maintain development centers in Bangalore and Mumbai, India;
Cambridge, Massachusetts; Austin and Dallas, Texas; Parsippany, New Jersey; and
Toronto, Ontario.
Research and development expenses have increased significantly in recent
periods as we have continued to focus on development of new and enhanced
products. Research and development expenses were $95.1 million for the nine
months ended September 30, 1999,
5
<PAGE> 6
representing 24.0% of total revenues, $94.2 million in 1998, representing 25.5%
of total revenues, and $57.4 million in 1997, representing 25.9% of total
revenues.
SALES AND MARKETING
We market our software and services primarily through our direct sales
organization augmented by other sales channels, including eBusiness providers
and systems consulting and integration firms. At September 30, 1999, we
conducted sales and other related activities through several offices in the U.S.
and additional offices in Australia, Belgium, Brazil, Canada, Denmark, France,
Germany, India, Italy, Japan, Korea, Singapore, South Africa, Taiwan and the
United Kingdom. Our direct sales organization consists of regionally based sales
representatives and sales engineers supported by personnel with experience in
the aerospace and defense, automotive, chemicals, durable and non-durable
consumer goods, electronics, industrial equipment, logistics, metals, pulp and
paper, pharmaceuticals, retail, semiconductors, textiles and apparel and
telecommunications industries.
We currently have joint marketing agreements with a number of eBusiness
providers, including IBM, and several systems consulting and integration firms,
including PricewaterhouseCoopers . These joint marketing agreements generally
provide the vendors with non-exclusive rights to market RHYTHM products and
access to marketing materials and product training. Furthermore, the vendors
receive a specified commission for license revenues generated by the vendor
during the term of the agreement, which commissions vary from zero to 30% of the
sales price of the license. By using these indirect sales channels, we seek to
capitalize on the installed base of other eBusiness providers and obtain
favorable product recommendations from systems consulting and integration firms,
thereby increasing our products' market coverage.
CUSTOMERS
As of September 30, 1999, we had licensed RHYTHM products to over 650
customers since inception. The following is a partial list of companies that
have licensed more than $1.0 million of RHYTHM products:
<TABLE>
<CAPTION>
<S> <C> <C>
AUTOMOTIVE/INDUSTRIAL
Caterpillar Hewlett-Packard Texas Instruments
Ford IBM Thomson
Navistar Integrated Device Technology Toshiba
United Technologies Iomega
Lucent Technologies CONSUMER GOODS
HIGH-TECH/ELECTRONICS/ TELECOM Maxtor Alliant Foodservice
Acer Microage Amazon.com
Altera Micron Electronics Barnes & Noble
Applied Materials Motorola British American Tobacco
AST Research Nortel Dole
Canon Philips E&J Gallo Winery
Casio Quantum Frito-Lay
Celestica Samsung Lipton
Compaq Seagate 3M
Dell Sequent Nike
EMC ST Microelectronics Russell
Fujitsu Siemens Sara Lee Knit Products
Gateway 2000 Silicon Graphics Sherwin Williams
Sun Microsystems VF Corp
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C>
LOGISTICS METALS Sonoco
Con-Way Bethlehem Steel
Mark VII British Steel OTHER
Ryder Logistics Iscor Limited Dresser Rand
LTV GE Capital
MEDICAL/PHARMACEUTICAL National Steel GE Plastics
Abbott Laboratories Sidmar Haworth
Bristol-Myers Squibb Timken Herman Miller
Johnson & Johnson Medical US Steel LFI
Medtronic Newport News
Merck PULP AND PAPER Shipbuilding
Tyco Healthcare CSS Industries Occidental Chemical
Fletcher Challenge Polimeri
Steelcase
</TABLE>
7
<PAGE> 1
EXHIBIT 99.4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of i2 Technologies,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the three years ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of i2 Technologies, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
November 19, 1999
Dallas, Texas
F-1
<PAGE> 2
i2 TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 137,351 $ 62,611
Short-term investments ......................................... 14,538 93,387
Accounts receivable, net of allowance for doubtful accounts
of $4,578 and $8,551, respectively ........................... 76,616 127,677
Prepaids and other ............................................. 4,047 9,407
Income tax receivable .......................................... 1,097 --
Deferred income taxes .......................................... 3,823 5,070
--------- ---------
Total current assets ....................................... 237,472 298,152
Furniture and equipment, net ......................................... 23,784 31,628
Deferred income taxes and other assets ............................... 3,667 15,028
--------- ---------
Total assets ............................................... $ 264,923 $ 344,808
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 7,983 $ 11,675
Accrued liabilities ............................................ 12,111 22,468
Accrued compensation and related expenses ...................... 15,848 21,924
Short-term debt ................................................ 1,530 2,032
Notes payable to stockholders .................................. -- 3,000
Deferred revenue ............................................... 31,744 51,229
Income taxes payable ........................................... -- 2,213
--------- ---------
Total current liabilities .................................. 69,216 114,541
Long-term debt ....................................................... 584 --
Deferred income taxes ................................................ 1,780 448
--------- ---------
Total liabilities .......................................... 71,580 114,989
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000 shares authorized,
none issued ................................................ -- --
Common Stock, $0.00025 par value, 500,000 shares
authorized, 69,585 and 73,250 shares issued
and outstanding, respectively .............................. 17 18
Additional paid-in capital ..................................... 183,684 214,940
Retained earnings .............................................. 9,642 14,861
--------- ---------
Total stockholders' equity ................................. 193,343 229,819
--------- ---------
Total liabilities and stockholders' equity ................. $ 264,923 $ 344,808
========= =========
</TABLE>
See accompanying notes.
F-2
<PAGE> 3
i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses .......................... $ 62,063 $ 141,766 $ 234,316
Services ................................... 30,569 58,218 91,726
Maintenance ................................ 8,881 21,792 43,115
---------- ---------- ----------
Total revenues ......................... 101,513 221,776 369,157
---------- ---------- ----------
Costs and expenses:
Cost of software licenses .................. 260 2,746 7,967
Cost of services and maintenance ........... 21,761 48,422 77,459
Sales and marketing ........................ 35,484 77,071 129,978
Research and development ................... 23,559 57,392 94,199
General and administrative ................. 11,108 24,984 38,191
In-process research and development and
acquisition-related expenses ............. 1,133 9,306 7,618
---------- ---------- ----------
Total costs and expenses ............... 93,305 219,921 355,412
---------- ---------- ----------
Operating income ................................. 8,208 1,855 13,745
Other income, net ................................ 1,671 3,309 8,753
---------- ---------- ----------
Income before income taxes ....................... 9,879 5,164 22,498
Provision for income taxes ....................... 4,705 6,916 17,279
---------- ---------- ----------
Net income (loss) ................................ $ 5,174 $ (1,752) $ 5,219
========== ========== ==========
Net income (loss) per share ...................... $ 0.09 $ (0.03) $ 0.07
Net income (loss) per share, assuming dilution ... $ 0.08 $ (0.03) $ 0.07
Weighted average common shares outstanding ....... 59,790 64,442 71,794
Weighted average common shares outstanding,
assuming dilution .......................... 68,116 64,442 78,530
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ..................... 53,768 $ 13 $ 4,145 $ 6,220 $ 10,378
Exercise of options and issuance
under stock purchase plan ................. 1,043 -- 1,819 -- 1,819
Common stock issued, net of offering
costs .................................... 5,457 2 43,830 -- 43,832
Issuance of common stock in exchange
for note receivable from stockholder ...... 7 -- -- -- --
Tax benefit of stock options ................ -- -- 1,353 -- 1,353
Amortization of deferred compensation ....... -- -- 784 -- 784
Issuance of Think and Optimax preferred
stock which was exchanged for i2
common stock in merger ................... 554 -- 5,100 -- 5,100
Issuance of ITLS preferred stock
which was exchanged for i2 common
stock in merger .......................... 786 -- 5,269 -- 5,269
Issuance of SMART preferred stock
which was exchanged for i2 common
stock in merger .......................... 323 -- 1,629 -- 1,629
Net income .................................. -- -- -- 5,174 5,174
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ..................... 61,938 15 63,929 11,394 75,338
Exercise of options and issuance
under stock purchase plan ................. 3,025 1 4,417 -- 4,418
Common stock issued, net of offering
costs .................................... 4,002 1 89,428 -- 89,429
Tax benefit of stock options ................ -- -- 10,106 -- 10,106
Amortization of deferred compensation ....... -- -- 740 -- 740
Issuance of SMART preferred stock
which was exchanged for i2 common
stock in merger .......................... 620 -- 15,064 -- 15,064
Net loss .................................... -- -- -- (1,752) (1,752)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ..................... 69,585 17 183,684 9,642 193,343
Exercise of options and issuance
under stock purchase plan ................. 3,588 1 11,279 -- 11,280
Shares issued in acquisition ................ 77 -- 2,708 -- 2,708
Tax benefit of stock options ................ -- -- 16,669 -- 16,669
Amortization of deferred compensation ....... -- -- 600 -- 600
Net income .................................. -- -- -- 5,219 5,219
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 ..................... 73,250 $ 18 $ 214,940 $ 14,861 $ 229,819
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
i2 TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ 5,174 $ (1,752) $ 5,219
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of in-process research and development .... 1,133 4,564 4,674
Depreciation and amortization ....................... 3,301 6,016 12,211
Provision for losses on receivables ................. 1,085 3,903 4,640
Amortization of deferred compensation ............... 784 740 600
Deferred income taxes ............................... (348) (4,169) (10,709)
Tax benefit from stock option exercises ............. 1,353 10,106 16,669
Changes in operating assets and liabilities:
Accounts receivable, net ........................ (25,132) (43,818) (55,701)
Prepaids and other assets ....................... (1,287) (2,666) (4,130)
Accounts payable ................................ 3,341 2,790 3,843
Accrued liabilities ............................. 4,253 5,972 8,950
Accrued compensation and related expenses ....... 2,594 11,452 5,808
Deferred revenue ................................ 10,751 11,728 19,485
Income taxes payable ............................ 99 (996) 2,213
---------- ---------- ----------
Net cash provided by operating activities .... 7,101 3,870 13,772
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable - stockholders ......................... (1,000) 1,000 --
Business acquisitions, net of acquired cash ............. -- (4,826) (4,148)
Purchases of furniture and equipment .................... (10,140) (17,694) (19,712)
Net (purchases) sales of short-term investments ......... (18,031) 3,493 (78,849)
---------- ---------- ----------
Net cash used in investing activities ........ (29,171) (18,027) (102,709)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit .................. -- 1,542 943
Payments on revolving line of credit .................... -- (885) (1,600)
Proceeds from issuance of debt .......................... 1,000 800 2,032
Payments on debt ........................................ (1,653) (458) (1,457)
Advances from stockholders, net ......................... (1,385) (65) 3,000
Issuance of Think and Optimax preferred stock which
was exchanged for i2 common stock in merger ......... 5,100 -- --
Issuance of ITLS preferred stock which was
exchanged for i2 common stock in merger ............. 5,269 -- --
Issuance of SMART preferred stock which was
exchanged for i2 common stock in merger ............. 1,629 15,064 --
Net proceeds from issuance of common stock .............. 43,832 89,429 --
Net proceeds from sale of common stock to employees
and exercise of stock options ....................... 1,819 4,418 11,279
---------- ---------- ----------
Net cash provided by financing activities .... 55,611 109,845 14,197
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents .......... 33,541 95,688 (74,740)
Cash and cash equivalents at beginning of period .............. 8,122 41,663 137,351
---------- ---------- ----------
Cash and cash equivalents at end of period .................... $ 41,663 $ 137,351 $ 62,611
========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 6
i2 TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
We are a leading provider of intelligent eBusiness solutions that help
enterprises optimize business processes both internally and among trading
partners. Our solutions enable enterprises to significantly improve
efficiencies, collaborate with suppliers and customers, respond to market
demands and engage in dynamic business interactions over the Internet. Our
RHYTHM product suite principally includes solutions for supply chain management,
customer management, product lifecycle management, inter-process planning and
strategic planning. We recently began launching our Marketplace Services,
through which we provide our RHYTHM software applications to public and private
Internet-based marketplaces consisting of communities of trading partners. In
addition, our recently announced TradeMatrix portal is designed to provide
value-added services to participants spanning multiple digital marketplaces. We
also provide services such as consulting, training and maintenance in support of
these offerings.
In 1997, we acquired Think Systems Corporation (Think) and Optimax
Systems Corporation (Optimax). In 1998, we acquired InterTrans Logistics
Solutions Limited (ITLS). In 1999, we acquired Sales Marketing Administration
Research Tracking Technologies, Inc. (SMART). Each of these business
combinations was accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements give retroactive effect to the
combinations for all periods presented (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the results of us and our subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. Cash equivalents
include liquid investments with maturity periods of three months or less at the
date of purchase. Short-term investments include those investments with
maturities in excess of three months but less than one year. All of our cash
equivalents and short-term investments are classified as available-for-sale. The
difference between cost and fair value of these investments was immaterial at
December 31, 1997 and 1998. Therefore, no adjustment has been made to the
historical carrying value of the investments and no unrealized gains or losses
have been recorded as a component of stockholders' equity. Realized gains and
losses to date have not been material. The cost of debt securities sold is based
on the specific identification method.
F-6
<PAGE> 7
Our debt securities include the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
U.S. Government .................................. $ 11,500 $ 1,449
State and Local Municipalities ................... 55,000 21,440
Corporations ..................................... 40,600 104,884
---------- ----------
$ 107,100 $ 127,773
========== ==========
</TABLE>
Debt securities held at December 31, 1997 and 1998 all had maturity
dates within one year. At December 31, 1997 and 1998, $92.6 million and $34.4
million of corporate debt securities were included in cash and cash equivalents,
respectively. Interest income earned in 1996, 1997 and 1998 was $1.9 million,
$3.2 million and $7.6 million, respectively.
FINANCIAL INSTRUMENTS. Financial instruments that potentially subject
us to a concentration of credit risk consist principally of investments and
accounts receivable. Cash, cash equivalents and short-term investments are held
with financial institutions with high credit standings. Our customer base
consists of large numbers of geographically diverse customers dispersed across
many industries. As a result, concentration of credit risk with respect to
accounts receivables is not significant. However, we periodically perform credit
evaluations of our customers and maintain reserves for potential losses. We have
used and expect to continue to use foreign exchange contracts to hedge the risk
that receivables denominated in foreign currencies may be adversely affected by
changes in foreign currency exchange rates. Risk of non-performance by
counterparties to such contracts is minimal due to the size and credit standings
of the financial institutions used. Our foreign exchange contracts outstanding
at December 31, 1996, 1997 and 1998 were not material. Gains and losses on
foreign exchange contracts have also not been material to date.
DEPRECIATION AND AMORTIZATION. Furniture and equipment are recorded at
cost and are depreciated over their useful lives ranging from three to seven
years using the straight-line method. Leasehold improvements are amortized over
the expected term of the lease or estimated useful life, whichever is shorter.
Goodwill is amortized on a straight-line basis over periods of four to forty
years. Acquired technology and other intangible assets related to business
acquisitions are amortized on a straight-line basis over periods not to exceed
four years. We review our intangible assets for impairment on a quarterly basis
to determine whether an adjustment to the carrying value is needed. Amortization
of goodwill, acquired technology and other intangible assets was not material
for the years ended December 31, 1996, 1997 and 1998.
CAPITALIZED RESEARCH AND DEVELOPMENT COSTS. In accordance with
Statement of Financial Accounting Standards, or SFAS, No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. To date, the
establishment of technological feasibility of our products and general release
of such software have substantially coincided. As a result, software development
costs qualifying for capitalization under SFAS 86 have been insignificant and
therefore, we have not capitalized any such costs.
REVENUE RECOGNITION. Our revenues consist of software license revenues,
service revenues and maintenance revenues. Software license revenues consist of
sales of software licenses which are recognized in accordance with the American
Institute of Certified Public Accountants' Statement of Position, or SOP, 97-2,
"Software Revenue Recognition". Under SOP 97-2, software license revenues are
recognized upon execution of a contract and delivery of software, provided that
the license fee is fixed and determinable, no significant production,
modification or customization of the software is required and collection is
considered probable by management. As of January 1, 1999, software license
revenues are recognized in accordance with SOP 97-2, as modified by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions." Service revenues are primarily derived from fees for
implementation, consulting and training services and are recognized as the
services are performed. Maintenance revenues are derived from customer support
agreements generally entered into in connection with initial license sales and
subsequent renewals. Maintenance revenues are recognized ratably over the term
of the maintenance period. Payments for maintenance fees are generally made in
advance. Customer payment terms vary.
F-7
<PAGE> 8
Amounts received in advance of satisfying revenue recognition criteria are
classified as deferred revenue in the accompanying consolidated balance sheets.
We generally warrant that our products will function substantially in
accordance with documentation provided to customers for approximately six to
twelve months following initial shipment to the customer. As of December 31,
1998, we had not incurred any significant expenses related to warranty claims.
NET INCOME PER SHARE. We compute net income per share in accordance
with the provisions of SFAS No. 128, "Earnings per Share." Net income per share
is based upon the weighted-average number of common shares outstanding and
excludes the effect of potentially dilutive common stock issuable upon exercise
of stock options. Net income per share, assuming dilution, includes the effect
of potentially dilutive common stock issuable upon exercise of stock options
using the treasury stock method. Share and per share amounts for all periods
presented have also been adjusted to reflect a stock split during 1998 (see Note
8). The computations give retroactive effect to the exchange of common shares in
connection with the Think, Optimax, ITLS and SMART acquisitions (see Note 3).
Reconciliations of the net income (loss) per share computations for the years
ended December 31, 1996, 1997 and 1998 are included in Note 8.
STOCK-BASED COMPENSATION PLANS. We elected to continue to account for
our stock-based compensation plans under the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." As discussed
in Note 10, the alternative fair value accounting provided for under SFAS No.
123, "Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
However, SFAS No. 123 requires disclosure of pro forma information regarding net
income and net income per share based on fair value accounting for stock-based
compensation plans (see Note 8).
FOREIGN CURRENCY TRANSLATION. The functional currency for the majority
of our foreign subsidiaries is the local currency. Assets and liabilities are
translated at rates in effect at the balance sheet date and the resulting
translation adjustments are recorded directly to stockholders' equity. Statement
of operations amounts are translated at average rates for the period.
Transaction gains and losses are recorded in other income, net in the
consolidated statement of operations. To date, translation adjustments and
foreign currency gains and losses have not been significant and accordingly,
have not been separately presented.
RECLASSIFICATIONS. Certain prior year financial statement items have
been reclassified to conform to the current year's format.
RECENT ACCOUNTING PRONOUNCEMENTS. Recent pronouncements by the
Financial Accounting Standards Board and the AICPA may require certain changes
in our accounting policies which may also affect disclosure requirements. These
pronouncements do not affect the accounting or reporting requirements and are
mentioned here for informational purposes only.
SFAS No. 130: "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The adoption of SFAS 130
did not have any impact on our disclosures, financial position or results of
operations due to the immateriality of our components of other comprehensive
income.
SFAS No. 133: "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133, as amended by FAS 137, requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS 133 is effective for the fiscal years
beginning after June 15, 2000. We do not expect SFAS 133 to have a material
impact on our financial position or results of operations.
SOP 98-1: "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires companies to capitalize qualifying
computer software costs that are incurred during the application
F-8
<PAGE> 9
development stage and amortize them over the software's estimated useful life.
SOP 98-1 was effective as of January 1, 1999. The adoption of SOP 98-1 has not
and is not expected to have a material impact on our financial position or
results of operations.
SOP 98-9: "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" which modifies certain provisions of SOP 97-2.
We have been in compliance with SOP 97-2, as modified by SOP 98-9, since January
1, 1999.
3. BUSINESS COMBINATIONS
The following table represents the acquisitions from 1996 through July
1999 that were accounted for as a pooling of interests:
<TABLE>
<CAPTION>
i2 SHARES
COMPANY DATE TO BE ISSUED
------------- ------------ ----------------
<S> <C> <C>
Think May 1997 7.7 million
Optimax May 1997 2.7 million
ITLS April 1998 3.3 million
SMART July 1999 2.1 million
</TABLE>
These acquisitions were each accounted for as a pooling of interests,
and accordingly, the consolidated financial statements give retroactive effect
to the combinations for all periods presented.
The separate revenues and net income (loss) of i2 (including Think,
Optimax and ITLS) and SMART and the combined amounts presented in the
consolidated financial statements follow (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Total revenues:
i2 .......................... $ 100,469 $ 213,692 $ 361,916
SMART ....................... 1,044 8,084 7,241
--------- --------- ---------
$ 101,513 $ 221,776 $ 369,157
========= ========= =========
Net income (loss):
i2 .......................... $ 6,798 $ 3,998 $ 19,983
SMART ....................... (1,624) (5,750) (14,764)
--------- --------- ---------
$ 5,174 $ (1,752) $ 5,219
========= ========= =========
</TABLE>
We also acquired certain other businesses in 1998 for an aggregate
purchase price of $9.2 million, which included cash, stock, assumed liabilities
and acquisition costs. The total purchase price payable to the shareholders of
certain of the acquired companies may increase in the future depending upon the
achievement of specified revenue targets associated with the acquired or
in-process technologies through the year 2000. These acquisitions were accounted
for using the purchase accounting method. Accordingly, we allocated the purchase
prices based on the fair value of assets acquired and liabilities assumed. A
portion of the purchase price of these transactions was identified, using proven
valuation procedures and techniques, as intangible assets. These intangible
assets include $4.7 million for acquired in-process research and development
("in-process R&D"). This allocation represents the estimated fair value based on
risk-adjusted cash flows related to the in-process R&D projects. The revenue
projections used to value the in-process R&D were based on estimates of relevant
market sizes and growth factors, expected trends in technology and the nature
and expected timing of new product introductions by us and our competitors. At
the date of each acquisition, the products under development had not reached
technological
F-9
<PAGE> 10
feasibility and had no alternative future use. Accordingly, these costs were
expensed as of each respective acquisition date. The value assigned to
in-process R&D is comprised of various research and development projects. These
projects include the introduction of new technologies as well as revisions or
enhancements to certain acquired technologies. There is risk associated with the
completion of the projects, and there is no assurance that each will attain
either technological feasibility or commercial success.
During 1998, we incurred a total of approximately $7.6 million in
acquisition-related expenses in connection with the ITLS acquisition, as well as
other purchase acquisitions. These costs included investment banking, legal and
accounting fees and expenses, amortization of acquisition-related intangible
assets and the write-off of in-process R&D.
During 1997, we incurred approximately $9.3 million in
acquisition-related expenses in connection with the Think and Optimax
acquisitions, as well as other purchase acquisitions, of which $4.6 million
represents the write-off of in-process R&D. The remaining costs included
investment banking, legal and accounting fees and expenses and amortization of
acquisition-related intangible assets.
4. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment ......................................... $ 29,685 $ 44,591
Furniture and fixtures ..................................... 5,811 9,950
---------- ----------
35,496 54,541
Less: Accumulated depreciation ............................. 11,712 22,913
---------- ----------
$ 23,784 $ 31,628
========== ==========
</TABLE>
5. LINES OF CREDIT
At December 31, 1998, we had a $15.0 million revolving credit agreement
that expired in October 1999, was unsecured and contained customary restrictive
covenants, including covenants requiring us to maintain certain financial
ratios. The revolving credit agreement was not subject to a borrowing base
limitation and the borrowings thereunder bore interest at LIBOR plus 0.75% to
1.75%, depending on certain cash ratios. The maximum borrowings available under
the facility were reduced by the value of outstanding letters of credit issued
by the lender on our behalf, $6.7 million of which where outstanding at December
31, 1998. At December 31, 1998, there were no borrowings outstanding under this
agreement and we were in compliance with all covenants.
In August 1999, we entered into one-year revolving credit facilities
with an aggregate borrowing capacity of $30.0 million with substantially the
same terms as the prior credit facility.
At December 31, 1998, SMART had an $8.0 million line of credit with a
financial institution bearing interest at the financial institution's prime rate
(8.5% at December 31, 1998). Interest was due monthly and the line matured in
October 2001. The advances on the line were collateralized by all of the assets
of SMART. As of December 31, 1998, the outstanding balance was $2.0 million,
which we have subsequently repaid concurrent with the acquisition of SMART in
July 1999.
F-10
<PAGE> 11
6. BORROWINGS
ITLS and SMART had the following borrowings (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
ITLS borrowings under a revolving credit agreement, due on demand,
bearing interest at prime plus 1% ......................................... $ 657 $ --
SMART note payable to a financial institution, bearing interest at
prime (8.5% at December 31, 1997) ......................................... 666 --
SMART advances under a $0.6 million equipment note, bearing interest at
prime (8.5% at December 31, 1997) ......................................... 416 --
SMART note payable to a financial institution, bearing interest at
prime (8.5% at December 31, 1997) ......................................... 375 --
SMART line of credit with a financial institution, bearing interest at
prime (8.5% at December 31, 1998) ......................................... -- 2,032
SMART note payable to a stockholder, bearing interest at 7% ............... -- 3,000
---------- ----------
2,114 5,032
Less: current maturities of long-term debt ................................ (1,530) (5,032)
========== ==========
Long-term debt, less current maturities ................................... $ 584 $ --
========== ==========
</TABLE>
All SMART debt outstanding as of December 31, 1998 was paid concurrent
with the acquisition of SMART in July 1999.
7. COMMITMENTS
We lease our office facilities and certain office equipment under
operating leases that expire at various dates through 2003. We have renewal
options for most of our operating leases. Total rent expense incurred during
1996, 1997 and 1998 was approximately $2.5 million, $5.3 million and $9.3
million, respectively.
F-11
<PAGE> 12
Future minimum lease payments under all noncancellable operating leases
as of December 31, 1998, are as follows (in thousands):
<TABLE>
<S> <C>
1999 ................................... $ 9,611
2000 ................................... 7,506
2001 ................................... 5,253
2002 ................................... 4,093
2003 and thereafter .................... 2,809
----------
Total minimum lease payments ........... $ 29,272
==========
</TABLE>
8. STOCKHOLDERS' EQUITY
PUBLIC OFFERINGS. In May 1996, we completed our initial public offering
of 5,060,000 shares of common stock. A total of 4,780,800 of those shares of
common stock were sold, resulting in net proceeds to us of $43.7 million after
deducting offering expenses and the underwriting discount of $4.3 million. In
December 1997, we completed a public offering of 6,000,000 shares of our common
stock. We sold a total of 4,000,000 of those shares of common stock, resulting
in net proceeds to us of $89.4 million after deducting offering expenses and the
underwriting discount of $3.6 million.
STOCK SPLIT. On April 22, 1998, our Board of Directors (the "Board")
approved a two-for-one stock split of our common stock. The increase in
authorized shares of common stock was approved by our stockholders at our 1998
annual meeting of stockholders. The stock split was paid as a 100% stock
dividend on June 2, 1998. All share and per share amounts included herein have
been adjusted to reflect the stock split as though it had occurred at the
beginning of the initial period presented.
NET INCOME (LOSS) PER SHARE. Reconciliations of the net income (loss)
per share and net income (loss) per share, assuming dilution, computations for
the years ended December 31, 1996, 1997 and 1998 are as follows (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares outstanding ..................... 59,790 64,442 71,794
Common shares issuable upon exercise of stock options, net
of shares assumed to be repurchased ......................... 8,326 -- 6,736
--------- --------- ---------
Weighted average common shares outstanding, assuming
dilution .................................................... 68,116 64,442 78,530
========= ========= =========
Net income (loss) .............................................. $ 5,174 $ (1,752) $ 5,219
========= ========= =========
Net income (loss) per share .................................... $ 0.09 $ (0.03) $ 0.07
========= ========= =========
Net income (loss) per share, assuming dilution ................. $ 0.08 $ (0.03) $ 0.07
========= ========= =========
</TABLE>
Potentially dilutive securities are excluded from the net income (loss)
per share, assuming dilution computation when the exercise price of the
securities exceeds the average fair value of our common stock for a particular
period. For the years ended 1996, 1997 and 1998, approximately 477,200,
8,632,000, and 99,000 stock options, respectively, were excluded from the net
income (loss) per share, assuming dilution computation.
We incurred a net loss for the year ended December 31, 1997. As a
result, the common shares issuable upon exercise of stock options would have
been anti-dilutive to the net loss per share and were excluded from the dilutive
computation.
EMPLOYEE STOCK PURCHASE PLAN. In March 1996, the Board adopted and the
stockholders approved an Employee Stock Purchase Plan. In November 1996, the
Board adopted an International Employee Stock Purchase Plan for employees of our
wholly-owned subsidiaries. The Employee Stock Purchase Plan and the
International
F-12
<PAGE> 13
Employee Stock Purchase Plan (collectively, the "Purchase Plans") are designed
to allow our eligible employees to purchase shares of common stock through
periodic payroll deductions. We have reserved 2,500,000 shares of common stock
for issuances under the Purchase Plans.
Payroll deductions may not exceed the lesser of 15% of a participant's
base salary or $25,000 per year, and employees may purchase a maximum of 2,000
shares per purchase period under the Purchase Plans. The purchase price per
share will be 85% of the lesser of the fair market value of our common stock on
the start of the purchase period or the fair market value at the end of the
purchase period. Participation may be terminated at any time by the employee and
automatically ends upon termination of employment.
1995 STOCK OPTION/STOCK ISSUANCE PLAN. In September 1995, the
stockholders and the Board approved the 1995 Stock Option/Stock Issuance Plan,
or the 1995 Plan, which replaced our original 1992 Stock Plan. All options
outstanding under the 1992 Stock Plan were incorporated into the 1995 Plan.
Under the 1995 Plan, the amount of shares of common stock originally reserved
for issuance was 20,000,000 shares which was subsequently increased to
24,000,000 shares in 1996. The amount of shares of common stock reserved for
issuance was again increased to 31,000,000 shares in 1997 and 43,000,000 shares
in 1999. The 1995 Plan is divided into the following three equity programs: (i)
the Discretionary Option Grant Program, (ii) the Stock Issuance Program and
(iii) the Automatic Option Grant Program.
The Discretionary Option Grant Program provides for the grant of
incentive stock options to employees and for the grant of nonqualified stock
options to employees, directors and consultants. Exercise prices may not be less
than 100% and 85% of the fair market value at the date of grant for Incentive
Options and nonqualified stock options, respectively. Options granted under the
Discretionary Option Grant Program generally vest in four equal annual
increments and expire after ten years. Some options granted under the
Discretionary Option Grant Program are immediately exercisable, subject to a
right of repurchase at the original exercise price for all unvested shares.
Under the Stock Issuance Program, the Board or a committee of the
Board, or the Plan Administrator, may grant shares of our common stock to any
person at any time, at such price and on such terms as established by the Plan
Administrator. The purchase price per share cannot be less than 85% of the fair
market value of our common stock on the issuance date.
Under the Automatic Option Grant Program, each person who is first
elected or appointed as a non-employee Board member shall automatically be
granted a nonqualified option to purchase 2,000 shares of our common stock at
the fair market value on the date of grant. On the date of each Annual Meeting
of Stockholders, each non-employee Board member shall automatically be granted
an additional option to purchase 2,000 shares of our common stock, subject to
certain conditions.
THINK STOCK OPTION PLANS. Think's Board of Directors adopted and its
shareholders approved stock option plans for employees, directors and
consultants of Think, or the Think Plans. Under the Think Plans, the Think Board
of Directors granted incentive and nonqualified stock options to employees,
directors and consultants at prices not less than the estimated fair market
value of Think's common stock at the date of grant. In connection with the
acquisition of Think, we assumed all of the options outstanding under the Think
Plans, which are now exercisable into i2 common stock.
OPTIMAX STOCK OPTION PLAN. Optimax's Board of Directors adopted and its
shareholders approved the Optimax Systems Corporation Stock Option Plan, or the
Optimax Plan. Under the Optimax Plan, the Optimax Board of Directors granted
nonqualified stock options to employees of Optimax at prices equal to the
estimated fair market value of Optimax's common stock on the date of grant. The
options generally vested over a five-year period commencing on or before the
date of grant. In connection with the acquisition of Optimax, we assumed all
such options, which are now exercisable into i2 common stock.
ITLS STOCK OPTION PLAN. ITLS' Board of Directors adopted and its
shareholders approved the ITLS 1997 Stock Option Plan, or the ITLS Plan. Under
the ITLS Plan, the ITLS Board of Directors granted incentive and nonqualified
stock options to employees of ITLS at prices equal to the estimated fair market
value of ITLS' common stock on the date of grant. The options generally vested
over a four-year period commencing on date of grant. In
F-13
<PAGE> 14
connection with the acquisition of ITLS, we assumed all such options, which are
now exercisable into i2 common stock.
SMART STOCK OPTION PLAN. SMART's Board of Directors adopted and its
shareholders approved the 1996 Stock Option/Stock Issuance Plan, or the SMART
Plan. Under the SMART Plan, the SMART Board of Directors granted incentive and
nonqualified stock options to employees of SMART at prices equal to the
estimated fair market value of SMART's common stock on the date of grant. The
vesting schedule and term of each grant was determined by SMART's Board of
Directors. In connection with the acquisition of SMART, we assumed all such
options, which are now exercisable into i2 common stock.
Option activity under our stock option plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ---------------------------------
AVAILABLE NUMBER WEIGHTED-AVERAGE
FOR GRANT OF SHARES EXERCISE PRICE
----------- ------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1995 ........... 1,294,642 7,298,874 $ 0.09
Authorized ........................ 6,021,259 -- --
Granted ........................... (3,290,302) 3,290,302 4.76
Issued ............................ (1,230) -- 7.14
Exercised ......................... -- (916,116) 0.83
Canceled .......................... 175,344 (175,344) 5.86
----------- -------------
Balance, December 31, 1996 ........... 4,199,713 9,497,716 1.53
Authorized ........................ 7,706,698 -- --
Granted ........................... (6,568,417) 6,568,417 14.68
Exercised ......................... -- (2,892,292) 0.64
Canceled .......................... 579,880 (579,880) 14.85
----------- -------------
Balance, December 31, 1997 ........... 5,917,874 12,593,961 7.98
Authorized ........................ -- -- --
Granted ........................... (9,927,399) 9,927,399 17.28
Exercised ......................... -- (3,346,995) 1.70
Canceled .......................... 4,245,514 (4,245,514) 22.59
----------- -------------
Balance, December 31, 1998 ........... 235,989 14,928,851 11.42
=========== =============
</TABLE>
In October 1998, the Board approved a plan to reprice a portion of our
outstanding stock options, excluding options held by certain executive officers.
As a result, 3,757,685 options with exercise prices ranging from $14.00 to
$32.81 per share were repriced at $13.94 per share, the fair market value on the
date of repricing. For any unvested options included in this repricing, the
vesting schedule was restarted with a vesting period of four years. The
repricing has been reflected in the above table as part of the options granted
and canceled during 1998.
Under the 1995 Plan, each outstanding option and unvested stock
issuance will be subject to accelerated vesting under certain circumstances upon
an acquisition of us in a merger or asset sale, except to the extent our
repurchase rights with respect to the underlying shares are to be assigned to
the successor corporation. In addition, the Plan Administrator has the
discretion to accelerate vesting of outstanding options upon consummation of any
other transaction that results in a change in control.
All options outstanding at December 31, 1998, are incentive options
except for 5,609,225 options, which are nonqualified stock options.
F-14
<PAGE> 15
Other information regarding options outstanding and options exercisable
as of December 31, 1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -----------------------------------
WEIGHTED-
AVERAGE
WEIGHTED- REMAINING WEIGHTED-
RANGE OF EXERCISE NUMBER OF AVERAGE CONTRACTUAL NUMBER OF AVERAGE
PRICES SHARES EXERCISE PRICE LIFE (YEARS) SHARES EXERCISE PRICE
---------------------- --------------- -------------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
$0.01 - $8.00 3,921,159 $ 1.21 5.4 3,506,337 $ 0.84
9.74 - 13.94 6,565,332 13.35 9.7 160,196 11.87
13.94 - 27.84 4,442,360 17.58 8.7 782,136 16.19
-------------- -------------
Total 14,928,851 11.42 8.3 4,448,669 3.94
============== =============
</TABLE>
PRO FORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE. Pro forma
information regarding net income (loss) and net income (loss) per share has been
determined as if we had accounted for our employee stock options and shares
issued under the Purchase Plans using the fair value method of SFAS No. 123. The
fair value for the stock options issued under the 1995 Plan was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996, 1997 and 1998, respectively: risk-free
interest rates of 6.2%, 6.2% and 5.2%; volatility factors of the expected market
price of our common stock of 0.46, 0.66 and 0.75; a weighted-average expected
life of the options of 4, 4 and 3 years; and no dividend yields. The fair value
of the stock options issued under the Think Plans was estimated at the date of
grant using the minimum value method for non-public companies permitted by SFAS
No. 123 with the following assumptions for 1996 and 1997, respectively:
weighted-average risk-free interest rates of 6.5% and 6.2%; no dividends; and a
weighted-average expected life of the options of 7 years. The fair values of
stock options issued under the Optimax Plan, ITLS Plan and SMART Plan are not
presented as the impact is immaterial.
The fair value for the shares issued under the Purchase Plans was
estimated as of the initial day of the purchase period using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996,
1997 and 1998, respectively: risk free interest rates of 5.2%, 5.4% and 5.0%;
volatility factors of the expected market price of our common stock of 0.46,
0.66 and 0.75; a weighted-average expected life of the purchase right of 0.5
years; and no dividend yields. The weighted-average fair values of the purchase
rights granted under the Purchase Plans during 1996, 1997 and 1998 were $6.15,
$12.12 and $9.20, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and Purchase
Plans' shares.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period and the
estimated fair value of the Purchase Plans' shares is amortized to expense over
the purchase period.
F-15
<PAGE> 16
Our pro forma information follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma net income (loss) .................................................... $ 4,253 $ (7,433) $ (9,232)
Pro forma net income (loss) per share .......................................... 0.07 (0.12) (0.13)
Pro forma net income (loss) per share, assuming dilution ....................... 0.06 (0.12) (0.13)
</TABLE>
Information regarding exercise prices and fair values of options
granted is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Number of options issued at fair market value of stock ........................ 2,669,762 6,568,417 9,927,399
Weighted-average exercise price per share ..................................... $ 5.43 $ 14.68 $ 17.28
Weighted-average fair value of options ........................................ $ 2.28 $ 8.45 $ 9.23
Number of options issued at less than fair market value of stock .............. 620,540 -- --
Weighted-average exercise price per share ..................................... $ 1.85 -- --
Weighted-average fair value of options ........................................ $ 2.11 -- --
</TABLE>
9. INCOME TAXES
Our provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
Current:
<S> <C> <C> <C>
Federal ..................................................................... $ 3,630 $ 9,702 $ 21,982
State ....................................................................... 390 1,224 2,490
Foreign ..................................................................... 414 3,278 158
Deferred:
Federal ..................................................................... 272 (1,629) (4,752)
State ....................................................................... (40) (79) (185)
Foreign ..................................................................... (2,499) 78 (5,534)
----------- ----------- -----------
Total .................................................................... $ 4,705 $ 6,916 $ 17,279
=========== =========== ===========
</TABLE>
F-16
<PAGE> 17
Our provision for income taxes reconciles to the amount computed by
applying the statutory U.S. federal rate of 34% for 1996, 35% for 1997 and 35%
for 1998 to income before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Expense computed at statutory rate .............................. $ 3,359 $ 1,807 $ 7,874
Non-deductible in-process research and development
and acquisition costs ......................................... 385 3,164 2,635
State taxes, net of federal tax benefit ......................... 266 770 1,536
Stock option compensation ....................................... 215 200 205
Research and development tax credits ............................ (414) (584) (1,375)
Valuation allowance for net deferred tax asset .................. 552 2,122 5,661
Other ........................................................... 342 (563) 743
========== ========== ==========
Provision for income taxes .............................. $ 4,705 $ 6,916 $ 17,279
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities at December 31, 1997 and 1998, are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
Deferred tax assets:
<S> <C> <C>
Foreign tax credits ........................................ $ 617 $ 2,685
Deferred revenue ........................................... 578 1,723
Accrued liabilities ........................................ 789 2,466
Bad debt allowance ......................................... 1,349 2,735
Research and development tax credits ....................... 868 2,066
Net operating losses ....................................... 4,234 14,316
Other ...................................................... 401 1,748
---------- ----------
Total deferred tax asset ........................... 8,836 27,739
---------- ----------
Deferred tax liabilities:
Depreciation ............................................... (368) (328)
Acquired intangible assets ................................. -- (469)
Other ...................................................... (663) (3,005)
---------- ----------
Total deferred tax liability ....................... (1,031) (3,802)
Valuation allowance for net deferred tax asset ..... (2,858) (8,519)
---------- ----------
Net deferred tax asset ............................. $ 4,947 $ 15,418
========== ==========
</TABLE>
We consider the earnings of foreign subsidiaries to be permanently
reinvested outside the United States. Accordingly, no United States income tax
on these earnings has been provided. We believe that any United States income
taxes due upon the repatriation of such earnings would be fully offset by
foreign tax credits.
At December 31, 1997 and 1998, we had approximately $6.3 million and
$19.0 million of U.S. federal net operating loss carryforwards and research and
development carryforwards of approximately $0.2 million and $0.4 million,
respectively. At December 31, 1998, we had $19.4 million of foreign net
operating loss carryforwards. The federal net operating loss carryforwards and
research and development carryforwards expire in the years 2010 through 2013 and
are subject to certain annual limitations. Approximately $2.1 million of the
foreign net operating loss carryforwards expire in the years 2003 through 2005
while the remaining net operating loss carryforwards have no expiration.
We paid income taxes of approximately $2.0 million, $2.8 million and
$5.9 million in 1996, 1997 and 1998, respectively.
F-17
<PAGE> 18
Management regularly evaluates the realizability of its deferred tax
assets given the nature of its operations and given the tax jurisdictions in
which it operates. We adjust our valuation allowance from time to time based on
such evaluations. The valuation allowance increased by approximately $5.7
million during 1998 due to uncertainties regarding the realization of net
operating loss carryforwards.
10. EMPLOYEE RETIREMENT PLAN
We have established 401(k) retirement plans, or the Retirement Plans
that cover a majority of our employees. Eligible employees may contribute up to
18% of their compensation, subject to certain limitations, to the Retirement
Plans. We may make contributions to the Retirement Plans at the discretion of
the Board. As of December 31, 1998, no contributions had been made.
11. SEGMENT INFORMATION AND INTERNATIONAL OPERATIONS
We are principally engaged in the design, development, marketing and
support of our RHYTHM suite of intelligent eBusiness solutions, including
software applications and related service offerings. Historically, substantially
all revenues result from the licensing of our software products and related
consulting and customer support (maintenance) services. Our chief operating
decision-maker reviews financial information presented on a consolidated basis,
accompanied by disaggregated information about revenues by geographic region for
purposes of making operating decisions and assessing financial performance.
Accordingly, we consider ourselves to be in a single industry segment,
specifically the license, implementation and support of our software
applications and related services.
The following geographic information is presented for the years ended
December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
United States......... $ 79,713 $ 155,070 $ 295,933
Europe................ 11,220 34,707 39,739
Asia.................. 6,135 20,280 21,095
Other................. 4,445 11,719 12,390
========== ========== ==========
$ 101,513 $ 221,776 $ 369,157
========== ========== ==========
</TABLE>
12. MAJOR CUSTOMERS
During 1997 and 1998, no individual customer accounted for more than
10% of total revenues. During 1996, one customer accounted for approximately 11%
of total revenues.
F-18
<PAGE> 1
EXHIBIT 99.5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
financial statements of i2 Technologies Inc. and subsidiaries included in this
Form 8-K, and have issued our report thereon dated November 19, 1999. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
November 19, 1999
Dallas, Texas
S-1
<PAGE> 2
EXHIBIT 99.5
i2 Technologies, Inc.
Schedule II to Consolidated Financial Statements
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts (in thousands)
Year Ended 12/31/1998................................ 4,578 4,924 (951) 8,551
Year Ended 12/31/1997................................ 1,269 4,155 (846) 4,578
Year Ended 12/31/1996................................ 925 971 (627) 1,269
</TABLE>
S-2
<PAGE> 1
EXHIBIT 99.6
LEASE
Between
COLINAS CROSSING LP,
a Delaware limited partnership
Landlord,
And
i2 TECHNOLOGIES, INC.,
a Delaware corporation
Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I 1
1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS 1
ARTICLE 2 5
2.01. PREMISES 5
2.02. IMPROVEMENTS BY LANDLORD 6
2.03. CONDITION OF PREMISES 6
2.04. PREMISES CERTIFICATE 6
2.05 MANAGEMENT OFFICE 7
ARTICLE 3 7
3.01. TERM 7
3.02. COMMENCEMENT CERTIFICATE 7
ARTICLE 4 7
4.01. BASE RENT 7
4.02. PAYMENT OF RENT 8
4.03. SECURITY DEPOSIT 9
ARTICLE 5 10
5.01. OPERATING EXPENSE REIMBURSEMENT 10
5.02A. OPERATING EXPENSES 12
5.02B. TENANT'S ELECTRICITY CHARGE 16
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES 17
5.04 TAXES 18
ARTICLE 6 19
6.01. USE 19
ARTICLE 7 19
7.01. LANDLORD'S SERVICES 19
7.02. INTENTIONALLY DELETED 23
7.03. INTERRUPTION OF SERVICES 23
7.04. KEYS AND LOCKS 24
7.05. GRAPHICS AND BUILDING DIRECTORY 24
7.06. PROJECT NAME, IDENTITY AND SIGNS 24
7.07. RISER SPACE 25
7.08. FIBER OPTIC CABLE CARRIERS 25
7.09. COMMUNICATIONS EQUIPMENT 26
7.10. ADDITIONAL HVAC COMPRESSORS 26
ARTICLE 8 26
8.01. ALTERATIONS 26
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY 27
8.03. REPAIRS BY LANDLORD 28
8.04. REPAIRS BY TENANT 28
ARTICLE 9 28
9.01. LANDLORD'S INSURANCE 28
9.02. TENANT'S INSURANCE 29
9.03. WAIVER OF RECOVERY 29
9.04. INDEMNITY 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 10 30
10.01. CASUALTY 30
10.02. END OF TERM CASUALTY 31
ARTICLE 11 31
11.01. CONDEMNATION 31
ARTICLE 12 33
12.01. ACCESS 33
ARTICLE 13 33
13.01. SUBORDINATION 33
13.02. ATTORNMENT 33
13.03. QUIET ENJOYMENT 33
ARTICLE 14 33
14.01. ASSIGNMENT 33
14.02. CONSENT 34
14.03. TRANSFER BY LANDLORD 34
ARTICLE 15 35
15.01. DEFAULT BY TENANT 35
15.02. RIGHTS UPON DEFAULT BY TENANT 35
15.03. EXPENSE OF REPOSSESSION 37
15.04. CUMULATIVE REMEDIES; WAIVER OR RELEASE 37
15.05. ATTORNEYS' FEES 37
15.06. FINANCIAL STATEMENTS 37
15.07. NEGATION OF LIEN FOR RENT 37
15.08. DEFAULT BY LANDLORD 38
ARTICLE 16 38
16.01. HAZARDOUS WASTE 38
ARTICLE 17 40
17.01. SUBSTITUTE PREMISES 40
17.02. ESTOPPEL LETTERS 40
17.03. HOLDOVER 40
17.04. NOTICE 40
17.05. RULES AND REGULATIONS 41
17.06. LANDLORD'S LIABILITY 41
17.07. AMERICANS WITH DISABILITIES ACT AND TEXAS
ARCHITECTURAL BARRIERS ACT 41
17.08. AUTHORIZATION 41
17.09. BROKERS 41
17.10 MEMORANDUM OF LEASE 42
17.11. PARKING 42
17.12. TIME OF ESSENCE 42
17.13. ENTIRE AGREEMENT 42
17.14. AMENDMENT 42
17.15. SEVERABILITY 42
17.16. SUCCESSORS 42
17.17. CAPTIONS 42
17.18. NUMBER AND GENDER 42
17.19. GOVERNING LAW 42
17.20. CHANGES TO THE PROJECT 42
17.21. NO PRESUMPTION AGAINST DRAFTER 42
17.22. EXAMINATION OF LEASE 43
17.23. DEFINED TERMS AND MARGINAL HEADINGS 43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
17.24. NO REPRESENTATIONS 43
17.25. IMPROVEMENTS ON ADJACENT LAND 43
17.26. SURVIVAL OF INDEMNITIES 43
17.27. COMPETITORS OF TENANT 43
17.28. RIGHT OF FIRST OFFER ON SALE 43
17.29. ARBITRATION 44
17.30. INTENTIONALLY DELETED 45
17.31 TAX PROTESTS 45
17.32 CONSENTS 45
17.33 CCR AMENDMENTS 45
17.34 MANAGEMENT 46
17.35 DEFAULT INTEREST 46
17.36 VACATING THE PREMISES 46
</TABLE>
iii
<PAGE> 5
EXHIBITS AND RIDERS
<TABLE>
<S> <C>
EXHIBIT "A" -FLOOR PLAN
-FIRST SPACE
-SECOND SPACE
-THIRD SPACE
EXHIBIT "B-1" -LEGAL DESCRIPTION OF LAND
EXHIBIT "B-2" -SITE PLAN
EXHIBIT "B-3" -ADJACENT LAND
EXHIBIT "C" -BUILDING RULES
EXHIBIT "D-1" -WORK LETTER
EXHIBIT "D-2" -BUILDING SHELL IMPROVEMENTS
EXHIBIT "E" -COMMENCEMENT CERTIFICATE
EXHIBIT "F" -PARKING GARAGE
EXHIBIT "G" -PREMISES CERTIFICATE
EXHIBIT "H" -JANITORIAL SPECIFICATIONS
EXHIBIT "I" -MEMORANDUM OF LEASE
EXHIBIT "J" -LETTER OF CREDIT
EXHIBIT "K" -SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
EXHIBIT "L-1" -BUILDING SIGN PARAMETERS
EXHIBIT "L-2" -CONTENT OF SIGNS
EXHIBIT "M" -CONTRACTOR/VENDOR RULES AND REGULATIONS
RIDER 1 -EXTENSION OPTION
</TABLE>
iv
<PAGE> 6
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
<S> <C>
Actual Operating Expense Increase 11
ADA 41
Additional Electrical Equipment 22
Additional Rent 10
Adjacent Land 5
Agreement Period Rider 1
Base Operating Expense 10
Base Rent 7
Base Rental Rate 7
Base Year 10
Basic Services Failure 23
Bidding Contractors 55
Brokers 41
Building 5
Building Operating Hours 20
Building Shell Improvements 59
Building Stairwells 54
Building Standard Rated Electrical Design Load 21
Building Standard Services 19
CCR 3
Commencement Date 56
Common Area 4
Common Facilities 6
Communications Equipment 26
Complex 5
Construction Contract 55
Construction Costs 63
Construction Manager 55
Construction Plans 54
Cost Savings Improvements 13
Credit Assignee 34
Deck 63
Default 35
Default Interest Rate 46
Delivery Punch List Items 6
Development Agreement 8
Director 44
Effective Date 1
Environmental Law 38
Estimated Operating Expense Increase 11
Estimated Tenant's Tax Obligation 18
Exercise Notice 43
Extension Option Rider 1
Extension Term Rider 1
Finish Allowance 55
Finish Work 55
First Class Building Standards 17
First Space 2
Geographical Market 3
Hazardous Substances 38
Holidays 20
Land 5
Landlord 1
Landlord Delay 56
Lease 61
Lease Year 8
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
Letter of Credit 9
Liens 27
Major Portion 56
Material Default Rider 1
NEC 21
Net Worth Reduction 9
Non-Removable Improvements 28
Notice Parties 38
Operating Expense 12
Operating Expenses 12
Parking Facilities 5
Parking Garage 5
Parking Spaces 62
Premises 5
Premises Share of Taxes 18
Primary Term 7
Prime Rate 46
Pro-Rata Reduction 9
Project 5
Project Signs 25
Quarterly Assessments 13
Rebate Agreement 18
Rent 8
Rentable Area 2
Rental Commencement Date 56
Rental Commencement Punch List Items 6
Required Capital Improvements 13
ROFO 43
ROFO Terms 43
Sale Notice 43
Second Space 2
Security Account 9
Security Amount 21
Security Areas 32
Security Desk 21
Site Plan 5
Space Plan 54
Special Assessments 13
SWB 25
Tax Stop 18
Taxing Authority 45
Tenant 1
Tenant Contract 43
Tenant Contractor 55
Tenant Improvements 54
Tenant's Electricity Charge 17
Tenant's Notice 62
Tenant's Tax Obligation 18
Tenant-Related Parties 4
Term 7
Third Space 2
Thirty Percent Level 13
Underlying Documents 33
Underlying Party 33
Warranty 15
</TABLE>
vi
<PAGE> 8
LEASE
THIS LEASE ("Lease") is entered into as of the 24th day of March, 1999
("Effective Date"), by and between COLINAS CROSSING LP, a Delaware limited
partnership ("Landlord"), and i2 TECHNOLOGIES, INC., a Delaware corporation
("Tenant").
W I T N E S S E T H:
ARTICLE 1.
==========
1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS. The Lease provisions and
definitions set forth in this Section 1.01 in summary form are solely to
facilitate convenient reference by the parties. If there is any conflict between
this Section and any other provisions of this Lease, the latter shall control.
<TABLE>
<S> <C>
(a) Addresses for notices due
under this Lease (See
Article 17)
Landlord Name Colinas Crossing LP
And Address Eighty Eighty North Central Expressway
Suite 1010
Dallas, Texas 75206
Attn: Steven A. Means
With a copy to: Pacific Realty Associates, L.P.
15350 S. W. Sequoia Parkway
Suite 300
Portland, Oregon 97224
Attn: Legal Department
With an additional copy to: Management Office
11701 Luna Road
Dallas, Texas 75234
Attn: Property Manager
Prior To Commencement Date:
Tenant Name and i2 Technologies, Inc.
Address: 909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Bill Beecher and/or
V.P. of Operations
With a copy to: i2 Technologies, Inc.
909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Adrianne Court and/or
Director of Facilities
i2 Technologies, Inc.
909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Legal Department
</TABLE>
1
<PAGE> 9
<TABLE>
<S> <C>
After Commencement Date:
i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Bill Beecher and/or
V.P. of Operations
With a copy to: i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Adrianne Court and/or
Director of Facilities
i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Legal Department
(b) Building: One Colinas Crossing
11701 Luna Road
Dallas, Texas 75234
containing approximately 180,754 square feet of total
Rentable Area. "Rentable Area" shall be measured in
accordance with 1996 BOMA National Standards ANSI Z265.
(c) Premises: Subject to the provisions of Sections 2.04 and 2.05
below, approximately 179,754 square feet of Rentable Area
on floors 1-6 of the Building. The Premises is comprised
of the "First Space" (being three (3) floors in the
Building designated by Tenant), the "Second Space" (being
two (2) floors in the Building designated by Tenant) and
the "Third Space" (being one (1) floor in the Building
designated by Tenant), all of which floor plans are set
forth on Exhibit "A" attached hereto; provided, however,
Tenant shall have the right to change such designations by
furnishing written notice to Landlord within thirty (30)
days after the Effective Date. The floor plans attached
hereto identify the Rentable Area and Usable Area of each
floor of the Premises as of the Effective Date.
(d) Parking Subject to the provisions of Section 17.11 and
Exhibit "F", as follows:
A total number of spaces equal to 720 spaces.
Uncovered Parking
525 Unreserved spaces @ $0.00 per month each during the
Primary Term hereof (and thirty (30) of such spaces shall be
marked for "i2 Visitor Parking" only)
</TABLE>
2
<PAGE> 10
<TABLE>
<S> <C>
Covered Parking in the Parking Garage
195 reserved spaces @ $0.00 per month each during the
Primary Term hereof.
(e) Permitted Uses: The Premises are to be used and occupied by Tenant (and
its permitted assignees and subtenants) for general
business office purposes and for such other lawful
purposes as are permitted by applicable zoning laws and
that certain Declaration of Covenants, Conditions and
Restrictions dated April 6, 1994 and recorded in Volume
94066, Page 06090, Dallas County Deed Records (the "CCR")
and consistent with uses of office space in comparable
office buildings in the same geographic area in which the
Building is located ("Geographical Market"). Without
limiting the foregoing, Tenant may maintain in the
Premises (1) accounting facilities, (2) conference and/or
meeting facilities, (3) classrooms, (4) libraries, (5)
coffee bars, (6) support staff facilities (including
without limitation, word processing and copy facilities),
(7) lunchrooms, kitchen facilities, pantries and
cafeterias and/or dining rooms (including any kitchen and
support thereof) for use by Tenant and its employees and
business invitees, so long as such facilities are
installed and maintained in accordance with applicable
laws (and if alcoholic beverages are served therein,
Tenant or the operator thereof, if other than Tenant,
shall carry adequate liquor liability insurance), (8)
storage space incidental to general business office
purposes, (9) executive restrooms, including showers and
lockers, (10) audio visual, closed circuit television,
radio, electronic communication, and computer facilities,
(11) print facilities that may require special venting,
(12) photo dark room facilities, (13) health or exercise
facilities, (14) restaurants (and if alcoholic beverages
are served therein, Tenant or the operator thereof, if
other than Tenant, shall carry adequate liquor liability
insurance), (15) vending machines and snack bars for the
sale of food, confections, non-alcoholic beverages,
newspapers, convenience items and other such items to
employees and business invitees of Tenant, (16) an ATM
machine issued by a bank or other financial institution
selected by Tenant, and (17) day care facility for
exclusive use by Tenant's employees and their families,
which shall be operated in compliance with all applicable
laws. It is the intention of Landlord and Tenant that all
of the uses recited in the preceding sentence be strictly
incidental to Tenant's primary use of the Premises for
business offices and that the Premises shall not be
subleased to third parties for separate operations whose
primary purpose is to serve the general public without
Landlord's consent.
</TABLE>
3
<PAGE> 11
<TABLE>
<S> <C>
(f) Primary Term: Eleven (11) years and zero (0) months (See Article 3).
(g) Commencement Date: June 1, 1999 (subject to the terms of Exhibit
"D-1" hereto and Section 3.01).
(h) Expiration Date: May 31, 2010 (subject to the terms of Exhibit "D-1" hereto
and Section 3.01), subject to extension pursuant to Rider 1.
(i) Tenant's Pro Rata Share: The ratio the Rentable Area of the Premises bears to the
Rentable Area of the Building. As of the Effective Date,
Tenant's Pro Rata Share is 99.45%.
(j) Base Rent: See Section 4.01
(k) Base Operating Expense: Operating Expenses per square foot of Rentable Area in the
Building for the calendar year 1999, subject to adjustment
pursuant to Section 5.03 (excluding electricity for the
Project). (See Article 5.)
(l) Security Deposit: Letter of credit in an amount equal to $4,134,342.00.
(See Section 4.03)
(m) Guarantor: N/A
(n) Tenant's Broker: Trammell Crow Company Brokerage Services Division D/FW &
Baker Commercial Realty Inc. (such brokers are represented
by Phil Puckett and Phil Baker, respectively )
(o) Address for Payment Funds to be wired to Landlord in Portland, Oregon on a
of Base Rent: monthly basis pursuant to wiring instructions to be
furnished by Landlord at least ten (10) days in advance of
(i) the first payment due date and (ii) any subsequent
payment due date prior to which such wiring instructions
have changed.
(p) Common Area: The "Common Area" is comprised of all portions of the
Project other than the Premises and the management office.
Landlord shall not make any material changes to the
dimensions, location, configuration or design of the Common
Area (except as required by law) without Tenant's prior
written consent which shall not be unreasonably withheld.
Material changes (as used herein) shall include without
limitation changes which would convert any portion of the
Common Area to leaseable space or reduce Common Areas by
more than five percent (5%) (and, notwithstanding anything
to the contrary contained in this Lease, Tenant's consent to
these specific changes may be withheld by Tenant in its sole
discretion). Tenant and its assignees and subtenants and
their respective employees, agents, licensees and
concessionaires (the "Tenant - Related Parties") shall have
the nonexclusive right and license to use the Common Area as
constituted from time to time,
</TABLE>
4
<PAGE> 12
<TABLE>
<S> <C>
and such use to be in common with Landlord, other tenants of
the Project, management office personnel and other persons
permitted by Landlord to use the same, and subject to such
reasonable rules and regulations governing use as Landlord
may from time to time prescribe (subject to Tenant's
consent, which consent shall not be unreasonably withheld).
Tenant shall not take any action which would unreasonably
interfere with the rights of other persons to use the Common
Area without the prior written consent of Landlord. Landlord
may temporarily close any part of the Common Area for such
reasonable periods of time as may be necessary to prevent
the public from obtaining prescriptive rights and to make
repairs or alterations, provided that Tenant's access to the
Premises shall remain available during any such period.
Landlord shall provide Tenant with reasonable advance notice
of any such temporary closings and shall endeavor to
schedule such closings during Holidays (as defined in
Section 7.01(a)) and other times outside of Building
Operating Hours (as defined in Section 7.01(a) hereof).
</TABLE>
ARTICLE 2.
================
2.01. PREMISES. In consideration of the obligation of Tenant to pay
Rent (defined below) as herein provided and in consideration of the other terms,
covenants and conditions hereof, Landlord hereby does lease, let and demise unto
Tenant, and Tenant hereby does lease and rent from Landlord, upon and subject to
the provisions of this Lease, the 179,754 square feet of Rentable Area (subject
to the provisions of Sections 2.04 and 2.05 below) which is hereby stipulated
and for all purposes hereof agreed to be as stated in 1.01(c) above and as
reflected on the floor plan(s) attached hereto as Exhibit "A" and incorporated
herein for all purposes (such space so leased to Tenant is herein called the
"Premises") located in the building known as One Colinas Crossing (subject to
the provisions of Section 7.06(a) below) ("Building") as set forth in Article
1.01(b) and situated on the tract of land ("Land") described in Exhibit "B-1"
attached hereto and incorporated herein for all purposes (the Building, the
Land, and the parking garage ["Parking Garage"] and parking area [collectively,
"Parking Facilities"] located on the Land and shown on the site plan attached
hereto as Exhibit "B-2" ["Site Plan"] hereinafter collectively referred to as
the "Project"), TO HAVE AND TO HOLD said Premises for the Term, subject to the
provisions of this Lease. Landlord and Tenant acknowledge and agree that the
Project specifically does not include the land shown on the Site Plan which is
described on Exhibit "B-3" ("Adjacent Land") and the improvements thereon, a
portion of which Adjacent Land is owned by Landlord and a portion of which is
subject to certain agreements between Landlord and Tenant as set forth in this
Lease and in the Development Agreement (defined below). The Land and the
Adjacent Land, and the improvements thereon, comprise the complex commonly
referred to as Colinas Crossing ("Complex").
Subject to the terms of this Lease, Tenant shall be entitled to the
following as appurtenances to the Premises: the right to use (i) the Parking
Facilities and other areas of the Project in accordance with Section 17.11 and
Exhibit "F" to this Lease, (ii) the roof of the Building and/or the Parking
Facilities in accordance with Sections 7.09 and 7.10 hereof, (iii) riser space
in the core of the Building pursuant to Section 7.07 hereof, (iv) for Tenant's
exclusive use, the restrooms on floors leased entirely by Tenant and, for
Tenant's nonexclusive use, the restrooms on floors partly, but not entirely,
leased by Tenant, (v) for Tenant's nonexclusive use (subject to the other
provisions of this Lease), the telephone and electric closets on floors leased
5
<PAGE> 13
entirely by Tenant, and (vi) in common with Landlord and other tenants or
occupants of the Project, their invitees and guests and others, all lobbies,
driveways, sidewalks and other areas and facilities on the Land, in the Building
and other portions of the Project from time to time intended for the common use
of tenants in the Project, and all rights and benefits appurtenant to, or
necessary or incidental to, the use and enjoyment of the Premises by Tenant for
the purposes set forth in Section 1.01(e) above, including, but not limited to,
the right of Tenant, its employees and invitees, in common with Landlord and
other persons, to the benefits of any reciprocal easements and/or use agreements
burdening and/or benefiting the Project (including without limitation, the CCR)
to the extent necessary or incidental to the use and enjoyment of the Premises
for the purposes permitted by Section 1.01(e), including without limitation, the
right to use the "Common Facilities" (defined in the CCR) pursuant to the terms
of the CCR.
2.02. IMPROVEMENTS BY LANDLORD. On the Effective Date, Landlord shall
deliver the Premises to Tenant with the Building Shell Improvements (as such
term is defined in Exhibit "D-2" attached hereto) completed all in accordance
with Exhibit "D-2" (excluding Delivery Punch List Items [defined below]).
Construction of the Tenant Improvements (defined in Exhibit "D-1") for the
Premises will be accomplished and the cost of such construction will be paid in
accordance with Exhibit "D-1" attached hereto and made a part hereof.
2.03. CONDITION OF PREMISES. Except as provided in this Lease
(including without limitation, Section 2.02 and Exhibits "D-1" and "D-2" of this
Lease), Tenant acknowledges that Landlord has not undertaken to perform any
modification, alteration, or improvement to the Premises. Landlord represents
and warrants to Tenant that (i) all Building and Project systems are new and in
good working order, (ii) the Project is in accordance with all applicable laws,
regulations, ordinances and codes, (iii) Landlord is the fee owner of the Land
and the Adjacent Land and the Land and the Adjacent Land are not subject to any
ground leases, mortgages, deeds of trust or other security instruments, (iv) the
City of Farmers Branch has heretofore issued a temporary shell certificate of
occupancy with respect to the Project (including without limitation, the Parking
Garage and the Building) and Tenant can commence its Tenant Improvements work at
any time after the Effective Date in accordance with Exhibit "D-1", and (v) the
Building Shell Improvements in the Premises have been completed except for
Delivery Punch List Items. Landlord has not made any representations or
warranties with respect to the Project or the Premises except for those set
forth in this Lease. As used herein, "Delivery Punch List Items" shall mean
incomplete work items following substantial completion of the Building Shell
Improvements which do not interfere with Tenant's construction of the Tenant
Improvements. As used herein, "Rental Commencement Punch List Items" shall mean
incomplete work items following substantial completion of the Building Shell
Improvements which do not interfere with Tenant's business operations.
2.04. PREMISES CERTIFICATE. Exhibit "A" sets forth the square footage
of Rentable Area of each floor or portion thereof comprising the Premises. Prior
to the Commencement Date, Landlord shall execute and deliver to Tenant an
Exhibit "G" attached hereto, which shall contain Landlord's calculation of the
exact number of square feet of Rentable Area within each floor of the Premises
as of such date, including a breakdown of Landlord's calculations with regard to
Common Areas and the Rentable Area of the Building. Tenant shall have the right
to object to Exhibit "G" by delivering notice to Landlord within thirty (30)
days after Landlord delivers Exhibit "G" to Tenant, failing which Tenant shall
be deemed to have agreed that the information contained in Exhibit "G" is
correct and Tenant shall be required to execute Exhibit "G" within five (5) days
after the expiration of such 30-day period. If Tenant objects to Exhibit "G"
within said thirty (30) day period, Landlord and Tenant shall work together to
resolve their differences, failing which the disputes shall be submitted to
arbitration under Section 17.29. After such differences have been resolved
between Landlord and Tenant or by arbitration, Landlord and Tenant shall execute
the corrected Exhibit "G". Tenant shall have the right during such thirty (30)
day period to have Tenant's architect make field measurements of the Project,
Premises, and common areas provided Tenant furnishes Landlord with one (1)
Business Day prior notice of the date such measurements are to be made. Upon the
execution of Exhibit "G" by Landlord and Tenant for all floors of the Premises
and the Project, the Rentable Area of all floors in the Premises and the Project
as shown on the executed Exhibit "G" shall replace the Rentable Area of the
Premises and the Project as shown in Exhibit "A" and in Section 1.01(c) of
6
<PAGE> 14
this Lease and shall be deemed to be the Rentable Area of the Premises and the
Project as of such date for all purposes under this Lease.
2.05. MANAGEMENT OFFICE. As of the date hereof, the management office
for the Project consists of 1,000 square feet of Rentable Area and is located in
the area shown on Exhibit "A". If Tenant desires Landlord to relocate the
management office to another area of the Building, Tenant shall forward written
notice to Landlord within ten (10) business days after the Effective Date. If
Tenant makes such request, Landlord and Tenant shall work together, acting
reasonably and in good faith, to select another location in the Building within
five (5) days of Tenant's request which does not interfere with Tenant's space
planning needs (and in no event shall the relocated management office exceed
1,000 square feet of Rentable Area). If pursuant to this paragraph the square
footage of the management office is reduced to less than 1,000 square feet, the
square footage of the Premises shall be adjusted accordingly (subject to
confirmation pursuant to Section 2.04) to recognize that the Premises and the
management office shall aggregate 100% of the Rentable Area in the Building.
Tenant shall pay for all costs of any such relocation.
ARTICLE 3
==============
3.01. TERM. The initial term of this Lease shall be for a term of
eleven (11) years ("Primary Term") commencing as to each Major Portion (defined
in Exhibit "D-1") on the Rental Commencement Date for such portion and
continuing as to all of the Premises until the day immediately preceding the
eleventh (11th) anniversary of the Commencement Date (defined in Exhibit "D-1");
provided, however, if the Primary Term commences on a date other than the first
day of a calendar month, Landlord and Tenant shall be deemed to have agreed that
the Primary Term shall be extended through the last day of the calendar month in
which the expiration date falls. The Primary Term of this Lease may be renewed
and extended pursuant to Rider 1 to this Lease (the Primary Term and, to the
extent renewed and extended, any such renewal terms are hereinafter called the
"Term").
3.02. COMMENCEMENT CERTIFICATE. Within five (5) days after the
Commencement Date, Landlord shall submit to Tenant a certificate in the form
attached hereto as Exhibit "E" to confirm the occurrence of the Commencement
Date for the Premises. Tenant shall have the right to object to Exhibit "E"
within thirty (30) days after Landlord delivers Exhibit "E" to Tenant, failing
which Tenant shall be deemed to have agreed that all information contained in
Exhibit "E" is correct. If Tenant objects to Exhibit "E" within said thirty (30)
day period, Landlord and Tenant shall work together to resolve their
differences, failing which the dispute may be submitted to arbitration pursuant
to Section 17.29. Immediately upon resolution of such differences, Landlord and
Tenant shall execute and deliver the corrected Exhibit "E".
ARTICLE 4.
===============
4.01. BASE RENT.
(a) Subject to the provisions of subsections (b) and (c) below, Tenant,
in consideration for this Lease and the leasing of the Premises for the Term,
agrees to pay to Landlord commencing on the Rental Commencement Date (defined in
Exhibit "D-1") as to each Major Portion (defined in Exhibit "D-1") of the
Premises, base rental ("Base Rent") equal to the product of the (i) annual rate
("Base Rental Rate") set forth below for the applicable Lease Year, multiplied
by (ii) the square feet of Rentable Area comprising the Major Portion of the
Premises for which the Rental Commencement Date has occurred.
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<TABLE>
<CAPTION>
Lease Years Base Rental Rate
----------- ----------------
<S> <C> <C>
1 - 5 $23.00
6 - expiration of the
Primary Term $24.50
</TABLE>
As used herein, "Lease Year" shall mean a period of one (1) year;
provided, however, the first (1st) Lease Year for the Premises shall commence on
the Commencement Date and end on the date next preceding the first anniversary
thereof; and provided further, Lease Year 2 as to the Premises shall commence
upon the expiration of Lease Year 1 with respect to such space and all
subsequent Lease Years shall commence upon the expiration of the prior Lease
Year with respect to such space.
(b) Notwithstanding the foregoing, if the Rental Commencement Date for
the First Space occurs prior to June 1, 1999, the Rental Commencement Date for
the Second Space occurs prior to September 1, 1999, and/or the Rental
Commencement Date for the Third Space occurs prior to December 1, 1999, then
Tenant shall be obligated to pay Base Rental as to the applicable space for
which the early Rental Commencement Date occurred for the period from the early
Rental Commencement Date until (i) June 1, 1999, as to the First Space (if
applicable), (ii) September 1, 1999, as to the Second Space (if applicable)
and/or (ii) December 1, 1999, as to the Third Space (if applicable), at one-half
of the Base Rental Rate set forth above.
(c) Notwithstanding the foregoing, if Tenant exercises the Building 2
Option (defined in that certain Development Agreement dated of even date
herewith between Landlord and Tenant (the "Development Agreement"), the Base
Rental Rate for all of the Premises shall be automatically reduced in this Lease
for the period commencing at the beginning of the sixth (6th) Lease Year and
continuing through the remainder of the Primary Term by 25/100 Dollars ($0.25)
per square foot of Rentable Area.
4.02. PAYMENT OF RENT. As used in this Lease, "Rent" shall mean the
Base Rent, the Operating Expense reimbursements pursuant to Section 5.01,
Tenant's Electricity Charge pursuant to Section 5.02B, and all other monetary
obligations provided for in this Lease to be paid by Tenant, all of which shall
constitute rental in consideration for this Lease and the leasing of the
Premises. Tenant shall send Base Rent and other sums due hereunder in legal
tender of the United States of America to Landlord. Base Rent shall be sent by
wire transfer pursuant to the instructions set forth in Section 1.01(o) or to
such other person or at such other address or pursuant to such different wiring
instructions as Landlord may from time to time designate at least ten (10) days
in advance in writing. Rent other than Base Rent shall be paid in a manner
mutually agreeable to Landlord and Tenant. Landlord and Tenant may from time to
time mutually agree to an alternative manner of payment of any portion of Rent.
The Rent shall be paid without notice, demand, abatement, deduction, or offset
except as may be expressly set forth in this Lease. Upon execution of this
Lease, Tenant shall pay to Landlord an amount equal to $172,500, which shall be
applied to the first month's Base Rent due hereunder on the first Rental
Commencement Date.
Tenant shall pay to Landlord a late charge equal to five percent (5%)
of the amount of Rent due for all Rent which is not paid on or before the fifth
(5th) day following the date such amount is due. Any payments made by Tenant to
Landlord hereunder shall not be deemed a waiver by Landlord of any rights
against the Tenant. The collection of such late charge by Landlord shall be in
addition to and cumulative of any and all other remedies available to such
party.
It is the intention of Landlord and Tenant to conform to all applicable
laws concerning the contracting for, charging and receiving of interest. In the
event that any payments of interest required under this Lease are ever found to
exceed any applicable limits, the charging party shall credit the amount of any
such excess paid by the other party against any amount owing under this Lease or
if all amounts owning under this Lease have been paid, the charging party shall
refund to the other party the amount of such excess. Landlord and Tenant agree
that Landlord shall not be subject to any applicable penalties in connection
with any such excess interest, it being agreed that any such excess interest
contracted for, charged or received pursuant to this Lease shall be deemed a
result of a bona fide error and a mistake. The obligation of Tenant to pay Rent
is an
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independent covenant, and no act or circumstance, whether constituting a breach
of covenant by Landlord or not, shall release or modify Tenant's obligation to
pay Rent except as otherwise provided in this Lease.
4.03. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
furnish, and (except as otherwise provided in this Section 4.03) maintain in
effect at all times during the Term hereof, an irrevocable standby letter of
credit in the initial amount of $4,134,342.00 as security for the timely
performance of Tenant's obligations hereunder, in substantially the form set
forth on Exhibit "J" hereto (the "Letter of Credit"). Landlord may draw upon the
Letter of Credit in part upon any Default by Tenant (which continues beyond the
notice and cure periods) to the extent necessary to cover the sums in (i) and
(ii) below. In the event that Landlord draws on such letter of credit following
a Default by Tenant, Landlord shall apply the proceeds thereof to the extent
required (i) to the cost of curing such Default then existing and uncured, and
(ii) if this Lease or Tenant's right to possession of the Premises is terminated
as the result of such Default, to any and all other damages to which Landlord
may be entitled under this Lease. Tenant shall restore the Letter of Credit to
the amount existing prior to such partial draft within ten (10) business days
following Tenant's receipt of notice from Landlord of such partial draft,
failing which Landlord may draw the entire remaining amount available under such
Letter of Credit provided Landlord complies with the provisions below.
Additionally, in the event that the issuing bank notifies Landlord that it will
not renew the Letter of Credit, then Tenant shall have the right to substitute a
Letter of Credit from another financial institution reasonably acceptable to
Landlord prior to the expiration date, failing which Landlord shall have the
right to draw the balance then existing under the Letter of Credit.
Additionally, Tenant may at any time replace the Letter of Credit with a Letter
of Credit from another financial institution reasonably acceptable to Landlord.
Any amount so drawn by Landlord and not applied by Landlord as provided
in (i) and (ii) of the preceding paragraph shall be held as an interest bearing
security deposit for the timely performance of Tenant's obligations hereunder
("Security Account"). Such amount shall be held by Landlord in trust and in a
separate bank account which shall not be commingled with Landlord's other funds.
Such amount shall not constitute an advance payment of rent. Interest earned
thereon shall be for Tenant's benefit and Landlord shall arrange for interest
thereon to be paid to Tenant as requested by Tenant, except to the extent used
to replenish partial drafts. Payment of amounts due under this Lease from the
proceeds of a draw under the Letter of Credit will not relieve Tenant of the
obligation to pay such amount or prevent Tenant's failure to make such payment
from constituting a Default by Tenant, except to the extent Tenant restores the
Letter of Credit to the amount existing prior to Landlord's partial draft
thereon (in which event the sums held in the Security Account shall be returned
to Tenant within fifteen (15) days thereof). Landlord may assign its interest in
the Letter of Credit only in connection with an assignment of this Lease, it
being understood and agreed that Landlord may make an absolute or collateral
assignment of the Letter of Credit in connection with a financing or refinancing
of the Project. Within fifteen (15) days after the expiration or earlier
termination of this Lease the Letter of Credit or sums in the Security Account
(as applicable) shall be returned to Tenant.
The amount of the Letter of Credit required shall be reduced (the
"Pro-Rata Reduction") as of each anniversary of the Commencement Date by an
amount equal to one-eleventh (1/11) of the full initial amount thereof;
provided, however, that each such reduction shall be conditioned upon Tenant's
net worth or shareholders' equity (as applicable) upon each anniversary of the
Commencement Date being not less than Two Hundred Thirty-Five Million Dollars
($235,000,000), as reflected on the most recent Form 10K or Form 10Q filed
pursuant to applicable securities laws.
In addition to the foregoing, the amount of the Letter of Credit
required shall also be reduced (a "Net Worth Reduction") to: (a) seventy-five
percent (75%) of the then-existing amount thereof at such time as Tenant's net
worth or shareholders' equity (as applicable) equals or exceeds Three Hundred
Fifty Million Dollars ($350,000,000); (b) fifty percent (50%) of the
then-existing amount thereof at such time as Tenant's net worth equals or
exceeds Four Hundred Million Dollars ($400,000,000); and (c) twenty-five percent
(25%) of the then-existing amount thereof at such time as Tenant's net worth or
shareholders' equity (as applicable) equals or exceeds Four Hundred Fifty
Million Dollars ($450,000,000). Additionally, Tenant's obligation to
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<PAGE> 17
maintain the Letter of Credit shall terminate at such time as Tenant's net worth
or shareholders' equity (as applicable) equals or exceeds Five Hundred Million
Dollars ($500,000,000), in which event Landlord shall return the Letter of
Credit to Tenant within fifteen (15) days of Tenant's request. As used in this
paragraph, Tenant's net worth or shareholders' equity (as applicable) shall be
the net worth or shareholders' equity (as applicable) reflected in the Form 10K
or Form 10Q required to be filed by applicable securities laws immediately
preceding such reduction or termination, as the case may be.
It is understood and agreed that the Pro-Rata Reduction shall
not be applicable if upon any anniversary of the Commencement Date the amount of
the Letter of Credit has been reduced to an amount less than what the Pro-Rata
Reduction would effect, by virtue of Tenant's previously having qualified for a
Net Worth Reduction.
It is also understood and agreed that if Landlord holds sums in the
Security Account, the Pro Rata Reduction and the Net Worth Reduction shall also
apply to the Security Account, and Landlord shall pay to Tenant the amounts
which are so reduced within fifteen (15) days of the occurrence of the Pro Rata
Reduction or the Net Worth Reduction (as applicable). Further, in no event shall
the Letter of Credit or Security Account be increased for any reason once either
has been reduced as the result of a Pro Rata Reduction or a Net Worth Reduction.
Notwithstanding anything to the contrary contained herein, in
determining Tenant's shareholders' equity for purposes of this Section 4.03, (i)
non-cash charges to Tenant's income statement or balance sheet from mergers
and/or acquisitions shall be added back to Tenant's shareholders' equity for
purposes hereof, and (ii) any reduction to shareholders' equity as a result of
Tenant entering into a merger and/or acquisition accounted for as a pooling of
interests shall be added back to Tenant's shareholders' equity for purposes
hereof.
Upon the occurrence of a Pro Rata Reduction or a Net Worth Reduction,
Tenant shall be permitted to provide Landlord with either (i) a substitute
Letter of Credit for the reduced amount, in which event Landlord shall return
the existing Letter of Credit to Tenant within fifteen (15) days of receipt of
the new Letter of Credit, or (ii) an amendment to the Letter of Credit, in which
event Landlord will sign the amendment and return it to Tenant within fifteen
(15) days of receipt of the amendment.
ARTICLE 5.
============
5.01. OPERATING EXPENSE REIMBURSEMENT. The Base Rent payable under
Section 4.01 of this Lease includes an annual allocation for operating expenses
equal to the Base Operating Expense (defined below) per square foot of Rentable
Area of the Premises. As used herein, "Base Operating Expense" shall mean
Operating Expenses (defined in Section 5.02 hereof) for the calendar year 1999
determined in accordance with this Article 5, which calendar year 1999 shall be
referred to herein as the "Base Year." In the event that Operating Expenses
(defined in Section 5.02A hereof) of the Project during any calendar year of the
Term shall exceed the Base Operating Expense, Tenant shall pay to Landlord
Tenant's Pro Rata Share of the increase in such Operating Expenses over the Base
Operating Expense in accordance with the procedures below ("Additional Rent").
Notwithstanding the foregoing, in no event is Tenant obligated to pay any
Additional Rent with respect to calendar year 1999.
On or before January 1, 2000 and on or before the first day of each
calendar year thereafter during the Term, Landlord shall provide to Tenant the
Estimated Operating Expense Increase (defined below) for the upcoming year. In
addition to the Base Rent, Tenant shall pay in advance on the first day of each
calendar month during the Term, installments equal to 1/12th of Tenant's Pro
Rata Share of the Estimated Operating Expense Increase, if any.
Within one hundred twenty (120) days after the end of each calendar
year during the Term, Landlord shall furnish to Tenant a written detailed
statement, certified by Landlord's group controller or other Project officer
knowledgeable of the facts that the statement has been prepared
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<PAGE> 18
in accordance with this Lease, of the Actual Operating Expense Increase
(hereinafter defined) for the immediately preceding calendar year, which
statement shall itemize each category of Operating Expenses and set forth
Landlord's calculations of Tenant's Pro Rata Share of the Actual Operating
Expense Increase. If Tenant's Pro Rata Share of the Estimated Operating Expense
Increase paid to Landlord during the previous calendar year exceeds Tenant's Pro
Rata Share of the Actual Operating Expense Increase, then Landlord shall refund
the difference to Tenant at the time Landlord furnishes the statement of the
Actual Operating Expense Increase. If Tenant's Pro Rata Share of Estimated
Operating Expense Increase paid to Landlord during the previous calendar year is
less than Tenant's Pro Rata Share of the Actual Operating Expense Increase, then
Tenant shall pay to Landlord the amount of such underpayment. Unless Tenant
takes written exception to any item within one hundred twenty (120) days after
the furnishing of such annual statement to Tenant, such statement shall be
considered final and accepted by Tenant (unless an error in Landlord's statement
is discovered with respect to any particular line item of Operating Expenses, in
which event Tenant shall have the additional audit rights described below). Any
amount due Landlord as shown on any such statement shall be paid by Tenant
within thirty (30) days after it is furnished to Tenant subject to Tenant's
audit right provided below.
Tenant shall have the right to perform an annual audit at Tenant's
expense on Landlord's books and records to the extent necessary to verify
Landlord's calculation of the Base Operating Expense and/or the Actual Operating
Expense Increase for the prior calendar year, provided that such audit shall be
conducted by its internal audit group or a Certified Public Accountant and
further provided that the auditor's report reflecting the results of such audit
shall be promptly delivered to Landlord. Any such audit shall be conducted, if
at all, (i) within one hundred eighty (180) days after the receipt of the annual
statement of the Base Operating Expense or the Actual Operating Expense Increase
(as applicable) from Landlord (unless an error in Landlord's statement is
discovered with respect to any particular line item of Operating Expenses, in
which event Tenant or such certified public accounting firm (on Tenant's behalf)
shall be allowed to examine Landlord's books and records for the two (2) years
preceding the most recently completed calendar year statements, but only with
respect to the line item(s) which is/are found to be in error), (ii) during
Landlord's normal business hours, (iii) at the place in Dallas, Texas where
Landlord maintains its records (or such other place in Dallas, Texas as Landlord
shall deliver the appropriate records) and (iv) only after Landlord has received
thirty (30) days prior written notice. Landlord agrees to cooperate in good
faith with Tenant in the conduct of any such audit. If the audit report reflects
an overcharge in the Actual Operating Expense Increase of more than two percent
(2%) of the total Actual Operating Expense, then Landlord shall reimburse Tenant
for all reasonable costs incurred by Tenant due to such audit plus interest on
such overpayment at the Default Interest Rate. Interest on all overpayments or
underpayments discovered by such audit shall be calculated as follows: (i)
one-twelfth (1/12th) of the overpayment or underpayment shall be deemed to have
been paid on the first day of each calendar month in the calendar year to which
such overpayment or underpayment relates, and (ii) each such deemed payment
shall bear interest at the Default Interest Rate, from the date deemed paid
until the overpayment or underpayment is paid to Tenant or Landlord, as the case
may be. If the audit report reflects that the Actual Operating Expense Increase
was overstated or understated in the audited calendar year, Tenant shall, within
twenty (20) days after receipt of such report, pay to Landlord the amount of any
underpayment or, if applicable, Landlord shall pay to Tenant the amount of any
overpayment. Any disputes may be resolved by arbitration pursuant to Section
17.29.
The "Estimated Operating Expense Increase" shall equal Landlord's good
faith and reasonable estimate of Operating Expenses for the applicable calendar
year, less the Base Operating Expense. Landlord's statement of the Estimated
Operating Expense Increase shall control for the year specified in such
statement and for each succeeding year during the Term until Landlord provides a
new statement of the Estimated Operating Expense Increase. The "Actual Operating
Expense Increase" shall equal the actual Operating Expenses for the applicable
calendar year, less the Base Operating Expense. If Operating Expenses change
during a calendar year or if the number of square feet of Rentable Area in the
Premises changes, Landlord may revise the estimated Additional Rent two (2)
times during such year by giving Tenant written notice to that effect and
thereafter Tenant shall pay to Landlord, in each of the remaining months of such
year, an amount commensurate with the change in the estimated Additional Rent
divided by the number of months remaining in such year.
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5.02A. OPERATING EXPENSES. The term "Operating Expenses" shall mean and
include all those reasonable amounts, expenses, and costs of whatsoever nature
(other than electricity for the Project) that Landlord incurs, pays or becomes
obligated to pay because of or in connection with the ownership, operation,
management, repair, or maintenance of the Project. Operating Expenses shall be
determined on an accrual basis in accordance with generally accepted accounting
principles consistently applied and shall include, without limitation, the
following:
(a) Wages, salaries, fees, related taxes, insurance, benefits, and
reimbursable expenses of all personnel engaged in operating, repairing, and
maintaining the Project and providing traffic control about the Project;
provided, however, that (i) if during the Term such personnel are also working
on other projects being operated by Landlord, their wages, salaries, fees and
related expenses shall be allocated by Landlord in good faith among all of such
projects and only that portion of such expenses allocable to the Project shall
be included as an "Operating Expense," and (ii) such wages, salaries, fees,
taxes, insurance, benefits and expenses for personnel senior to the most senior
property manager responsible for the day-to-day operation of the Project and
executives of Landlord or Landlord's affiliates shall be excluded.
(b) Cost of all labor, supplies, tools, equipment and materials used in
operating, repairing, and maintaining the Project (excluding costs paid by
proceeds of condemnation or insurance).
(c) The actual cost of all utilities (except for electricity for the
Project) for the Project, including, without limitation, water, sewer charges,
gas and fuel oil, less any rebates, credits or reductions paid to Landlord by
the provider of any such utilities (and in no event may Landlord charge any
mark-up on such utilities).
(d) Cost of all maintenance (including specifically, without
limitation, roof maintenance and maintenance of the Building systems), security
(to the extent performed by Landlord rather than Tenant), window cleaning,
elevator maintenance, landscaping, repair, janitorial, and other similar service
agreements for the Project and the equipment and other personal property of
Landlord therein and thereon used in connection with the operation, management,
repair or maintenance of the Project.
(e) Cost of all insurance relating to the Project and its occupancy or
operations, including but not limited to (i) the cost of casualty and liability
insurance applicable to the Project or Landlord's personal property used in
connection with the operation of the Project, (ii) the cost of business
interruption insurance in such amounts as will reimburse Landlord for all losses
of earnings and other income attributable to the ownership and operation of the
Project for one (1) year, and (iii) the cost of insurance against such perils
and occurrences as are commonly insured against by prudent landlords
(specifically including, without limitation, floods and earthquakes).
(f) Costs of repairs to and maintenance of the Project undertaken by
Landlord, excluding any such costs as are paid by the proceeds of insurance or
condemnation proceeds, by Tenant, or by other third parties, and excluding any
alterations of space occupied by other tenants of the Building.
(g) A management fee for management services rendered in connection
with the Project, which fee shall not exceed three percent (3%) of the gross
revenues received by Landlord with respect to the Project for any calendar year
(provided, however, in determining the Base Operating Expense, the management
fee included shall be determined based on the annualized rent payable by Tenant
in Lease Year 2 and the management fee percentage so included in Operating
Expenses cannot be increased during the Primary Term and any Extension Term
after the Base Year). The management fee percentage for each Extension Option
shall not exceed three percent (3%) of the gross revenues received by Landlord
with respect to the Project for the Base Year used for such Extension Term.
(h) Amortization of (a) Required Capital Improvements, and (b) Cost
Savings Improvements to the extent of the actual savings, plus reasonable
financing costs (at an annual
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rate equal to the lesser of (A) one percent (1%) over the Prime Rate, or (B) the
maximum lawful rate). "Required Capital Improvements" shall mean capital
improvements or replacements made in or to the Project in order to conform to
any applicable laws or amendment thereto (to the extent of such amendment only)
which becomes effective after the Commencement Date (including any amendments to
ADA or TAS [to the extent of such amendments only] which become effective after
the Commencement Date. "Cost Savings Improvements" shall mean any capital
improvements or replacements which reduce Operating Expenses. The cost of Cost
Savings Improvements and Required Capital Improvements will be amortized by
spreading such costs on a straight line basis over its useful life using
generally accepted accounting principles.
(i) Landlord's central accounting costs, legal fees, and other such
third party fees relating to the operation of the Project (but excluding
accounting and legal services in connection with negotiations and disputes with
specific tenants).
(j) Rent for the property manager's office, if any, in the Building
(not exceeding fair market rents for comparable space in the Geographical Market
and not to exceed 1,000 square feet of Rentable Area) but excluding the rent for
a pro rata portion of such office to the extent such office is not used solely
for the management of the Project (e.g., if a portion of such office is used for
leasing activities or development activities or for management of buildings
other than the Project, a pro rata portion of such rent shall not be included
based upon the percentage of activities conducted in the office other than
management of the Project).
(k) The Project's share of quarterly assessments for maintaining the
"Common Facilities" (as defined in the CCR) authorized by Section 4.03 of the
CCR ("Quarterly Assessments"), as such share is determined under the CCR.
(l) The Project's share (as determined pursuant to the CCR) of all
special assessments authorized by Section 4.04 of the CCR ("Special
Assessments") if the aggregate of the Project's share of Special Assessments in
any calendar year are less than thirty percent (30%) of the actual Project's
share of Quarterly Assessments included in Operating Expenses the previous
calendar year pursuant to clause (k) above ("Thirty Percent Level"). If the
aggregate of the Project's share of Special Assessments in any calendar year
equals or exceeds the Thirty Percent Level, then the aggregate amount of the
Special Assessments in such calendar year shall be amortized to spread such
costs on a straight line basis at the rate of 10% per annum over the useful life
of the improvements comprising the Special Assessment and included in Operating
Expenses on such basis (in lieu of 100% of such Special Assessments being
included in the year of the Special Assessment).
(m) Costs incurred by Landlord in maintaining the Common Areas.
(n) All reasonable costs incurred by Landlord in connection with
Landlord's protests of real estate taxes assessed upon the Project, including,
without limitation, appraisal costs, tax consultant charges and reasonable
attorney's fees.
Nothing contained in this Section 5.02 shall be construed as requiring
Landlord to provide any services which are not specifically set forth in this
Lease as obligations of Landlord.
Notwithstanding anything herein to the contrary, and in addition to the
exclusions and limitations on Operating Expenses set forth above, the following
items shall be excluded from Operating Expenses:
(1) Costs incurred in connection with the initial construction
of the Project;
(2) Except to the extent provided specifically in subsection
(h) above as to the Project only (and not any premises of
tenants), costs of alterations or improvements of the Project,
the Premises, and the premises of tenants in other areas of
the Building, including any alterations and improvements
necessary for any of such premises to comply with the ADA (as
defined in Section 17.07) or Texas Accessibility Statute
(TAS);
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(3) Interest, principal payments, and other costs of any
indebtedness encumbering the Building or the Project;
(4) Costs of correcting latent defects of the construction of
the Project, the improvements within the Premises, or the
premises of other Building tenants.
(5) Depreciation and any other non-cash expense items;.
(6) Legal fees, space planner's fee, architectural fees, real
estate commissions, and marketing and advertising expenses
incurred in connection with leasing and construction of the
Project or any improvements on the Land;
(7) Costs of repairs, restoration, replacements or other work
that are otherwise includable as Operating Expenses but are
occasioned by (1) fire, windstorm or other casualty of an
insurable nature (whether such destruction be total or
partial) and (aa) payable by insurance required to be carried
by Landlord under this Lease (whether or not such insurance is
actually carried), or (bb) otherwise paid by insurance then in
effect obtained by Landlord, (2) the exercise by a
governmental authority of the right of eminent domain, whether
such taking be total or partial, or (3) the act of any other
tenant in the Project, or any other tenant's agents,
employees, licensees or invitees;
(8) Any bad debt losses, rent losses or losses or reserves for
bad debt or rent losses;
(9) Costs associated with the operation of the business of the
legal entity which constitutes Landlord as the same is
distinguished from the cost and operation of the Building,
including legal entity information, internal entity accounting
and legal matters;
(10) Costs of defending any lawsuits with mortgagees or
potential Building purchasers (except as the actions of Tenant
may be an issue) now or in the future;
(11) Costs of selling, syndicating, financing, mortgaging, or
hypothecating any of the Landlord's interest in the Project or
the other improvements located on the Land;
(12) Costs of disputes between Landlord and any third party
not relating to the operation of the Building or Project;
(13) The wages of employees who do not directly devote the
majority of their time to the Building; provided, however, the
reasonable costs associated with such employees who do not
devote the majority of their time to the Building may be
reasonably prorated for such an amount shall be included as an
Operating Expense to the extent that such employees devote
their time to the Building and are not (i) senior to the most
senior property manager responsible for the day-to-day
operation of the Project, or (ii) executives of Landlord or
Landlord's affiliates;
(14) Unless otherwise permitted for the reduction of Operating
Expenses in subsection (i) above, the cost of replacement of
HVAC, mechanical, security, electrical, plumbing systems,
replacement of the foundations, floors, walls, roofs, and
structural elements of the Building outside the scope of
routine maintenance and repair;
(15) Expenses directly relating to the gross negligence of the
Landlord or its employees or agents or the cost of any claim
that Landlord was required to have insured against pursuant to
the terms of this Lease;
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(16) All amounts that would otherwise be included in Operating
Expenses which are paid to Landlord, any affiliate of
Landlord, the property management company for the Project or
any affiliate of the property management company to the extent
the costs of such services exceed the competitive rates in the
Geographical Market for such services (it being agreed that
the specific amounts set forth in this Lease which are paid to
such persons and/or entities are competitive rates in the
Geographical Market);
(17) The cost of utility installation and tap-in charges;
(18) leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in connection with
leasing, renovating or improving space for tenants or
prospective tenants of the Project;
(19) allowances, concessions and other costs (including
permit, license and inspection fees) incurred in renovating or
otherwise improving or decorating, painting or redecorating
space for tenants or vacant space;
(20) Landlord's costs of any services sold to tenants for
which Landlord is entitled to be reimbursed by such tenants as
an additional charge or rental over and above the basic rental
and operating expenses payable under the lease with such
tenant or other occupant;
(21) Costs incurred due to violation by Landlord or its agents
or employees of any of the terms and conditions of this Lease
or any other lease relating to the Project;
(22) Attorneys' fees, costs, disbursements and other expenses
incurred in connection with, or similar costs incurred in
connection with disputes with tenants, other occupants, or
prospective tenants, or similar costs and expenses incurred in
connection with negotiations or disputes with consultants,
management agents, purchasers or mortgagees of the Project
(however, such costs and expenses related to negotiations or
disputes with consultants related to the management and/or
operation of the Building shall be included within Operating
Expenses);
(23) Costs incurred (less costs of recovery) for any items to
the extent covered by a manufacturer's, materialman's,
vendor's or contractor's warranty (a "Warranty") which are
paid by such manufacturer, materialman, vendor or contractor
(Landlord shall pursue a breach of warranty claim for items
covered by a Warranty unless Landlord determines in good faith
that such action would not be in the best interest of the
tenants of the Project);
(24) Rental payments made under any ground or underlying lease
or leases, except to the extent that a portion of such rental
payments is expressly for ad valorem/real estate taxes or
insurance premiums on the Project;
(25) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling or change of ownership of the
Project, including brokerage commissions, attorneys' and
accountants' fees, closing costs, title insurance premiums,
transfer taxes and interest charges;
(26) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to the late payments of taxes, utility
bills and other costs incurred by Landlord's failure to make
such payments when due;
(27) Costs which are to be capitalized in accordance with
generally accepted accounting principles not included under
subsection (h) above;
(28) Costs and expenses of all electricity for the Project and
the costs and expenses of all other utilities directly metered
to tenants of the Project and payable
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separately by such tenants and costs of additional electrical
equipment installed in premises of other tenants of the
Project, and the costs of heating, ventilating and
air-conditioning services provided to other tenants of the
Project during hours other than Building Operating Hours
(defined below), whether or not such costs are payable by such
other tenants;
(29) Advertising, marketing, or promotional costs associated
with the Project;
(30) Costs or expenses relating to another tenant's or
occupant's space that were (i) incurred in rendering any
service or benefit to such tenant that Landlord was not
required, or were for a service in excess of the service that
Landlord was required, to provide Tenant hereunder, or (ii)
otherwise in excess of the Building Standard Services (defined
in Section 7.01 below) then being provided by Landlord to all
tenants of the Project on a uniform basis, whether or not such
other tenant is actually charged therefor by Landlord;
(31) Costs incurred to correct violations by Landlord of any
laws or amendment thereto in effect prior to the Commencement
Date;
(32) The costs of acquiring, insuring (to the extent only that
such items must be separately scheduled), or maintaining
(including any special cleaning or security, but only to the
extent such maintenance or security is in excess of Building
Standard Services) art work located in the Project (whether
permanently or temporarily);
(33) Costs incurred by Landlord to monitor, encapsulate or
remove any asbestos, polychlorinated biphenyls or other
Environmental Pollutants (unless same are caused by the
Tenant-Related Parties, or any other party in contractual
privity with any of them);
(34) The cost of installing, operating and maintaining any
specialty service such as an observatory, broadcast
facilities, luncheon club, athletic or recreational club,
restaurant, delicatessen, hair salon or other retail use;
(35) The cost of any work or service performed for the benefit
of any improvements other than those comprising the Project;
(36) Any lease payments for rented equipment, the cost of
which equipment (1) would constitute a capital expenditure
under clause 27 above if the equipment were purchased, and (2)
would not qualify for inclusion under subsection (i) above;
(37) Increased insurance premiums to the extent caused by
Landlord's or any other tenant's hazardous acts;
(38) Charitable or political contributions; and
(39) All taxes, assessments, and governmental charges and fees
of whatsoever nature, whether now existing or subsequently
created, attributable to the Project or its occupancy or
operation, including, without limitation, (1) taxes and
assessments attributable to the personal property of other
tenants, (2) federal and state taxes on income, (3) death
taxes, (4) any taxes imposed in connection with any change in
ownership of the Building, (5) franchise taxes, and (6) any
taxes imposed or measured on or by the income of Landlord from
the operation of the Project, and including all such taxes
whether assessed to or paid by Landlord or third parties.
5.02B. TENANT'S ELECTRICITY CHARGE. Tenant covenants and agrees to pay
to Landlord as additional Rent without any setoff or deduction whatsoever except
as set forth in this Lease, Tenant's Pro Rata Share as set forth in Section
1.01(i) of all electricity consumed from and
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after the Commencement Date in the use, occupancy, and operation of the Project
(hereinafter called "Tenant's Electricity Charge"). The cost of electricity
consumed from the Effective Date through the Commencement Date shall be paid in
accordance with Exhibit "D-1". Landlord shall provide a monthly written itemized
bill to Tenant for Tenant's Electricity Charge throughout the Term and Tenant
shall pay same within thirty (30) days after receipt of each such bill. Landlord
shall bill Tenant for Tenant's Electricity Charge for the last month or portion
thereof of the Term of this Lease as soon as practicable after the termination
of this Lease and Tenant shall pay same within thirty (30) days after receipt of
such bill; the Tenant's obligation to pay such billing shall survive the
termination of this Lease. All payments for Tenant's Electricity Charge are to
be predicated upon separate and specific bills by Landlord and are not to be
included as part of the Base Rent payment required to be paid pursuant to
Section 1.01(j) hereof. Electrical power which is separately metered or is
otherwise separately assessable to tenants of the area served by such facilities
and the cost of normal and after hours air conditioning supplied to tenants of
the area so the area so served shall be excluded in computing Tenant's Pro Rata
Share of such costs as aforesaid. Landlord shall not be permitted to charge any
mark-up on electricity actual costs and Tenant shall be entitled to a credit
against Tenant's Electricity Charge in an amount equal to Tenant's Pro Rata
Share of any credit, rebate or reduction paid or provided to Landlord by the
electrical utility provider.
Notwithstanding anything to the contrary hereinbefore contained, if
Tenant elects to install meters measuring electricity used in all of the
Premises, Tenant shall pay the portion of Tenant's Electricity Charge relating
to the Premises directly to the utility company based on actual use as measured
by such meters in lieu of paying such portion of Tenant's Electricity Charge to
Landlord. Any meters installed by Tenant shall be installed at Tenant's cost and
expense (subject to such costs being paid by the Finish Allowance pursuant to
Exhibit "D-1").
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES.
(a) If this Lease commences on other than the first day of a calendar
year, or if this Lease expires on other than the last day of a calendar year,
then the Operating Expenses for all of such calendar year shall be prorated
according to the portion of the Term that occurs during such calendar year. If
at any time the Building is not fully occupied or Landlord is not supplying all
services to all portions of the Building during an entire calendar year, then,
Base Operating Expense, Operating Expenses, the Actual Operating Expense
Increase and the Estimated Operating Expense Increase shall be adjusted as
though the Building had been one hundred percent (100%) occupied and Landlord
were supplying all services to all of the Building during the entire calendar
year.
(b) In no event is Tenant obligated to pay Additional Rent with respect
to calendar year 1999.
(c) Landlord shall use its reasonable efforts to make payments in a
time and manner to avoid late payment penalty charges and to obtain the
appropriate discounts to the extent such discounts are in the best interest of
the Project. Landlord shall operate the Project in an efficient manner designed
to minimize Operating Expenses consistent with maintaining services at a level
consistent with First Class Building Standards (defined below). Landlord agrees
to consult with Tenant, solicit its input, and consider Tenant's suggestions as
to how to minimize Operating Expenses.
(d) At Tenant's request, all supply and service contracts providing for
annual payments in excess of $10,000 will be competitively bid by independent
third parties each year.
(e) As used herein, "First Class Building Standards" shall mean a
quality that is equal to or in excess of the quality of first class office
projects (including associated parking facilities) located in the Geographical
Market.
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5.04. TAXES.
After calendar year 1999, Tenant shall be obligated to pay to Landlord
each calendar year during the Term (subject to adjustment of the Tax Stop
pursuant to Rider 1) the amount ("Tenant's Tax Obligation") by which (if any)
(a) Tenant's Pro Rata Share of all ad valorem taxes assessed against the Project
in such calendar year ("Premises Share of Taxes") exceeds (b) the product of Two
and 88/100 Dollars ($2.88) multiplied by the number of square feet of Rentable
Area comprising the Premises ("Tax Stop"), which Tenant's Tax Obligation shall
be paid as provided below.
Prior to the commencement of each calendar year during the Term after
calendar year 1999, Landlord shall furnish to Tenant a statement reflecting
Landlord's reasonable and good faith estimate of Tenant's Tax Obligation for
such calendar year ("Estimated Tenant's Tax Obligation"). Tenant shall pay to
Landlord prior to the first (1st) day of each calendar month during the Term
one-twelfth (1/12) of the Estimated Tenant's Tax Obligation for such calendar
year. Prior to ninety (90) days after the expiration of each calendar year
during the Term, Landlord shall furnish to Tenant a statement reflecting the
actual ad valorem taxes for such calendar year and the actual Tenant's Tax
Obligation for such calendar year (together with a copy of the tax bills from
the applicable taxing authorities). If the Estimated Tenant's Tax Obligation for
such calendar year is less than the actual Tenant's Tax Obligation, Tenant shall
pay the difference to Landlord within thirty (30) days of receipt of such
statement. If the Estimated Tenant's Tax Obligation is more than the actual
Tenant's Tax Obligation, Landlord shall refund such excess to Tenant with the
delivery of the statement to Tenant. Additionally, if the Premises Share of
Taxes is less than the Tax Stop, Landlord shall pay such difference to Tenant
simultaneously with delivery of the statement to Tenant. With respect to any
partial calendar year during the Term, Tenant's Tax Obligation hereunder shall
be prorated based on the number of days of such calendar year in the Term.
Landlord shall provide Tenant with copies of all tax assessments, appraisals and
notices received by Landlord from the taxing authorities within ten (10) days of
Landlord's receipt thereof.
Landlord agrees that Tenant shall receive the benefit of all rebates
which are made with respect to such taxes whenever such rebates are received,
even if received by Landlord after the applicable calendar year. Within ten (10)
days of Tenant's request, Landlord shall join Tenant in entering into any
tri-party agreements reasonably necessary in order to reduce the taxes on the
Project.
Landlord recognizes that Tenant may enter into a bi-party agreement
("Rebate Agreement") with a governmental entity pursuant to which such entity
will rebate directly to Tenant a portion of the taxes paid by Tenant under this
Lease. If Tenant enters into such Rebate Agreement, Landlord acknowledges that
Tenant shall receive the full benefit of such rebate, Landlord shall not be
entitled to any portion thereof and such rebate shall not affect Tenant's
obligations under this Section 5.04. Additionally, within ten (10) days of
Tenant's request, Landlord agrees to furnish each calendar year a letter to the
applicable governmental authority (in a form reasonably acceptable to Tenant)
which evidences that Tenant's obligations under this Lease for the payment of
Base Rent and Tenant's Tax Obligation result in Tenant effectively paying
Tenant's Pro Rata Share of all taxes assessed against the Project (as a portion
of the taxes are a component of the Base Rent), recognizing that such rebate
shall apply to taxes paid by Tenant pursuant to this Lease.
It is understood and agreed that if the present method of taxation
changes such that in lieu of the whole or any part of any ad valorem taxes
assessed against the Project, there is levied on Landlord a capital tax directly
on the rents received from the Project or another tax, assessment or charge
based in whole or in part upon such rents which is a substitute for such ad
valorem taxes , then all such taxes, assessments or charges, or the part thereof
so based, shall be deemed to be "ad valorem taxes assessed against the Project,"
as such term is used in this Section 5.04.
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ARTICLE 6.
=================
6.01. USE. Tenant shall use and occupy the Premises only for the
Permitted Uses set forth in Section 1.01(e) hereof, and for no other purposes.
Tenant shall not use or permit the Premises or any portion thereof to be used
for any purpose other than the Permitted Uses or for any unlawful purpose or in
any unlawful manner, and shall comply with the CCR and all federal, state, and
local governmental laws, ordinances, orders, rules and regulations applicable to
the Premises and the occupancy thereof (except to the extent Landlord is
responsible therefor pursuant to other provisions of this Lease) and Tenant
shall give prompt written notice to Landlord of any notification to Tenant of
any claimed violation thereof. Notwithstanding anything to the contrary
contained in this Lease, Landlord agrees that Tenant may enter into contracts or
subleases with third party vendors of Tenant's choice for the purpose of
operating any of the facilities referred to in the Permitted Uses in Section
1.01(e). Tenant shall not do or permit anything to be done in the Premises, nor
bring or keep anything therein which will in any way cause cancellation of any
insurance policy covering the Project or any part thereof or any of its
contents. In the event that, by reason of any acts of Tenant or any of the
Tenant-Related Parties or their conduct of business for other than the Permitted
Uses, there shall be any increase in the rate of insurance on the Building or
its contents, Tenant hereby agrees to pay such increase. Tenant shall not do
anything in or about the Premises and/or Project which will in any way obstruct
or unreasonably interfere with the rights of other tenants or occupants of the
Project. Tenant shall not permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
ARTICLE 7.
=================
7.01. LANDLORD'S SERVICES. Landlord shall, at Landlord's expense,
except as provided to the contrary in this Lease, furnish to Tenant the
following services ("Building Standard Services"), all of which Building
Standard Services shall comply with applicable laws, and the quality of such
services shall be equal to or in excess of First Class Building Standards:
(a) Central heat and air conditioning in season during Building
Operating Hours (defined below), so that the average indoor conditions
maintained in the Premises during Building Operating Hours shall be a minimum of
72(0)F dry bulb +/-2(0) in the winter when the outdoor temperature is not lower
than 22(0)F dry bulb and a maximum of 76(0)F dry bulb +/-2(0) in the summer when
the outdoor temperature is not higher than 99(0)F dry bulb, assuming sustained
peak loading conditions of one (1) person per 200 square feet of Rentable Area
and a combined light and power demand load of eight (8) watts per square foot of
Rentable Area.
Landlord will furnish air conditioning, ventilating and heating for
full floor increments designated by Tenant at times other than Building
Operating Hours, in which event Tenant shall pay Landlord (i) the actual costs
for the provision of utilities, and (ii) during the Primary Term, $10.45 per
hour for the entire Premises (and not on a floor-by-floor basis). If Landlord
replaces obsolete HVAC equipment during the Term, then the hourly rate of $10.45
may be adjusted during the Extension Terms as agreed to by Landlord and Tenant
(with disputes relating thereto to be resolved by arbitration pursuant to
Section 17.29 hereof) to reflect current estimates of accelerated depreciation
of such equipment resulting from overtime usage. Tenant shall be provided with
means (via access cards or otherwise) to access air conditioning, ventilating
and heating outside of Building Operating Hours. Tenant shall be charged for a
minimum of two (2) hours of such after hours air conditioning, ventilating and
heating, even if Tenant has requested less than two (2) hours of such services.
The condenser water system will be made available to Tenant in the core
on each floor of the Premises as an alternate source of cooling for Tenant
installed HVAC units. Tenant shall not be charged for the use of such condensing
system water.
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As used herein, "Building Operating Hours" shall mean 7:00 a.m. through
7:00 p.m. on weekdays and 8:00 a.m. through 1:00 p.m. on Saturdays, exclusive of
Holidays.
As used herein, "Holidays" shall mean New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
(b) Janitor service shall be provided to the Premises five (5) days per
week, exclusive of Holidays, consistent with the janitorial specifications set
forth in Exhibit "H"; provided, however, if Tenant's leasehold improvements
(including without limitation, floor coverings) require that Landlord provide
special or additional cleaning in excess of the janitorial specifications in
Exhibit "H" or if Tenant desires services not included in the janitorial
specifications, Tenant may either (1) independently contract with individuals or
entities that furnish such desired cleaning or other services, or (2) request
that Landlord cause such special or additional cleaning or other services to be
completed at Tenant's sole cost and expense. Landlord specifically reserves the
right to modify the janitorial services specifications set forth in Exhibit "H"
as in its reasonable judgment shall from time to time be required for the
safety, protection and cleanliness of the Project, the operation thereof, the
preservation of good order therein or the protection and comfort of the other
tenants of the Project and their agents, employees and guests (subject to
Tenant's approval, which approval shall not be unreasonably withheld). Landlord
agrees to make any changes to the janitorial specifications reasonably requested
by Tenant provided such changes are consistent with First Class Building
Standards.
In the event that the janitorial service being provided to the Premises
by Landlord consistently fails to conform with the specifications set forth in
Exhibit "H" or is otherwise unsatisfactory to Tenant, then Landlord shall
arrange a meeting between Tenant and the contractor providing the janitorial
services to the Premises within ten (10) days of Tenant's request so that any
problems with the janitorial services being provided to the Premises can be
addressed and remedied. If, within thirty (30) days after such meeting, the
janitorial services shall continue to fail to conform with the specifications
set forth in Exhibit "H" or remain unsatisfactory to Tenant in its reasonable
judgment, then the janitorial service contract shall be terminated in accordance
with its terms, and thereafter Tenant shall be entitled to participate in the
process by which Landlord solicits bids for the janitorial services contract,
and Tenant shall have the right to approve the contractor which is selected to
provide the janitorial services for the Premises. Landlord agrees that all
contracts for janitorial services shall contain a provision entitling Landlord
to terminate the contract without penalty with no more than ninety (90) days
prior notice.
(c) Twenty-four (24) hours per day, every day of the year, hot (i.e.,
thermostat set in the range of 105 to 110 Fahrenheit for comfort and energy
conservation purposes) and cold domestic water in restrooms, toilets, drinking
fountains and sinks in the Premises.
(d) Electric lighting service for the Parking Facilities, Common Areas
(including the ground floor lobby of the Building) of the Project and the public
areas of the Project at such times consistent with First Class Building
Standards, including, but not limited to, lighting of the Parking Garage in
accordance with First Class Building Standards twenty-four (24) hours a day,
every day of the year.
(e) A security system for the Project which will permit Tenant and its
employees access to the Premises twenty-four (24) hours per day every day of the
year subject to reasonable rules and regulations promulgated by Landlord with
respect thereto (subject to Tenant's approval, which shall not be unreasonably
withheld).
Tenant shall, at its sole cost and expense, (x) locate Tenant's
security personnel within the Premises and at the Security Desk (defined below)
as Tenant shall determine desirable, and (y) install and operate such additional
security systems as it shall determine desirable for the purpose of limiting
access to or within the Premises subject to Landlord's approval, which shall not
be unreasonably withheld, and provided such systems are located solely within
the Premises, comply with applicable laws, are coordinated with any security
services which may be provided to the entire Project by Landlord and Landlord is
provided with access to the Premises (excluding
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Security Areas [defined below]). Landlord and Tenant agree to consult and
collaborate with one another to design and/or upgrade the Project security
system to accommodate the needs of Tenant. Additionally, Landlord agrees that
the operating terminal for the security system shall be located in the Premises
(and not the property management office) in a location secured with a lock and
Tenant shall have the sole key to such lock. Tenant and Landlord will cooperate
in establishing a system to permit the property manager to access the system
accompanied by a representative of Tenant. At Tenant's option, Tenant shall
either "cap" or remove any upgrades made to the original security system at
Tenant's request upon the expiration or termination of this Lease. Landlord
agrees that Tenant shall be permitted to install a security desk in the ground
floor lobby of the Building ("Security Desk") subject to Landlord's approval of
the design thereof (which shall not be unreasonably withheld) and Landlord shall
reimburse Tenant for the costs incurred by Tenant with respect thereto, not to
exceed $10,000.00, within thirty (30) days of receipt of an invoice therefor
from Tenant. The Security Desk may be staffed by Tenant or Tenant's contractor
twenty-four (24) hours a day, every day of the year, or such fewer hours as
Tenant deems reasonably necessary to provide the access control service desired
by Tenant under this subsection (e). On the first (1st) day of each month during
each Lease Year during the Term (subject to adjustment of the Security Amount
pursuant to Rider 1), Landlord shall pay to Tenant one-twelfth (1/12) of the sum
of $30,000, being the amount budgeted by Landlord per year for Landlord's
furnishing security personnel during the hours from 4:00 p.m. to 11:00 p.m.
Monday through Friday and 7:00 a.m. to 1:00 p.m. Saturday ("Security Amount").
In calculating the Base Operating Expense and Operating Expenses after 1999,
Landlord shall not include such budgeted amount therein.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, LANDLORD SHALL NOT BE
RESPONSIBLE OR LIABLE IN ANY MANNER FOR FAILURE OF ANY SUCH SECURITY PERSONNEL,
SERVICES, PROCEDURES OR EQUIPMENT TO PREVENT, CONTROL, OR APPREHEND ANYONE
SUSPECTED OF CAUSING PERSONAL INJURY OR DAMAGE IN, ON OR AROUND THE PROJECT
(EXCEPT TO THE EXTENT CAUSED BY LANDLORD'S GROSS NEGLIGENCE OR INTENTIONAL
TORTIOUS ACTS).
(f) Twenty-four (24) hours per day, every day of the year, sufficient dedicated
electrical capacity transformed to a panel box located in the core of each floor
of the Premises to operate (1) incandescent lights, typewriters, calculating
machines, photocopying machines, stand alone network computers and appropriate
dedicated lines, word processing equipment, personal computers,
telecommunications and other machines of similar low voltage electrical
consumption (120/208 volts), provided that the National Electrical Code ("NEC")
calculation for demand load for said low electrical voltage on each such floor
shall not exceed three (3) watts per square foot of Rentable Area for the
Premises on each floor; and (2) fluorescent lighting and equipment of high
voltage electrical consumption (277/480 volts) provided that the total NEC
design demand load for said lighting shall not exceed two (2) watts per square
foot of Rentable Area for the Premises on such floor (each such NEC design
demand load to be hereinafter referred to as the "Building Standard Rated
Electrical Design Load"). In addition to the foregoing, Landlord agrees that the
high voltage (277/480 volts, three phase) power available in the Building bus
duct at each floor on which the Premises are located will have a total
(inclusive of the above described Building Standard Rated Electrical Design
Load) capacity available to Tenant of at least eight (8) watts per square foot
of Rentable Area contained on such floor.
Additionally, Tenant shall have the right to install an emergency
generator in the Project (or any replacement therefor) to provide emergency
power only to the Premises. Tenant shall be responsible for the costs (if any)
to connect the emergency generator to any portions of the Premises. The
emergency generator will be located in an area of the Building approved by
Landlord, which approval shall not be unreasonably withheld. Tenant shall
maintain the emergency generator at Tenant's sole cost and expense. At the
expiration or earlier termination of the Lease, the emergency generator shall
belong to Tenant and Tenant shall be permitted to remove it at Tenant's cost.
Tenant shall also promptly repair at Tenant's cost any damage to the Premises or
the Building caused by such removal. The cost and installation cost of the
emergency generator shall not be funded out of the Finish Allowance.
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Additionally, Tenant shall have the right, at Tenant's cost (subject to
Landlord's approval and to such costs being paid with the Finish Allowance
pursuant to Exhibit "D-1") to cause additional electrical power to be installed
to provide power to the Building from a separate electrical service feed.
If Tenant's electrical equipment and lighting require electrical
circuits, transformers or other additional equipment in the Premises in excess
of Tenant's pro rata share of the Project's electrical or HVAC systems as to the
Premises (which additional equipment shall be hereinafter referred to as the
"Additional Electrical Equipment"), Tenant may (at Tenant's cost [subject to
such costs being paid with the Finish Allowance pursuant to the provisions of
Exhibit "D-1"], including the cost to design, install, maintain and replace the
Additional Electrical Equipment) install the same. The method of design and
installation of any Additional Electrical Equipment required by Tenant shall be
subject to the prior written approval of Landlord (which approval shall not be
unreasonably withheld).
If any of Tenant's electrical equipment requires conditioned air in
excess of Building Standard air conditioning, the same shall be installed, or
the installation supervised by Landlord, on Tenant's behalf, and Tenant shall
pay all design and installation costs (subject to such costs being paid with the
Finish Allowance pursuant to the provisions of Exhibit "D-1") relating thereto.
The type, location and method of installation of any such air conditioning shall
be subject to Landlord's approval (which approval shall not be unreasonably
withheld). Tenant shall maintain such air conditioning equipment at Tenant's
sole cost and expense.
(g) Replacement of Building standard halogen and/or fluorescent light
bulbs and tubes and incandescent down light bulbs in the Parking Facilities and
the Common Area of the Project, landscaped areas on the Land and all other
public areas of the Project, and upon Tenant's request and at Tenant's sole cost
and expense (which shall be paid separately and not included in Operating
Expenses), Landlord will replace any and all light bulbs and tubes in the
Premises. Landlord shall charge Tenant not more than the amount paid by Landlord
for such bulbs and tubes.
(h) Non-exclusive elevator cab passenger service to the Premises shall
be provided twenty-four (24) hours per day every day of the year of sufficient
capacity to service the Premises, subject to temporary cessation for ordinary
repair and maintenance (but as to each floor of the Premises, such temporary
cessation for ordinary repair and maintenance shall not occur simultaneously for
all passenger cabs serving such floor), subject to reasonable security measures
or other means of controlling access imposed by Landlord after Building
Operating Hours and on Holidays, and during times when life safety systems
override normal operating systems.
(i) Subject to the provisions of this Lease, maintenance and cleaning
of the Building, Building Shell Improvements, Parking Facilities, Common Areas,
landscaped areas on the Land, and all other public areas of the Project.
(j) Shared access to and use of the loading dock for Tenant's loading,
unloading, delivery, and pick-up activities during Building Operating Hours
including the right to leave vehicles standing at the loading dock for enough
time to load or unload and pick up and deliver goods to and from the Premises,
subject, however, to reasonable rules and regulations as are promulgated by
Landlord from time to time (subject to Tenant's approval, which approval shall
not be unreasonably withheld). Tenant shall also have access to and use of the
loading dock for the purposes set forth above during non-Building Operating
Hours but only by contacting Landlord's or Tenant's security personnel, as
applicable, by telephone (which security personnel shall be available for such
purpose at all times and will respond promptly).
(k) Sanitary sewer service twenty-four (24) hours per day, every day of
the year, subject to temporary interruption for ordinary repair and maintenance
and emergencies.
(l) Trash removal from the Project at a designated location, and if
requested by Tenant, collection and removal of white paper and aluminum cans for
recycling.
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(m) At all times during Building Operating Hours, and subject to
reasonable prior notice at all other times, non-exclusive use of the Project
freight elevators to the Premises, subject to temporary cessation for ordinary
repair and maintenance, and during times when life safety systems override
normal Project operating systems. Landlord shall use reasonable efforts to
accommodate Tenant's scheduling needs.
(n) Cold domestic water for drinking fountains at one (1) location at
the Building core on each floor comprising the Premises.
(o) Access to the Premises twenty-four (24) hours a day every day of
the year.
(p) Any other services that may from time to time be reasonably
necessary to ensure that the maintenance and repair of the Project are in
accordance with First Class Building Standards.
7.02. INTENTIONALLY DELETED
7.03. INTERRUPTION OF SERVICES
(a) Landlord shall furnish Tenant with at least twenty-four (24) hours
prior written notice of any interruption in the Building Standard Services that
are scheduled by Landlord for repairs or maintenance, excluding repairs and
maintenance necessitated by an emergency. Landlord shall endeavor to provide
Tenant with at least seventy-two (72) hours prior written notice of such
non-emergency-based repairs or maintenance.
(b) Notwithstanding anything herein to the contrary, the obligations of
the Landlord to provide the services and utilities provided above shall be
subject to governmental regulation (e.g., rationing, temperature, control, etc.)
and any such regulation which requires Landlord to provide or not provide such
services or utilities other than as herein provided, shall not constitute a
default hereunder, but rather compliance with such regulation shall be deemed to
be compliance by Landlord hereunder.
(c) Except as expressly provided in this Lease to the contrary, failure
by Landlord to furnish the Building Standard Services, or any cessation thereof,
shall not render Landlord liable for damages to either person or property, nor
be construed as an eviction of Tenant, nor work an abatement of rent, nor
relieve Tenant from fulfillment of any covenant or agreement hereof. In addition
to the foregoing and except as otherwise provided in this Lease, should any of
the equipment or machinery, for any cause, fail to operate or function properly,
Tenant shall have no claim for a rebate of rent or for damages on account of an
interruption in services occasioned thereby or resulting therefrom so long as
Landlord uses reasonable efforts to promptly and diligently repair said
equipment or machinery and to restore said services.
Notwithstanding the foregoing, in the event that (1) all or any portion
of the Premises become reasonably impracticable for Tenant to use to conduct its
business because Landlord for any reason (except due to the causes in subsection
(b) above or as the result of Tenant's gross negligence or willful misconduct)
is unable or fails to provide any of the Building Standard Services, and (2)
such failure (a "Basic Services Failure") continues for a period in excess of
the lesser of (i) three (3) business days or (ii) the number of days following
such failure after which Landlord's business interruption insurance becomes
payable, Tenant shall receive a full abatement of Rent due under this Lease for
such portion of the Premises so affected from the date of the Basic Services
Failure until such portion of the Premises is again reasonably practicable for
Tenant to use to conduct its business. Additionally, in the event a Basic
Services Failure continues for a period of ninety (90) consecutive days or more
or more than ninety (90) days in any twelve (12) month period, and as a result
of such Basic Services Failure twenty-five percent (25%) of the Rentable Area of
the Premises becomes reasonably impracticable for Tenant to use to conduct its
business, Tenant, at its option, shall be entitled to terminate the Lease by
delivering written notice of termination to Landlord, in which event the Lease
shall terminate and neither Landlord nor Tenant shall be liable for any
obligations one to the other under this Lease accruing after such termination,
including without limitation, any obligations of Tenant for the payment of
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Base Rent and Additional Rent. Notwithstanding the foregoing, if the Basic
Services Failure is the result of a casualty to the Building covered by Section
10.01, the provisions of Section 10.01 shall apply to such Basic Services
Failure.
7.04. KEYS AND LOCKS. Prior to the Commencement Date, Landlord shall
furnish to Tenant seven hundred eighty (780) access cards necessary for Tenant's
employees to access the Building and the Premises. Additional access cards will
be furnished at a charge (which shall not exceed the actual cost thereof to
Landlord) by Landlord on an order signed by Tenant or Tenant's authorized
representative. All such access cards shall remain the property of Landlord.
Tenant shall be permitted to install additional locks or other access control
devices in the Premises provided Tenant furnishes Landlord with a duplicate set
of keys or a master key and/or access cards to all such locks other than those
locks securing Security Areas (defined in Article 12). Landlord shall be
relieved of all obligations under this Lease it cannot perform with respect to
Security Areas and to areas it should have been, but was not, provided a key
and/or access card and Tenant shall indemnify and defend and hold Landlord and
its agents harmless from and against all liability, claims, loss, cost, damage
or expense incurred by Landlord or its agents as a result thereof. In addition,
with respect to Security Areas and any areas for which Landlord should have
been, but was not, provided an access card, Landlord may, in an emergency
situation where in Landlord's good faith judgment immediate entry is required to
prevent or minimize personal injury, death or property damage, use force to gain
entry into such areas, and Landlord shall not be liable to Tenant for damages
resulting from such use of force and Tenant shall indemnify and defend and hold
Landlord and its agents harmless from and against all liability, claims, loss,
cost, damage or expense incurred by Landlord or its agents as a result thereof.
Upon termination of this Lease, Tenant shall surrender to Landlord all keys
and/or access cards to the Premises, and give to Landlord an explanation of the
combination of all locks for safes, safe cabinets and vault doors, if any, in
the Premises.
7.05. GRAPHICS AND BUILDING DIRECTORY.
(a) Tenant may install, with Landlord's prior approval of the method of
illumination, if any, and methods of installation or attachment, which approval
will not be unreasonably withheld, and at Tenant's sole cost and expense
(subject, however, to reimbursement as a portion of the Finish Allowance)
graphics desired by Tenant on the walls of elevator lobbies on all floors of the
Building and on the entrance doors to the Premises on all floors of the Building
and a sign in the main lobby of the Building in a location designated by Tenant
and subject to Landlord's approval which shall not be unreasonably withheld.
Notwithstanding the foregoing, except as specifically provided in this
subsection (a) or Section 7.06 below, in no event may Tenant install any
graphics that may be visible from the exterior of the Building.
(b) Tenant may install, and Landlord shall maintain to the extent so
installed, a Building directory computer terminal in the lobby of the Building
with a minimum capacity determined by Tenant which shall contain a computerized
listing of Tenant's name, certain officers, employees and departments of Tenant,
and such other information as Tenant shall reasonably require. Landlord shall
pay to Tenant the lesser of (i) $5,000 or (ii) the actual cost of the
acquisition and installation of such computer terminal within thirty (30) days
after Landlord's receipt of an invoice therefor from Tenant.
7.06. PROJECT NAME, IDENTITY AND SIGNS.
(a) The Project shall initially be named "i2 Place". After the
Commencement Date and upon furnishing at least thirty (30) days prior written
notice to Landlord, Tenant shall have the right to rename the Project from time
to time during the Term to a name selected by Tenant and approved by Landlord;
provided, however, in no event shall Tenant be permitted to change the name of
the Project more than one (1) time in any one (1) Lease Year. Tenant shall pay
all costs reasonably incurred in changing the Project Signs (defined below) as
the result of any changes to the Project name made by Tenant after the
Commencement Date. In no event shall Landlord refer to the Building or Project,
or authorize any third party to refer to the Building or Project, by any name
other than the name selected by Tenant and approved by Landlord pursuant to this
subsection (a).
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(b) The following exterior signs (collectively, the "Project Signs")
for the Project shall be installed and maintained by Landlord at Tenant's cost
and expense (subject, however, to reimbursement for the costs of the design,
acquisition and installation of such signage as a portion of the Finish
Allowance in accordance with Exhibit "D-1" and except as provided in clause (i)
below):
(i) Two (2) monument signs have been installed prior
to the Effective Date by Landlord on the Land in the location
shown on Exhibit "B-2" attached hereto at Landlord's cost and
expense (and the cost of such signs shall not be paid from the
Finish Allowance). Prior to the Commencement Date, Landlord
will cause the signs to identify Tenant, the name of the
Project determined pursuant to Section 7.06(a) above, the
address of the Project and the name of the Complex as shown on
Exhibit "L-2" and in accordance with the specifications on
Exhibit "L-1" and as otherwise agreed by Landlord and Tenant
(and Tenant shall pay for the cost of installing such names
except that Landlord shall pay for the cost of installing the
Complex name and the Project address). Landlord agrees that
Landlord shall not install the name of Landlord, any other
tenant of the Building, or other person or entity or
information on these signs.
(ii) Within sixty (60) days after delivery of signs
to Landlord, signage depicting Tenant's name and/or logo shall
be prominently located by Landlord at the top of the Building
on any two (2) faces of the Building selected by Tenant, the
exact location of such signs to be approved by Landlord, which
approval shall not be unreasonably withheld. The signage will
be designed by Tenant consistent with the parameters set forth
on Exhibit "L-1". Tenant shall pay for the reasonable cost of
removal of such signage and any repairs necessitated by such
removal upon the expiration or earlier termination of this
Lease. No part of such sign shall extend above the parapet of
the Building.
(iii) Tenant shall have the right to erect temporary
signs during the applicable option periods defined in
Paragraphs 1, 2 and 3 of the Development Agreement on the
sites for Buildings 2, 3 and 4 for the purpose of identifying
future premises of Tenant.
Except for the signage described in this Section 7.06, Landlord shall
not install or permit any other signs to be placed or allowed to remain on the
exterior of the Project, in the main floor lobbies of the Project, and/or on the
Land without Tenant's prior written consent, which consent may be withheld in
Tenant's sole discretion, other than (1) directional and traffic control signs,
or (2) signs required by legal requirements.
7.07. RISER SPACE. Tenant shall have the right to use riser space in
the core of the Building, at no cost to Tenant, for cabling communications
purposes.
7.08. FIBER OPTIC CABLE CARRIERS. Tenant acknowledges that Landlord is
negotiating a lease with Southwestern Bell Telephone Company ("SWB") to provide
fiber optic cable service to the Building. Tenant shall be allowed to select
additional fiber optic cable carriers that will service the Building provided
that the terms of the lease with such additional carriers shall be no more
favorable to such carriers than those of the SWB lease. So long as all
installation is coordinated with Landlord, such fiber optic carriers shall be
allowed to install dual feed fiber optic cabling to the Building. Landlord shall
not impose any charge to Tenant for the use of such fiber optics (however,
Tenant shall pay any amounts charged to Tenant by the fiber optic carriers
and/or Tenant's Pro Rata Share of any amount charged to Landlord by the fiber
optic carriers). Any additional conduits necessary to accommodate service by
such additional carriers shall be paid by Tenant.
7.09. COMMUNICATIONS EQUIPMENT. Tenant may, at Tenant's sole cost and
expense (except to the extent such costs are paid with the Finish Allowance as
provided in Exhibit "D-1") and without charge from Landlord, install, operate
and maintain antenna and satellite
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equipment ("Communications Equipment") on any portion of the roof area of the
Building as long as Landlord approves the manner of installation and screening
of the equipment (which approval shall not be unreasonably withheld). The
installation and operation of such equipment must be in compliance with the CCR
and all applicable laws, rules and regulations. Landlord shall not take any
actions that would in any way interfere with Tenant's use of the Communications
Equipment or the transmission or reception of signal. Landlord and its
representatives agree to cooperate reasonably with Tenant in connection with
obtaining any permit, license, zoning variance, special use permit or other
authorization. Landlord also will provide space at no expense to Tenant in the
core of the Building necessary to accommodate Tenant's conduit and other
requirements related to such Communications Equipment. Any assignee or sublessee
of this Lease or the Premises or a portion thereof shall have the right to use
such equipment. Tenant shall have the right to sublease the rights to use such
Communications Equipment to affiliates, subtenants, and assignees. Tenant shall
not install any Communications Equipment which would adversely affect or
compromise the structural integrity of the Building (or if so, Landlord may
construct reinforcements necessary to accommodate same at Tenant's cost and
expense). Tenant shall remove all such Communication Equipment upon the
expiration or earlier termination of this Lease and repair any damage caused by
such removal, all at Tenant's cost and expense. Landlord shall have the right to
enter into temporary agreements which allow third parties to install, operate
and maintain communications equipment on the roof of the Building provided that
at such time as the location of such third party equipment or the operation
thereof interferes with Tenant's Communications Equipment or if Tenant desires
to install additional Communications Equipment, Landlord shall upon request of
Tenant cause such temporary agreements to be terminated and the third party
communications equipment removed.
7.10. ADDITIONAL HVAC COMPRESSORS. With the prior written approval of
Landlord as to location (which approval shall not be unreasonably withheld) and
provided that same shall not adversely affect or compromise the structural
integrity of the Building, Tenant may, as part of the Tenant Improvements,
install, operate, maintain and repair additional HVAC compressors on the roof of
the Building or at such other location reasonably acceptable to Landlord (and
Landlord shall not charge Tenant rent therefor). At Tenant's option and to the
extent available, the cost of such compressors shall be paid out of the Finish
Allowance. Tenant shall pay all applicable utility charges with respect thereto.
Upon the expiration or earlier termination of the Lease, the HVAC compressors
shall belong to Tenant and Tenant shall be permitted to remove them. Tenant
shall promptly repair all damage caused by such removal, at Tenant's expense.
ARTICLE 8.
=================
8.01. ALTERATIONS. The construction and installation of Tenant
Improvements is governed by Exhibit "D-1". After the installation of the Tenant
Improvements pursuant to Exhibit "D-1", Tenant shall not make or allow to be
made any alterations, installations, additions, or improvements in or to the
Premises, without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If Landlord fails to approve or disapprove any request
within ten (10) business days after receipt of all necessary information,
Landlord shall be deemed to have approved such alteration. Should Tenant desire
to perform any alterations which are significant enough to require plans, Tenant
shall submit such plans and specifications for same to Landlord for Landlord's
written approval before beginning such work. Upon receipt by Tenant of the
written approval of Landlord of such plans and specifications, and upon payment
by Tenant to Landlord of the reasonable out-of-pocket fees incurred by Landlord
to have such plans and specifications reviewed, Tenant may proceed to make such
approved alterations so long as they are in compliance with such approved plans
and specifications and are performed by a contractor approved by Landlord, which
consent shall not be unreasonably withheld. All installations shall be at
Tenant's sole cost and expense. Without in any way limiting Landlord's consent
rights, Landlord shall not be required to give its consent until (a) Landlord
approves the contractor or person making such and approves such contractor's
insurance coverage to be provided in connection with the work (such approval not
to be unreasonably withheld), (b) Landlord approves final and complete plans and
specifications for the work to the extent plans and specifications are necessary
for such work and (c) the appropriate governmental agency, if any, has approved
the plans and specifications for such work to the extent plans and
specifications are
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necessary for such work. All work performed by Tenant or its contractor relating
to the installations shall conform to applicable governmental laws, rules and
regulations, including, without limitation, the Disability Acts. If Tenant
requests that Landlord perform such installations, Tenant shall pay Landlord, as
additional Rent, the cost thereof, plus five percent (5%) as reimbursement for
Landlord's overhead; however, in no event shall such fee be payable with respect
to the installation of Tenant Improvements pursuant to Exhibit "D-1". Each
payment shall be made to Landlord within thirty (30) days after receipt of an
invoice from Landlord.
Notwithstanding anything to the contrary herein before contained, it
shall not be necessary for Tenant to secure Landlord's approval of any
alterations, improvements or additions to the Premises provided such alterations
cost less than $75,000, do not adversely affect the structure, HVAC system or
exterior of the building or the Common Areas, and are not visible from the
Common Area or the exterior of the Building. However, Tenant shall give Landlord
prior written notice of all alterations, regardless of whether Landlord has the
right to approve same.
All work performed by Tenant with respect to the Premises shall (a) be
performed so as not to alter the exterior appearance of the Building, (b) be
performed so as not to adversely affect the structure or safety of the Building,
(c) comply with all laws, including without limitation all building, safety,
fire, and other codes and governmental and insurance requirements, (d) be
completed promptly and in a good and workmanlike manner and in a quality not
less than Building Standard, (e) be performed at Tenant's expense, and (f) be
performed in such a manner that no valid mechanic's, materialman's, or other
similar liens (collectively, the "Liens") be attached to Tenant's leasehold
estate and in no event shall Tenant permit, or be authorized to permit, any
Liens (valid or alleged) or other claims to be asserted against Landlord or
Landlord's rights, estates, and interests with respect to the Project or this
Lease. Landlord will have the right, but not the obligation, to inspect
periodically the work in the Premises.
If any Lien is filed against the Premises or the Project or any portion
thereof, Tenant shall cause same to be discharged within forty-five (45) days
after the lien is filed by paying or bonding over said Lien. If Tenant fails to
comply with the foregoing sentence, Landlord shall (without limitation of its
other rights or remedies) have the right, but not the obligation, to discharge
said Lien and Tenant shall immediately reimburse Landlord for any sum of money
expended by Landlord in connection with obtaining such discharge (together with
an additional ten percent (10%) thereof to cover Landlord's administrative
costs), which amount shall be deemed to be Rent hereunder for all purposes.
Any approval by Landlord (or Landlord's architect and/or engineers) of
any of Tenant's contractors or Tenant's drawings, plans or specifications which
are prepared in connection with any construction of improvements (including
without limitation, the Tenant Improvements) in the Premises shall not in any
way be construed as or constitute a representation or warranty of Landlord as to
the abilities of the contractor or the adequacy or sufficiency of such drawings,
plans or specifications or the improvements to which they relate, for any use,
purpose or condition.
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY. Tenant agrees to
remove all of its trade fixtures and personal property, including without
limitation, all computers, generators, UPS power system, HVAC compressors,
cafeteria equipment, telephones, satellite dishes and related equipment and
cabling, on or before the date of expiration or termination of the Term. Upon
the expiration or termination of this Lease, Tenant shall have no obligation to
remove alterations, additions, or improvements or otherwise make any physical
improvements to the Premises unless Landlord's approval for the installation
thereof was conditioned upon such removal upon the expiration or termination of
the Lease; provided, however, Landlord shall not be permitted to require Tenant
to remove any Non-Removable Improvements or any other improvements other than
extraordinary improvements which will affect the leasability of the Premises
after the expiration of the Term (i.e., interior stairwells, emergency
generators, HVAC compressors on the roof, and communications equipment on the
roof). Additionally, Tenant shall not be required to remove, and shall not
remove, any of the
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following improvements: (1) wall and fixed partitioning (but not easily
removable shelving), (2) wallcoverings, (3) doors (including frame and
hardware), (4) floor coverings (other than area rugs), (5) Building Shell
Improvements, (6) ceiling and all elements thereof (including without limitation
ceiling grid and ceiling tile) and any improvements above the ceiling (excluding
computer, telephone or telecommunications cables; provided Tenant restores any
damage caused by the removal of such items, including damage to the ceiling),
(7) light fixtures (excluding chandeliers), (8) wall switches and outlets, (9)
exit lights, (10) telephone wall penetrations with pullstring, (11) blinds (but
not curtains), (12) automatic fire sprinkler system, (13) decorative molding,
and (14) any other improvements necessary for the Premises to be a functional,
integral unit ("Non-Removable Improvements"). Tenant shall have the right to
remove all improvements other than Non-Removable Improvements, including all
computer and telecommunications equipment and related items. Tenant shall repair
all damage done to the Premises or the Project by removal of any improvements by
Tenant (except to the extent caused by Landlord's negligence) and restore any
areas so affected by such removal so as to be consistent with surrounding areas.
If Tenant fails to deliver the Premises in the condition aforesaid, then
Landlord may restore the Premises to such a condition at Tenant's expense
including an overhead charge of ten percent (10%). All property not removed
within the time period required hereunder shall thereupon be conclusively
presumed to have been abandoned by Tenant and the same shall be the property of
Landlord.
8.03. REPAIRS BY LANDLORD. Landlord shall repair and maintain the Land,
the Building, the Parking Facilities, all utilities, the structural portions of
the Project, including the roofing system, exterior walls, support beams,
foundations, columns, exterior doors and windows and lateral support of the
Building, the Building Shell Improvements and all Building systems, the Building
service areas and other Common Areas, and all areas of the Project for the
common non-exclusive use of all tenants in the Project, in a first-class
condition comparable to the first-class buildings in the Geographical Market
(including all structural alternations required by law) except to the extent
such maintenance and repairs are caused by the act of Tenant, its agents,
servants or employees (subject to Section 9.03). Additionally, Landlord agrees
to exercise all remedies available to Landlord under the Declaration to cause
the Adjacent Land and Common Facilities to be maintained in accordance with
First Class Building Standards.
8.04. REPAIRS BY TENANT. Tenant shall, at Tenant's sole cost and
expense, keep the Premises (excluding any items Landlord is obligated to repair
and maintain in Section 8.03 or to the extent caused by the act of Landlord or
its agents, servants, contractors or employees) and any appliances therein in
good condition and repair, reasonable wear and tear excepted. Tenant shall, upon
the expiration or earlier termination of this Lease, surrender the Premises to
the Landlord in good condition, ordinary wear and tear and damage caused by
casualty condemnation or the actions of Landlord, its agents or employees
excepted. Subject to Section 9.03, any injury or damage to the Premises or
Project, or the appurtenances or fixtures thereof, caused by or resulting from
the act of Tenant or any of the Tenant-Related Parties shall be repaired or
replaced by Tenant. If Tenant fails to maintain the Premises or fails to repair
or replace any damage to the Premises or Project resulting from the act of
Tenant, or any of the Tenant-Related Parties, and such failure continues beyond
the cure periods provided in Section 15.01(b) below, Landlord may, but shall not
be obligated to, cause such maintenance, repair or replacement to be done, as
Landlord deems necessary, and Tenant shall immediately pay to Landlord all costs
related thereto, plus a charge for overhead of ten percent (10%) of such cost.
ARTICLE 9.
=================
9.01. LANDLORD'S INSURANCE. Landlord covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Landlord
will carry and maintain the insurance set forth in Section 9.01(a) and (b) of
this Article.
(a) General Comprehensive Public Liability Insurance insuring against
claims for personal or bodily injury or death or property damage occurring upon,
in or about the Project to afford protection to the limit of not less than
$5,000,000.00 combined single limit in respect to
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injury or death to any number of persons and property damage arising out of any
one (1) occurrence, with a reasonable deductible. Tenant shall be named as an
additional insured thereunder, and Landlord shall furnish Tenant a certificate
evidencing such coverage being in effect in substantially the following form:
"[Insert name of Tenant] is included as an additional insured but only as to
claims covered by the indemnity given Tenant by [Insert name of Landlord] in
Section 9.04 of the lease of premises at 11701 Luna Road, Dallas, Texas dated
March ___, 1999."
(b) Landlord shall at all times during the term hereof maintain in
effect an all-risk policy (including coverage against fire, wind, tornado,
earthquake, vandalism, malicious mischief, flood, water damage and sprinkler
leakage) or policies covering the Project (excluding personal property of
Tenant, but including the leasehold improvements in the Premises) for the full
insurable value on a replacement cost basis with reasonable deductibles
customary for owners of first class buildings in the Geographical Market.
Any insurance provided for in Subsections 9.01(a) and (b) above may be
effected by a policy or policies of blanket insurance covering additional items
or locations or assureds, provided that the requirements of Sections 9.01(a) and
(b) are otherwise satisfied. Tenant shall have no rights in any policy or
policies maintained by Landlord.
9.02. TENANT'S INSURANCE. Tenant covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Tenant will
carry and maintain, at its sole cost and expense, the insurance set forth in
paragraphs (a) and (b) of this Section 9.02.
(a) General Comprehensive Public Liability Insurance against claims for
personal or bodily injury or death or property damage occurring upon, in or
about the Premises (including contractual indemnity and liability coverage),
such insurance to insure both Tenant and its employees and to afford protection
to the limit of not less than $5,000,000.00, combined single limit, in respect
to injury or death to any number of persons and all property damage arising out
of any one (1) occurrence, with a reasonable deductible. Landlord shall be named
as an additional insured thereunder, and Tenant shall furnish Landlord a
certificate evidencing such coverage being in effect in substantially the
following form: "[Insert name of Landlord] is included as an additional insured
but only as to claims covered by the indemnity given Landlord by [Insert name of
Tenant] in Section 9.04 of the Lease of the premises at 11701 Luna Road, Dallas,
Texas dated March ___, 1999."
(b) Property insurance on an all-risk basis (including coverage against
fire, wind, tornado, vandalism, malicious mischief, water damage and sprinkler
leakage) covering all personal property of Tenant located in the Premises, in an
amount not less than one hundred percent (100%) of full replacement cost
thereof. Such policy will be written in the name of Tenant. The property
insurance may provide for a reasonable deductible.
(c) All such insurance in Sections 9.01 and 9.02 will be issued and
underwritten by companies which are respectable and financially sound. Tenant
shall deliver to Landlord and Landlord shall deliver to Tenant duly executed
originals of the certificates of all policies of insurance required by Sections
9.01 and 9.02 (as applicable) evidencing in-force coverage. Further, each party
shall deliver to the other renewals thereof at least thirty (30) days prior to
the expiration of the respective policy terms.
9.03. WAIVER OF RECOVERY. ANYTHING IN THIS LEASE TO THE CONTRARY
NOTWITHSTANDING, LANDLORD AND TENANT EACH HEREBY RELEASES THE OTHER, AND THE
OTHER'S PARTNERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, FROM ANY AND ALL
LIABILITY AND RESPONSIBILITY TO THE RELEASING PARTY AND TO ANYONE CLAIMING BY OR
THROUGH IT OR UNDER IT, BY WAY OF SUBROGATION OR OTHERWISE, FOR ALL RIGHTS OF
RECOVERY, ACTIONS, CAUSES OF ACTION, COSTS, EXPENSES, CLAIMS, OR DEMANDS
WHATSOEVER WHICH ARISE OUT OF DAMAGE OR DESTRUCTION OF PROPERTY OCCASIONED BY
PERILS WHICH CAN BE INSURED BY AN ALL RISK PROPERTY INSURANCE COVERAGE FORM
INCLUDING COVERAGE FOR
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EARTHQUAKE AND FLOOD REGARDLESS OF THE AMOUNTS OF THE PROCEEDS PAYABLE UNDER
SUCH INSURANCE AND THE CAUSE OR ORIGIN, INCLUDING NEGLIGENCE OF THE OTHER PARTY
HERETO, OR ITS AGENTS, OFFICERS, PARTNERS, SHAREHOLDERS, SERVANTS OR EMPLOYEES.
LANDLORD AND TENANT GRANT THIS RELEASE ON BEHALF OF THEMSELVES AND THEIR
RESPECTIVE INSURANCE COMPANIES AND EACH REPRESENTS AND WARRANTS TO THE OTHER
THAT IT IS AUTHORIZED BY ITS RESPECTIVE INSURANCE COMPANY TO GRANT THE WAIVER OF
SUBROGATION CONTAINED IN THIS SECTION 9.03. THIS RELEASE AND WAIVER SHALL BE
BINDING UPON THE PARTIES WHETHER OR NOT INSURANCE COVERAGE IS IN FORCE AT THE
TIME OF THE LOSS OR DESTRUCTION OF PROPERTY REFERRED TO IN THIS SECTION 9.03.
9.04. INDEMNITY. Except as otherwise expressly provided in this Lease
to the contrary, Landlord shall not be liable to Tenant, or to Tenant's agents,
servants, employees, assignees, subtenants, licensees or concessionaires for any
damage to person or property caused by the negligence or intentional torts of
Tenant, or its agents, servants, employees, assignees, subtenants, licensees or
concessionaires, and Tenant agrees to indemnify and hold Landlord, and its
affiliates and their respective partners, officers, directors, shareholders,
employees and agents harmless from all liability and claims for any such damage.
Except as otherwise expressly provided in this Lease to the contrary, Tenant
shall not be liable to Landlord, or to Landlord's agents, servants or employees
for any damage to person or property caused by the negligence or intentional
torts of Landlord, or its agents, servants or employees, and Landlord agrees to
indemnify and hold Tenant, and its affiliates and their respective partners,
officers, directors, shareholders, employees and agents harmless from all
liability and claims for such damage.
ARTICLE 10.
================
10.01. CASUALTY. If the Project shall be damaged by fire or other
casualty and (i) the risk is covered by insurance carried or required to be
carried by Landlord hereunder (whether or not actually maintained by Landlord)
and the cost of repairing such damage shall not be greater than fifty percent
(50%) of the then full replacement cost thereof, or (ii) the damage results from
a risk not covered by insurance maintained or required to be maintained (whether
or not actually maintained by Landlord) pursuant to this Lease to an extent less
than twenty percent (20%) of the replacement cost of the Project, or (iii)
Tenant has the right to terminate this Lease as provided below and does not
terminate this Lease, then, subject to the following provisions of this Article,
Landlord shall repair the Project (including all leasehold improvements in the
Premises) to the condition prior to the casualty. If repairs are not commenced
within ninety (90) days of the casualty, diligently prosecuted thereafter, or
substantially completed within two hundred seventy (270) days after the
commencement of such repairs, Tenant may terminate this Lease by giving written
notice to Landlord or Tenant may restore and offset the costs of restoration,
plus interest at the Default Interest Rate, against Rent. The Rent required to
be paid hereunder shall be abated in proportion to the portions of the Premises,
if any, which are rendered untenantable by fire or other casualty hereunder
until repairs of the Project are completed, or if the Project are not repaired,
until the termination date hereunder. Notwithstanding the foregoing, if the
Project is damaged by fire or other casualty to an extent greater than twenty
percent (20%) of the then full replacement cost thereof resulting from an act of
war, then Landlord shall have the right to terminate this Lease by giving
written notice to Tenant. If Landlord fails to give Tenant such written notice
within thirty (30) days following the occurrence of such casualty, then Landlord
shall repair the Project as set forth above.
If the Project shall be damaged (a) by fire or other casualty not
covered by insurance maintained or required to be maintained (whether insured or
not) by this Lease to an extent greater than twenty percent (20%) of the
replacement cost of the Project, or (b) the damage results from a risk covered
by insurance maintained or required to be maintained by this Lease to an extent
greater than fifty percent (50%) of the then full replacement cost thereof, then
Tenant may terminate this Lease by giving written notice to Landlord; if Tenant
fails to deliver such notice within thirty (30) days following the occurrence of
such casualty, then Landlord shall
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diligently proceed to repair the Project (including all leasehold improvements
in the Premises) to the condition prior to the casualty, failing which Tenant
may terminate this Lease by delivering written notice thereof to Landlord or
Tenant may restore and offset the costs of restoration, plus interest at the
Default Interest Rate, against Rent.
If a casualty damages any portion of the Project which renders any
portion of the Premises reasonably impracticable for the conduct of Tenant's
business, and if, in the reasonable determination of Landlord which shall be
made within thirty (30) days following the date of the casualty, the damaged
property cannot be repaired so as to make the Premises tenantable within two
hundred seventy (270) days from the date of commencement of repairs, then Tenant
shall have the right to terminate this Lease by notifying Landlord in writing of
such termination within sixty (60) days of the casualty.
If this Lease is terminated as provided above, all Rent shall be
apportioned and paid up to the termination date. Landlord shall not be required
to repair or replace any personal property of Tenant.
10.02. END OF TERM CASUALTY. Notwithstanding anything to the contrary
in this Article 10, Landlord and Tenant shall have the right to terminate this
Lease if a casualty affecting greater than twenty percent (20%) of the Project
occurs during the last twelve (12) months of the Term (as it may have been
extended).
ARTICLE 11.
=================
11.01. CONDEMNATION.
(a) If all or substantially all of the Premises, or such portion of the
Premises or the Project as would render the continuance of Tenant's business
from the Premises impracticable, should be permanently taken or condemned for
any public purpose, then this Lease, at the option of Tenant upon the giving of
notice to Landlord within ten (10) days from the date of such condemnation or
taking, shall forthwith cease and terminate as provided in subsection (c) below.
(b) If all or substantially all of the Project, or so much thereof as
to cause the remainder not to be economically feasible to operate, as reasonably
determined by Landlord should be permanently taken or condemned for any public
purpose and Landlord demolishes the Project on account of such taking or
condemnation, then Landlord shall have the option of terminating this Lease by
notice to Tenant within ten (10) days from the date of such condemnation or
taking
(c) If this Lease is terminated as provided in subsections (a) or (b)
above, this Lease shall cease and expire as if the date of transfer of
possession of the Premises, the Project, or any portion thereof, was the
expiration date of this Lease.
If this Lease is not terminated by either Landlord or Tenant as
aforesaid, Tenant shall pay all Rent up to the date of transfer of possession of
such portion of the Premises so taken or condemned and this Lease shall
thereupon cease and terminate with respect to such portion of the Premises so
taken or condemned as if the date of transfer of possession of the Premises was
the expiration date of the Lease Term relating to such portion of the Premises.
Thereafter the Base Rent and Additional Rent shall be calculated based on the
Rentable Area of the Premises not so taken or condemned. If any such
condemnation or taking occurs and this Lease is not so terminated, Landlord
shall immediately after the date of such condemnation, commence to repair the
Premises or the Project, as the case may be, so that the remaining portion of
the Premises or Project, as the case may be, shall constitute a complete
architectural unit, and in the case of the Premises reasonably fit for Tenant's
occupancy and business as reasonably determined by Tenant and Landlord (with any
disagreement between Tenant and Landlord to be resolved by arbitration pursuant
to Section 17.29 hereof). If Landlord fails to commence such repairs within
sixty (60) days after the condemnation or cause such repair to the Premises to
be substantially completed
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within one hundred eighty (180) days after the date Landlord commences such
restoration work, then Tenant shall have the right to terminate this Lease by
notifying Landlord in writing of such termination.
(d) In the event of any condemnation or taking of the Premises, Tenant,
or anyone claiming under it, at its expense may, jointly with Landlord, appear,
claim and prove, in proceedings relative to such taking, (i) the value of any
fixtures, furniture, furnishings, leasehold improvements and other personal
property that were condemned but which under the terms of this Lease Tenant is
permitted to remove at the end of the Lease Term, (ii) the unamortized cost of
leasehold improvements that are not so removable by Tenant at the end of the
Lease Term and that were installed solely at Tenant's expense (i.e., not paid by
Landlord or with allowances provided by Landlord), (iii) the loss of Tenant's
business as the result of such condemnation, and (iv) relocation and moving
expenses as the result of such condemnation.
ARTICLE 12.
===============
12.01. ACCESS. Tenant agrees that Landlord and its agents may enter the
Premises for the purpose of inspecting and making such repairs (structural or
otherwise), additions, improvements, changes or alterations to the Premises or
the Project as may be permitted or required under this Lease and to exhibit the
same to prospective purchasers and mortgagees or, during the last eighteen (18)
months of the Lease Term, prospective tenants. Landlord's entries in the
Premises shall be preceded by reasonable notice (except in the case of an
emergency) and shall not interfere with Tenant's use and occupancy of the
Premises for the Permitted Uses. Except for emergency repairs, Landlord will
make all repairs in the Premises that could materially interfere with Tenant's
use and enjoyment of the Premises after Building Operating Hours. With respect
to any of the aforementioned entries by Landlord into and upon any part of the
Premises other than for emergencies, Tenant shall be entitled to have a
representative accompany Landlord. Notwithstanding any of the foregoing, unless
otherwise instructed by Tenant in writing, Landlord shall not enter areas
designated by Tenant as high security areas (the "Security Areas") (provided
Tenant has furnished Landlord with prior written notice of the location of the
Security Areas) unless (a) Landlord shows reasonable cause and provides
twenty-four (24) hours advance notice, or (b) an emergency situation exists in
respect of which emergency situation the provisions of Section 7.02 shall apply.
To the extent that Landlord's access to any portion of the Premises (including
without limitation the Security Areas) is restricted or limited by Tenant,
Landlord shall be relieved of its obligations to perform those covenants that
require access to such space during the time Landlord is denied access to such
space and Landlord shall have no liability or responsibility to Tenant for any
occurrences in such space during the time Landlord is denied access to such
space unless caused by Landlord or its agents or employees. Tenant shall
indemnify and defend and hold Landlord and its agents harmless from and against
all liability, loss, cost, damage, claim or expense incurred by Landlord or its
agents in connection therewith. Landlord and its brokers shall have access to
the Premises upon reasonable advance notice to Tenant for the purpose of showing
same to prospective tenants of other property owned by Landlord in the Complex;
subject, however to the following restrictions: (1) Landlord and such brokers
must give Tenant at least 24 hours advance notice; (2) Landlord and such brokers
shall not have access to Security Areas or any other area Tenant believes
sensitive or confidential activities or materials are located; (3) Landlord must
identify the prospective tenants and Tenant shall not be required to give access
to any persons Tenant believes are competitors of Tenant's business; (4)
Landlord and such brokers cannot interfere with the conduct of Tenant's
business, (5) such access need not be granted to Landlord more than twice each
calendar month, and (6) Tenant shall have the right to require that a
representative of Tenant accompany Landlord, the brokers and the prospective
tenants.
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ARTICLE 13.
===============
13.01 SUBORDINATION. Provided that Landlord, Tenant and the Underlying
Party (defined below) execute a subordination, non-disturbance and attornment
agreement in recordable form reasonably acceptable to Tenant and the Underlying
Party (and Landlord and Tenant agree that the subordination, non-disturbance and
attornment agreement attached hereto as Exhibit "K" is reasonable and a
subordination, non-disturbance and attornment agreement which is substantively
the same as Exhibit "K" shall be reasonable) this Lease is and shall be subject
and subordinate to any and all ground or similar leases which may hereafter
affect the Project, all mortgages which may hereafter encumber or affect the
Project and to all renewals, modifications, consolidations, replacements and
extensions of any such leases and/or mortgages (the "Underlying Documents");
provided, however, that at the option of any Underlying Party, this Lease shall
be superior to the lease or mortgage of such Underlying Party. Tenant shall
execute promptly any subordination, non-disturbance and attornment agreement or
other appropriate certificate or instrument evidencing same reasonably
acceptable to Tenant that Landlord may request. In addition, as a part of any
non-disturbance agreement, the applicable Underlying Party must agree that the
provisions of this Lease governing the application of insurance proceeds and
condemnation awards shall be prior to such Underlying Party's ground lease or
security documents. As used in this Lease, the term "Underlying Party" shall
mean the holder of the Landlord's interest under any ground or similar lease
and/or the mortgagee or purchaser at foreclosure with respect to any mortgage.
Tenant agrees that any Underlying Party may unilaterally subordinate its
mortgage or lease to this Lease at any time by filing a notice of such
subordination in the Official Public Records of Real Property of the County
where the Building is located. Notwithstanding anything to the contrary
contained in this Lease, the Underlying Documents shall in all events be
subordinate to the terms of the Development Agreement. Without limiting the
foregoing, in the event of the termination of any ground or similar lease
affecting the Project or the enforcement by the trustee or the beneficiary under
any mortgage or deed of trust of remedies provided by law or such deed of trust,
Tenant's rights to terminate this Lease set forth in the Development Agreement
shall be binding upon any successor in interest (whether or not the events
giving rise to such termination occurred prior to or after such termination or
enforcement).
13.02. ATTORNMENT. Provided Landlord, Tenant and the Underlying Party
execute the non-disturbance agreement in Section 13.01, in the event of the
termination of any ground or similar lease affecting the Project or the
enforcement by the trustee or the beneficiary under any mortgage or deed of
trust of remedies provided by law or by such mortgage or deed of trust, Tenant
will automatically become the Tenant 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 (a) any payment of Rent for
more than one (1) month in advance, or (b) any amendment or modification of this
Lease made without the written consent of such trustee or such beneficiary or
such successor in interest of which Tenant has prior notice. Upon request by any
such successor in interest, Tenant shall execute and deliver within ten (10)
days of receipt an instrument or instruments confirming the attornment provided
for herein reasonably satisfactory to Tenant.
13.03. QUIET ENJOYMENT. Provided an event of Default by Tenant is not
in existence, Tenant shall and may peaceably and quietly enjoy the Premises for
the Term, subject to the provisions of this Lease and Landlord agrees to defend
such title to Tenant's interest in the Premises as to any person.
ARTICLE 14.
===============
14.01. ASSIGNMENT. Except as permitted in this Lease, Tenant shall not
assign or in any manner transfer this Lease or any estate or interest herein, or
sublet the Premises or any part thereof, or grant any license, concession or
other right of occupancy of any portion of the
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Premises without the prior written consent of Landlord, which shall not be
unreasonably withheld. If Tenant desires at any time to enter into an assignment
of this Lease or a sublease of the Premises or any portion thereof, Tenant shall
give written notice to Landlord of its desire to do so, which notice shall
contain (i) the name of the proposed assignee or subtenant, and (ii) the nature
of the proposed assignee's or subtenant's business to be carried on in the
Premises. Landlord shall give Tenant notice of either its consent or its denial
of consent to the proposed assignment or sublease within fifteen (15) days of
receipt of Tenant's request and information reasonably necessary to enable
Landlord to make an informed decision regarding its consent, failing which the
proposed sublease or assignment shall be deemed approved. Changes in ownership
of Tenant shall not be considered an assignment.
Tenant shall, despite any permitted assignment or sublease, remain
directly and primarily liable for the performance of all of the covenants,
duties, and obligations of Tenant hereunder and Landlord shall be permitted to
enforce the provisions of this Lease against Tenant or any assignee or sublessee
without demand upon or proceeding in any way against any other person; provided,
however, if Tenant assigns all of its interest under this Lease to an assignee
that is a Credit Assignee (defined below) as of the date of such assignment and
such assignee assumes all obligation under this Lease thereafter accruing,
Tenant shall be relieved of its obligations under this Lease accruing after such
assignment. As used herein, a "Credit Assignee" shall mean an assignee that as
of the date of such assignment has at least the minimum investment grade credit
rating of Moody or Standard & Poor's.
Notwithstanding anything to the contrary contained herein, Tenant may,
without the prior written consent of Landlord, sublet the Premises or any part
thereof to an affiliate, parent or subsidiary of Tenant, or assign this lease to
an affiliate, parent or subsidiary of Tenant, or permit occupancy of any portion
of the Premises by an affiliate, parent or subsidiary of Tenant, but only so
long as such affiliate, parent or subsidiary, controls or is controlled by or is
under common control with Tenant. Any such assignee hereunder shall be subject
to the terms of Sections 1.01(e) and 6.01 hereof. For purposes, hereof "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity, whether
through the ownership of voting securities or by contract or otherwise. In
addition, without the consent of Landlord, Tenant and any subsequent assignee
shall have the right to assign this lease or sublet the Premises to (i) any
corporate successor of Tenant by merger, dissolution, or otherwise, or (ii)
purchaser of substantially all of Tenant's assets.
If Tenant shall assign this Lease or sublet any part of the Premises
for consideration in excess of the sum of (A) pro-rata portion of the Rent
applicable to the space subject to the assignment or sublet, plus (B) the
reasonable out-of-pocket costs and expenses incurred by Tenant under or in
connection with such sublease or assignment (including without limitation, the
costs for (i) broker's commissions paid by Tenant with regard to the transfer,
(ii) reasonable legal fees with regard to the transfer, (iii) expenses of
finishing out or renovation of the space involved), (iv) expenses of marketing
and advertising, and (v) cash rental concessions, then Tenant shall pay to
Landlord as Additional Rent fifty percent (50%) of any such excess within thirty
(30) days of receipt, and Tenant shall be entitled to retain the remaining fifty
percent (50%) of such excess.
14.02. CONSENT. Consent by Landlord to a particular assignment or
sublease shall not be deemed a consent to any other or subsequent transaction.
If this Lease is assigned or if the Premises or any portion thereof are
subleased without the permission of Landlord, then Landlord may nevertheless
collect rent from the assignee or sublessee and apply the net amount collected
to the Rent payable hereunder, but no such transaction or collection of rent or
application thereof by Landlord shall be deemed a waiver of any provision hereof
or a release of Tenant from the performance by Tenant of its obligations
hereunder.
14.03. TRANSFER BY LANDLORD.
In the event of the transfer and assignment by Landlord of its interest
in this Lease and in the Project to a person expressly assuming Landlord's
obligations under this Lease accruing before and after the transfer, Landlord
shall thereby be released from any further obligations
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hereunder, and Tenant agrees to look solely to such successor in interest of the
Landlord for performance of such obligations. Any security given by Tenant to
secure performance of Tenant's obligations hereunder may be assigned and
transferred by Landlord to such successor in interest, and Landlord shall
thereby be discharged of any further obligation relating thereto from the date
of closing.
ARTICLE 15.
===============
15.01 DEFAULT BY TENANT. Each of the following shall constitute a
"Default" by Tenant:
(a) The failure of Tenant to pay the Base Rent, or any other
installment of Rent when due, and the continuance of such failure for a period
of ten (10) days after receipt of written notice thereof from Landlord;
provided, however, Landlord shall not be required to give such ten (10) day
notice, and Tenant shall not be entitled to same, more than two (2) times during
any calendar year, and any such subsequent failure during such calendar year
shall be a Default by Tenant upon the occurrence thereof without any notice
whatsoever to Tenant; or
(b) Tenant shall fail to fulfill or perform, in whole or in part, any
of its obligations under this Lease (other than the payment of Rent) and such
failure or non-performance shall continue for a period of thirty (30) days after
written notice thereof has been given by Landlord to Tenant, provided that if
such failure or non-performance cannot be cured within such thirty (30) day
period, such thirty (30) day period shall be extended so long as Tenant promptly
commences a cure and diligently prosecutes such cure to completion; or
(c) The entry of a decree or order by a court having jurisdiction
adjudging Tenant or any guarantor to be bankrupt or insolvent or approving as
properly filed a petition seeking reorganization of Tenant or guarantor under
the National Bankruptcy Act, or any other similar applicable Federal or State
law, or a decree or order of a court having jurisdiction for the appointment of
a receiver or liquidator or a trustee or assignee in bankruptcy or insolvency of
Tenant or Guarantor or its property or for the winding up or liquidation of its
affairs; or Tenant or guarantors shall institute proceedings to be adjudicated a
voluntary bankruptcy or shall consent to the filing of any bankruptcy,
reorganization, receivership or other proceeding against Tenant or guarantor, or
any such proceedings shall be instituted against Tenant or guarantor and the
same shall not be vacated within one hundred twenty (120) days after the same
are commenced; or
(d) Tenant shall make an assignment for the benefit of Tenant's
creditors or admit in writing Tenant's inability to pay the debts of Tenant
generally as they may become due.
15.02. RIGHTS UPON DEFAULT BY TENANT.
(a) This Lease and the Term and estate hereby granted and the demise
hereby made are subject to the limitation that if and whenever there shall occur
any event of Default, as enumerated above, Landlord may, at Landlord's option,
without any additional notice or demand whatsoever (any such notice and demand
being expressly waived by Tenant) and without judicial process, in addition to
any other remedy or right given hereunder or by law or equity, do any one or
more of the following:
(1) Terminate this Lease by written notice to Tenant
and draw upon the Letter of Credit called for in Section 4.03
of this Lease in accordance with the terms thereof, in which
event Tenant shall immediately surrender possession of the
Premises to Landlord;
(2) Terminate Tenant's right to possession of the
Premises under this Lease without terminating this Lease
itself, by written notice to Tenant and draw upon the Letter
of Credit called for in Section 4.03 of this Lease in
accordance with the terms thereof, in which event Tenant shall
immediately surrender possession of the Premises to Landlord;
or
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(3) Enter upon and take possession of the Premises in
accordance with applicable laws and expel or remove Tenant and
any other occupant therefrom and draw upon the Letter of
Credit called for in Section 4.03 of this Lease in accordance
with the terms thereof, with or without having terminated this
Lease.
(b) Any right of Tenant, through contract, statute or otherwise, to
receive notice of Landlord's intent to exercise any of Landlord's remedies
hereunder is hereby waived by Tenant. Any right of Tenant through contract,
statute, or otherwise to cure any Default before Landlord may exercise any of
its remedies hereunder is hereby waived by Tenant (however, Tenant does not
waive the cure periods in Section 15.01 above).
(c) In the event of any Default described in subsection (b) of Section
15.01, Landlord shall have the right to enter upon the Premises in accordance
with applicable laws without being liable for prosecution or any claim for
damages therefor, and do whatever Tenant is obligated to do under the terms of
this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses
which Landlord may incur in thus effecting compliance with Tenant's obligations
under this Lease, and Tenant further agrees that Landlord shall not be liable
for any damages resulting to Tenant from such action.
(d) It is hereby expressly stipulated by Landlord and Tenant that any
of the above listed actions including, without limitation, termination of this
Lease, termination of Tenant's right to possession, and re-entry by Landlord,
will not affect the obligations of Tenant for the unexpired Term of this Lease,
including the obligations to pay unaccrued monthly rentals and other charges
provided in this Lease for the remaining portion of the Term of the Lease.
(e) Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord. No such alteration of locks or other security devices and no removal
or other exercise of dominion by Landlord over the property of Tenant or others
at the Premises shall be deemed unauthorized or constitute a conversion, Tenant
hereby consenting, after any event of Default, to the aforesaid exercise of
dominion over Tenant's property within the Premises. All claims for damages by
reason of such re-entry and/or repossession and/or alteration of locks or other
security devices in accordance with applicable laws are hereby waived, as are
all claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process.
Tenant agrees that any re-entry by Landlord may be pursuant to a
judgment obtained in forcible detainer proceedings or other legal proceedings or
without the necessity for any legal proceedings but in accordance with all
applicable laws, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
(f) In the event Landlord elects to terminate this Lease by reason of
an event of Default, then notwithstanding such termination, the Tenant shall be
liable for and shall pay to the Landlord, at the address specified in Section
1.01(a) above, the sum of all Rent accrued to the date of such termination,
plus, as damages, the reasonable cost of recovering and reletting the Premises
for its current use (not costs of renovating for a different use), and an amount
equal to the total of the Rent provided in this Lease for the remaining portion
of the Term of the Lease (had such Term not been terminated by Landlord prior to
the Expiration Date stated in Section 3.01), less the reasonable rental value of
the Premises for such period; such amount to be discounted to present value at
the rate of six percent (6%) per annum. In no event shall Tenant be liable for
concessions or allowances given a replacement tenant.
In the event Landlord elects to terminate this Lease by reason of an
event of Default, in lieu of exercising the right of Landlord under the
preceding paragraph, Landlord may instead hold Tenant liable for all Rent
accrued to the date of such termination, plus such Rent as would otherwise have
been required to be paid by Tenant to Landlord during the period following
termination of the Term measured from the date of such termination by Landlord
until the
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Expiration Date stated in Section 3.01 (had Landlord not elected to terminate
the Lease on account of such event of Default) diminished by any net sums
thereafter received by Landlord through reletting the Premises during said
period (after deducting reasonable expenses incurred by Landlord as provided in
Section 15.03 hereof). Actions to collect amounts due by Tenant as provided for
in this paragraph may be brought from time to time by Landlord during the
aforesaid period, on one or more occasions, without the necessity of Landlord's
waiting until expiration of such period; and in no event shall Tenant be
entitled to any excess of rent obtained by reletting over and above the Rent
provided for in this Lease. If Landlord elects to exercise the remedy prescribed
in this paragraph, this election shall in no way prejudice Landlord's right at
any time hereafter to cancel said election in favor of the remedy prescribed in
the foregoing paragraph.
(g) In the event that Landlord elects to repossess the Premises without
terminating this Lease, then Tenant shall be liable for and shall pay to
Landlord at the address specified in Section 1.01(a) above, all Rent accrued to
the date of such repossession, plus Rent required to be paid by Tenant to
Landlord during the remainder of the Term until the Expiration Date of the Term
as stated in Section 3.01, diminished by any net sums thereafter received by
Landlord through reletting the Premises during said period (after deducting
reasonable expenses incurred by Landlord as provided in Section 15.03). Actions
to collect amounts due by Tenant as provided in this paragraph may be brought
from time to time by Landlord during the aforesaid period, on one or more
occasions, without the necessity of Landlord's waiting until expiration of the
Term and in no event shall Tenant be entitled to any excess of any rent obtained
by reletting over and above the Rent provided for in this Lease.
(h) Landlord shall exercise reasonable efforts to mitigate its damages
arising from a Default of Tenant hereunder.
15.03. EXPENSE OF REPOSSESSION. It is further agreed that, in addition
to payments required pursuant to Section 15.02 above, Tenant shall compensate
Landlord for all expenses incurred by Landlord in repossession (including among
other expenses, the total amount of any increase in insurance premiums caused by
the vacancy of the Premises).
15.04. CUMULATIVE REMEDIES; WAIVER OR RELEASE. The remedies of Landlord
and Tenant under this Lease shall be deemed cumulative and not exclusive of each
other. No action, omission or commission by Landlord or Tenant, including
specifically, the failure to exercise any right, remedy or recourse, shall be
deemed a waiver or release of the same. A waiver or release shall exist and be
effective only as set forth in a written document executed by Landlord and
Tenant, and then only to the extent recited therein. A waiver or release with
reference to any one event shall not be construed as continuing as to, or as a
bar to, or as a waiver or a release of, any right, remedy or recourse as to any
other or subsequent event.
15.05. ATTORNEY'S FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action (including, without limitation, all costs of
appeal) and such amount shall be included in any judgment rendered in such
proceeding.
15.06. FINANCIAL STATEMENTS. Each party warrants and represents that
all financial statements, operating statements or other financial data at any
time given to the other are, or will be, as of their respective dates, true and
correct in all material respects.
15.07. NEGATION OF LIEN FOR RENT. Landlord hereby expressly waives and
negates any and all contractual liens and security interests, statutory liens
and security interests or constitutional liens and security interests arising by
operation of law to which Landlord might now or hereafter be entitled on all
property of Tenant now or hereafter placed in or upon the Premises (except for
judgment liens that may hereafter arise in favor of Landlord). The waiver and
negation contained herein shall not waive, negate or otherwise affect any
unsecured claim Landlord may have.
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15.08. DEFAULT BY LANDLORD. If Landlord fails to perform or observe any
covenant, term, provision or condition of this Lease, and such default should
continue beyond a period of ten (10) days as to a monetary default or thirty
(30) days (or such longer period as is reasonably necessary to remedy such
non-monetary default, provided Landlord shall continuously and diligently pursue
such remedy at all times until such default is cured) as to a non-monetary
default, after in each instance written notice thereof is given by Tenant to
Landlord [and a copy of said notice is sent simultaneously therewith to any
party (including without limitation a mortgagee) entitled to receive notice
pursuant to Section 17.04 hereof (the "Notice Parties")] then, in any such event
Tenant shall have the right to (i) cure such default, and Landlord shall
reimburse Tenant for all reasonable sums expended in so curing said default
(which reimbursement Tenant may effect through the withholding of Rent), and/or
(ii) commence such actions at law or in equity to which Tenant may be entitled
(other than an action to terminate this Lease). Tenant shall be entitled to
offset against Base Rent (provided that such offset shall be limited to twenty
percent (20%) of any Base Rent installment), or to counterclaim for any amounts
owed to Tenant by Landlord pursuant to this Lease, plus interest thereon at the
Default Interest Rate, to the extent that such amounts remain unpaid.
Notwithstanding the foregoing, Tenant may offset against all Base Rent and other
Rent next coming due without limitation (and not just 20% thereof) (1) any
portion of the Finish Allowance not paid by Landlord to Tenant when due in
accordance with Exhibit "D-1", (2) any portion of the Security Amount not paid
by Landlord to Tenant when due in accordance with Section 7.01 (e), (3) any
portion of the sums owed to Tenant under Section 5.04 not paid when due, and/or
(4) any amounts determined to be Landlord's liability pursuant to Section 17.29
or in any judgment entered by a court and to which execution has not been stayed
(through appeal or bond), plus interest on all such sums in (1), (2), (3) and
(4) at the Default Interest Rate. Tenant agrees that the cure of any default by
any of the Notice Parties shall be deemed a cure by Landlord under this Lease.
The foregoing provisions shall not limit other remedies available to Tenant
under this Lease or at law or in equity.
ARTICLE 16.
==================
16.01. HAZARDOUS WASTE.
(a) The term "Environmental Law" shall mean any federal, state or local
statute, regulation or ordinance or any judicial or other governmental order
pertaining to the protection of health, safety or the environment. The term
"Hazardous Substance" shall mean any hazardous, toxic, infectious or radioactive
substance, waste and material as defined or listed by any Environmental Law and
shall include, without limitation, petroleum oil and its fractions.
(b) Tenant shall not cause or authorize any Hazardous Substance to be
spilled, leaked, disposed of or otherwise released on or under the Project.
Tenant may use and sell in the Project only those Hazardous Substances typically
used and sold in the prudent and safe operation of the business permitted by
Sections 1.01(e) and 6.01 of this Lease. Tenant may store such Hazardous
Substances in the Project, but only in quantities necessary to satisfy Tenant's
reasonably anticipated needs. Tenant shall comply with all Environmental Laws
and exercise the highest degree of care in the use, handling and storage of
Hazardous Substances and shall take all practicable measures to minimize the
quantity and toxicity of Hazardous Substances used, handled or stored on the
Premises.
(c) Tenant shall immediately notify Landlord upon becoming aware of the
following: (i) any spill, leak, disposal or other release of a Hazardous
Substance on, under or adjacent to the Premises; (ii) any notice or
communication from any governmental agency or any other person relating to any
Hazardous Substance on, under or adjacent to the Premises; or (iii) any
violation of any Environmental Law with respect to the Premises or Tenant's
activities on or in connection with the Premises.
(d) In the event of a spill, leak, disposal or other release of a
Hazardous Substance on or under the Premises caused by Tenant or any of the
Tenant-Related Parties, or the threat of the same, Tenant shall (i) immediately
undertake all emergency response necessary to contain,
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cleanup and remove the released Hazardous Substance, (ii) promptly undertake all
investigatory, remedial, removal and other response action necessary or
appropriate to ensure that any Hazardous Substances contamination is eliminated
as required by applicable Environmental Law, and (iii) provide Landlord copies
of all correspondence with any governmental agency regarding the release (or
threatened or suspected release) or the response action, a detailed report
documenting all such response action, and a certification that any contamination
has been eliminated. All such response action shall be performed, all such
reports shall be prepared and all such certifications shall be made by an
environmental consultant reasonably acceptable to Landlord.
(e) In the event of a spill, leak, disposal or other release of a
Hazardous Substance on or under the Premises caused by Landlord, or any of its
contractors, agents or employees or by Landlord's previous tenants of the
Premises, or the threat of the same, Landlord shall (i) immediately undertake
all emergency response necessary to contain, cleanup and remove the released
Hazardous Substance, (ii) promptly undertake all investigatory, remedial,
removal and other response action necessary or appropriate to ensure that any
Hazardous Substances contamination is eliminated as required by applicable
Environmental Law, and (iii) provide Tenant copies of all correspondence with
any governmental agency regarding the release (or threatened or suspected
release) or the response action, a detailed report documenting all such response
action, and a certification that any contamination has been eliminated. All such
response action shall be performed, all such reports shall be prepared and all
such certifications shall be made by an environmental consultant reasonably
acceptable to Tenant.
(f) Upon expiration of this Lease or sooner termination of this Lease
for any reason, Tenant shall remove all Hazardous Substances and facilities used
for the storage or handling of Hazardous Substances from the Premises and
restore the affected areas by repairing any damage caused by the installation or
removal of the facilities. Following such removal, Tenant shall certify in
writing to Landlord that all such removal is complete.
(g) Landlord represents and warrants to Tenant that to the best of
Landlord's actual knowledge, the Premises and Project do not presently contain
any Hazardous Substance. Additionally, Landlord agrees that Landlord shall not
cause or authorize any Hazardous Substance to be generated, treated, stored,
released or disposed of, or otherwise placed, deposited in or located on the
Premises or Project by Landlord or its agents, contractors or employees, and no
activity shall be taken by Landlord or its agents or employees on the Premises
or Project that would cause or contribute to (x) the Premises to become a
generation, treatment, storage or disposal facility within the meaning of, or
otherwise bring the Premises within the ambit of Environmental Law, (y) a
release or threatened release of toxic or hazardous wastes or substances,
pollutants or contaminants, from the Premises or Project within the meaning of,
or otherwise result in liability in connection with the Premises within the
ambit of Environmental Law, or (z) the discharge of pollutants or effluents into
any water source or system, the dredging or filling of any waters, or the
discharge into the air of any emissions, that would require a permit under
Environmental Law.
(h) Notwithstanding the provisions of Article 14 of this Lease, it
shall not be unreasonable for Landlord to withhold its consent to any
assignment, sublease or other transfer of Tenant's interest in this Lease if a
proposed transferee's anticipated use of the Premises involves the generation,
storage, use, sale, treatment, release or disposal of any Hazardous Substance
other than those typically used and sold in the prudent and safe operation of
the businesses permitted by Sections 1.01(e) and 6.01 of this Lease.
(i) Tenant shall indemnify, defend and hold harmless Landlord, its
employees and agents, any persons holding a security interest in the Premises,
and the respective successors and assigns of each of them from and against any
and all claims, demands, liabilities, damages, fines, losses, costs (including
without limitation the cost of any investigation, remedial, removal or other
response action required by Environmental Law) and expenses (including without
limitation reasonable attorneys' fees and expert fees in connection with any
trial, appeal, petition for review or administrative proceedings) arising out of
or in any way relating to the use, treatment, storage, generation, transport,
release, leak, spill, disposal or other handling of Hazardous Substances on
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the Premises by Tenant or any Tenant-Related Parties. Tenant's obligations under
this paragraph shall survive the expiration or termination of this Lease for any
reason. Landlord's rights under this paragraph are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this Lease or otherwise.
(j) Landlord shall indemnify, defend and hold harmless Tenant and its
employees and agents and the respective successors and assigns of each of them
from and against any and all claims, demands, liabilities, damages, fines,
losses, costs (including without limitation the cost of any investigation,
remedial, removal or other response action required by Environmental Law) and
expenses (including without limitation attorneys' fees and expert fees in
connection with any trial, appeal, petition for review or administrative
proceeding) arising out of or in any way relating to the actual or alleged use,
treatment, storage, generation, transport, release, leak, spill, disposal or
other handling of Hazardous Substances on the Premises by Landlord, or any of
its contractors, agents or employees or by Landlord's previous tenants of the
Premises. Landlord's obligations under this paragraph shall survive the
expiration or termination of this Lease for any reason. Tenant's rights under
this paragraph are in addition to and not in lieu of any other rights or
remedies to which Tenant may be entitled under this Agreement or otherwise.
(k) All representations, warranties and indemnities contained in this
Article 16 shall survive the termination of this Lease.
ARTICLE 17.
==================
17.01. SUBSTITUTE PREMISES. Deleted intentionally.
17.02. ESTOPPEL LETTERS. Within ten (10) business days after the
written request of either Landlord or Tenant, the other party will execute, from
time to time, either an estoppel certificate or a three-party agreement among
Landlord, Tenant and any third party certifying, to the best of such party's
knowledge and belief, to such facts (if true) as Landlord or Tenant, as the case
may be, or such third party, may reasonably require in connection with the
business dealings of the parties and the status of certain matters pertaining to
this Lease.
17.03. HOLDOVER.
Subject to the provisions of subsection (b) below, if Tenant shall
remain in possession of the Premises after the expiration or earlier termination
of this Lease, Tenant will be deemed to be a tenant at sufferance and shall be
subject to immediate eviction and removal and shall pay for each month or
partial month of holdover period as rent an amount equal to the greater of (i)
one hundred fifty percent (150%) of the then actual rental rate prevailing on
the date of such termination or expiration, or (ii) one hundred fifty percent
(150%) of the prevailing then actual market rental rate for the Premises on the
date of such expiration or termination. The remaining in possession by Tenant or
the acceptance by Landlord of the payment of said rent shall not be construed as
an extension or renewal of this Lease unless extended by Landlord pursuant to
the preceding sentence. Tenant shall indemnify Landlord against all claims for
damages by any other tenant to whom Landlord may have leased all or any part of
the Premises effective upon the termination of this Lease.
17.04. NOTICE. Any notice or communication required or permitted in
this Lease shall be given in writing, sent by (i) personal delivery, (ii)
expedited delivery service with proof of delivery, or (iii) United States
registered or certified mail, return receipt requested, addressed as provided in
Section 1.01(a) or to such other address or to the attention of such other
person as shall be designated from time to time in writing by the applicable
party and sent in accordance herewith. Any such notice or communication shall be
deemed to have been delivered, whether actually received or not, four (4)
business days following deposit in the US Mail, postage paid, certified or
return receipt requested at the address and in the manner provided herein, or
any such notice or communication shall have been deemed to have been given as of
the date so delivered and actually received at the address and in the manner
provided herein in the case of personal
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delivery. Either party shall have the right to change its address to which
notices shall thereafter be sent and the party to whose attention such notice
shall be directed by giving the other party notice thereof in accordance with
the provisions of this Section 17.04. Additionally, each of Landlord and Tenant
may designate up to four (4) additional addresses to which copies of all notices
shall be sent. Notwithstanding anything contained in this Section 17.04 to the
contrary, any notice regarding a party's change of address or designation of
additional addressees shall become effective only upon ten (10) days prior
notice thereof.
17.05. RULES AND REGULATIONS. Tenant, as well as any permitted assignee
or sublessee, will comply with Building Rules adopted by Landlord, which are set
forth in Exhibit "C" attached hereto and made a part hereof for all purposes.
Landlord shall have the right to change such Building Rules or to amend them in
any reasonable manner for the safety, care and cleanliness of the Project, and
the Premises, and for preservation of good order therein, subject to Tenant's
approval (which approval shall not be unreasonably withheld) all of which
changes and amendments will be sent by Landlord to Tenant in writing and shall
be thereafter binding upon, carried out and observed by Tenant. Tenant shall
exercise diligent efforts to cause compliance with such Building Rules by the
employees, servants, agents and invitees of Tenant. If the Building Rules and
the terms of this Lease conflict, the terms of this Lease shall control.
Landlord shall enforce the Building Rules in a uniform manner.
17.06. LANDLORD'S LIABILITY. If Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only out of the right, title
and interest of Landlord in the Project and neither Landlord nor its partners,
directors, shareholders, agents or employees shall be liable for any deficiency,
it being agreed that Landlord shall never be personally liable for any such
judgment. Landlord's interest in the Project shall include all insurance
proceeds, condemnation awards, and sales and refinancing proceeds.
17.07. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIERS
ACT. Notwithstanding anything to the contrary contained in the Lease, Landlord
and Tenant agree that the responsibility for compliance with the Americans with
Disability Act of 1990 ("ADA") shall be allocated as follows: (i) Landlord shall
be responsible for compliance with the provisions of Title III of ADA for all
exterior and interior areas of the Building not included within the Premises and
for the restrooms in the Premises and all structural alternations necessary to
cause the Premises to comply with the ADA; (ii) Landlord shall be responsible
for the compliance with the provisions of Title III of ADA for any construction,
renovations, alterations and repairs made by Landlord, its agents or
contractors; (iii) Tenant shall be responsible for compliance with the
provisions of Title III of the ADA in the Premises for any construction,
renovations, alterations and repairs made within the Premises if such
construction, renovations and repairs are made by Tenant, its employees, agents
or contractors (except for the restrooms and any structural alternations in the
Premises, which are Landlord's responsibility under this Lease); and (iv) except
for the restrooms and any structural alterations, which are Landlord's
responsibility under this Lease, Tenant shall be responsible for causing the
interior of the Premises to comply with the provisions of Title III of the ADA.
17.08. AUTHORIZATION. If either party signs as a corporation, each of
the persons executing this Lease on behalf of such party represents and warrants
that it is a duly organized and existing corporation, that it 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. If
either party is a general partnership, limited partnership, trust, or other
legal entity, each individual executing this Lease on behalf of said entity
represents and warrants that he or she is duly authorized to execute this Lease
on behalf of such entity and in accordance with such entity's governing
instruments, and that this Lease is binding upon such entity. Upon either
party's request, the other party shall furnish such party with proper proof of
due authorization for its execution of this Lease.
17.09. BROKERS. Except as provided in that certain Professional
Services Fee Agreement dated January 30, 1999 (as amended by that certain letter
agreement dated March 11, 1999) by and between Landlord and the brokers in
Section 1.10(n) ("Brokers") pursuant to which Landlord has agreed to pay a real
estate brokerage fee upon the terms described therein, Tenant
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represents that it has not engaged, and owes no fee to, any other broker, agent
or similar party with respect to the transactions contemplated by this Lease.
Accordingly, Tenant agrees to indemnify and hold harmless Landlord from and with
respect to any other claims for a brokerage fee, finder's fee or similar payment
with respect to this Lease which is made by any party claiming by, through or
under Tenant (other than the Brokers). Similarly, Landlord agrees to indemnify
and hold harmless Tenant from and with respect to any claims for a brokerage
fee, finder's fee or similar payment with respect to this Lease which is made by
Brokers or any party claiming by, through or under Landlord.
17.10. MEMORANDUM OF LEASE. Tenant shall not record this Lease.
Notwithstanding the foregoing, Landlord and Tenant shall enter into the
Memorandum of Lease attached hereto as Exhibit "I" for the purpose of recording
the same, and Tenant may, at Tenant's expense, record the same.
17.11. PARKING. Exhibit "F" attached hereto sets forth the agreements
between Landlord and Tenant relating to the Parking Facilities.
17.12. TIME OF ESSENCE. Time is of the essence of this Lease and all of
its provisions in which performance is a factor.
17.13. ENTIRE AGREEMENT. This Lease, including the Exhibits and Riders
attached hereto (which Exhibits and Riders are hereby incorporated herein and
shall constitute a portion hereof)and the Development Agreement, contain the
entire agreements between Landlord and Tenant with respect to the subject
matters hereof. Landlord acknowledges that Tenant has certain rights in the
Development Agreement to terminate this Lease and the Development Agreement does
contain restrictions on sale or conveyance of the Project, which rights and
restrictions are binding on Landlord and any successors and assigns of Landlord.
17.14. AMENDMENT. Any agreement hereafter made between Landlord and
Tenant shall be ineffective to modify, release or otherwise affect this Lease,
in whole or in part, unless such agreement is in writing and signed by the party
to be bound thereby.
17.15. SEVERABILITY. If any term or provision of this Lease shall, to
any extent, be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall not be affected
thereby.
17.16. SUCCESSORS. This Lease shall bind and inure to the benefit of
the respective heirs, legal representatives, successors, and assigns of the
parties hereto.
17.17. CAPTIONS. The captions in this Lease are inserted only as a
matter of convenience and for reference only and they in no way define, limit,
or describe the scope of this Lease or the intent of any provisions hereof.
17.18. NUMBER AND GENDER. All genders used in this Lease shall include
the other genders, the singular shall include the plural, and the plural shall
include the singular, whenever and as often as may be appropriate.
17.19. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
17.20. CHANGES TO THE PROJECT. No material changes shall be made to the
location, configuration, layout or design of the Building, Common Areas, Parking
Facilities, the Premises or any aspect of the Project without Tenant's prior
written consent which shall not be unreasonably withheld, conditioned or delayed
(except as they relate to the Premises or as otherwise provided in Section
1.01(p), which may be withheld in Tenant's sole discretion)
17.21. NO PRESUMPTION AGAINST DRAFTER. Landlord and Tenant understand,
agree and acknowledge that: (i) this lease has been freely negotiated by both
parties; and (ii) that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability
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of this lease or any of its terms or conditions, there shall be no inference,
presumption or conclusion drawn whatsoever against either party by virtue of
that party having drafted this lease or any portion thereof.
17.22. EXAMINATION OF LEASE. Submission by Landlord of this instrument
to Tenant for examination or signature does not constitute a reservation of or
option for lease. This Lease will be effective as a lease or otherwise only upon
execution by and delivery to both Landlord and Tenant.
17.23. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as singular. If more
than one person is named as Tenant, the obligations of such persons are joint
and several. The headings and titles to the articles, sections and subsections
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
17.24. NO REPRESENTATIONS. Landlord and Landlord's agents have made no
warranties, representations or Promises (express or implied) with respect to the
Premises, the Building or any other part of the Property (including, without
limitation, the condition, use or suitability of the Premises, the Building or
the Property), except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this Lease.
17.25. IMPROVEMENTS ON ADJACENT LAND. In no event may any improvements
be located on the portion of Adjacent Land which is owned by Landlord or any
affiliate of Landlord closer to the Building or any subsequent building leased
by Tenant on the Adjacent Land than the improvements shown on the site plan
attached hereto as Exhibit "B-2".
17.26 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease with respect to events which occurred prior to such termination or
expiration of this Lease.
17.27. COMPETITORS OF TENANT. Except in the exercise of Landlord's
remedy to repossess the entire Premises upon the default of Tenant hereunder,
Landlord shall not lease or grant any rights to occupy any space in the Project
to any person or entity other than Tenant and the management company for the
Building which shall be permitted to lease only the management office (which may
only be used and occupied for such purpose). The foregoing does not limit
Tenant's rights under Section 14.01 of this Lease.
17.28. FIRST OFFER ON SALE.
(a) If at any time during the Term, Landlord desires to sell all or any
portion of the Project, Landlord shall notify Tenant in writing (the "Sale
Notice") of the terms upon which Landlord is willing to sell such portion of the
Project. Tenant shall thereupon have the prior right and option to purchase such
portion of the Project ("ROFO") at the price and on the terms and conditions
stated in the Sale Notice. Nothing contained herein shall prohibit Landlord from
having discussions with other prospective purchasers of such portion of the
Project. Tenant may exercise the ROFO by giving Landlord written notice thereof
(the "Exercise Notice") within fifteen (15) calendar days after the date of
receipt by Tenant of the Sale Notice.
(b) In the event Tenant effectively exercises its ROFO under Section
17.28(a) hereof, Tenant and Landlord shall, within twenty (20) business days
following Landlord's receipt of the Exercise Notice, execute a contract of sale
(the "Tenant Contract") at the same price and upon the same terms and conditions
as stated in the Sale Notice.
(c) Should Tenant fail to deliver the Exercise Notice pursuant to
Section 17.28(a) hereof, Tenant's ROFO shall be deemed waived, and Landlord
shall thereafter be entitled to sell such portion of the Project to any third
party upon the ROFO Terms (hereinafter defined). "ROFO Terms" shall mean terms
no less favorable to Landlord than the terms and conditions
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contained in the Sale Notice, however, the purchase price may be up to five
percent (5%) less than that set forth in the Sale Notice.
(d) Notwithstanding the provisions of subparagraph (c) hereof, if
Landlord does not subsequently enter into a contract of sale with a third party
on the ROFO Terms within two hundred seventy (270) days after the Sale Notice,
or consummate the sale of such portion of the Project to such third party upon
ROFO Terms within three hundred sixty (360) days after the Sale Notice, then
Landlord may not sell such portion of the Project unless it again offers such
portion of the Project to Tenant pursuant to this Section 17.28.
(e) Notwithstanding any other provision of this Section 17.28, Tenant's
ROFO shall not apply to any of the following transactions: (i) any sale or
transfer of all or any portion of the Project or any interest therein to any
affiliate of the Landlord; (ii) any sale or transfer in connection with
permanent or interim financing for the Project, including any sale/leaseback,
joint venture or other similar arrangement; and (iii) the granting of any
mortgage or other lien, or any conveyance with respect thereto by foreclosure,
deed in lieu of foreclosure or the like. Any of the above mentioned transactions
shall not terminate Tenant's ROFO, but such ROFO shall thereafter continue to
bind the transferee.
(f) Tenant's ROFO is not continuing in nature, and Landlord shall have
no obligation to re-offer to Tenant except as set forth in subparagraph (d)
above.
17.29 ARBITRATION.
(a) Either Landlord or Tenant may require that any dispute under this
Lease be submitted to arbitration pursuant to this Section 17.29. All
arbitrations shall occur at a location in Dallas, Texas chosen by the
arbitrators and shall be conducted pursuant to the Arbitration Rules for the
Real Estate Industry (effective on May 1, 1994, and as subsequently amended) of
the American Arbitration Association (or the successor organization, or if no
such successor organization exists, then from an organization composed of
persons of similar professional qualifications). To the extent the provisions of
this Section 17.29 vary from or are inconsistent with the Arbitration Rules for
the Real Estate Industry (effective on May 1, 1994, and as subsequently amended)
of the American Arbitration Association or any other arbitration tribunal, the
provisions of this Section 17.29 shall govern. All arbitrations will be governed
by the provisions of this Section 17.29, the Arbitration Rules for the Real
Estate Industry (effective on May 1, 1994, and as subsequently amended) of the
American Arbitration Association (to the extent not inconsistent with this
Section 17.29), and the laws of the State of Texas (to the extent not
inconsistent with any of the foregoing). The party desiring such arbitration
shall give notice to that effect to the other party and simultaneously therewith
also shall give notice to the director (the "Director") of the Dallas, Texas
regional office of the American Arbitration Association (or the successor
organization, or if no such successor organization exists, then from an
organization composed of persons of similar professional qualifications),
requesting such organization to select, as soon as possible but in any event
within the next thirty (30) days, three neutral arbitrators with, if reasonably
possible, recognized expertise in the subject matter of the arbitration. At the
request of either party, the arbitrators shall authorize the service of
subpoenas for the production of documents or attendance of witnesses. Within
thirty (30) days after their appointment, the arbitrators so chosen shall hold a
hearing at which each party may submit evidence, be heard and cross-examine
witnesses, with each party having at least ten (10) days' advance notice of the
hearing. The hearing shall be conducted such that each of Landlord and Tenant
shall have reasonably adequate time to present oral evidence or argument, but
either party may present whatever written evidence it deems appropriate prior to
the hearing (with copies of any such written evidence being sent to the other
party). In the event of the failure, refusal or inability of any arbitrator to
act, a new arbitrator shall be appointed in his stead, which appointment shall
be made in the same manner as hereinbefore provided. The decision of the
arbitrators so chosen shall be given within a period of thirty (30) days after
the conclusion of such hearing and shall be accompanied by conclusions of law
and findings of fact. The decision in which any two arbitrators so appointed and
acting hereunder concur shall in all cases be binding and conclusive upon the
parties and shall be the basis for a judgment entered in any court of competent
jurisdiction. The fees and expenses of arbitration under this Section 17.29
shall be
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apportioned to Landlord and Tenant in such a manner as decided by the
arbitrators. Landlord and Tenant may at any time by mutual written agreement
discontinue arbitration proceedings and themselves agree upon any such matter
submitted to arbitration.
(b) Notwithstanding anything to the contrary contained in subsection
(a) above, if the purpose of the arbitration is to determine the Extension
Rental Rate under Rider 1, then the provisions of Rider 1 shall apply.
17.30. EXTENSION AND ADDITIONAL RIGHTS AND OPTIONS. Deleted
Intentionally.
17.31 TAX PROTESTS. Tenant has no right to protest the real estate tax
rate assessed against the Project and/or the appraised value of the Project
determined by any appraisal review board or other taxing entity with authority
to determine tax rates and/or appraised values (each a "Taxing Authority").
Tenant hereby knowingly, voluntarily and intentionally waives and releases any
right, whether created by law or otherwise, to (a) file or otherwise protest
before any Taxing Authority any such rate or value determination even though
Landlord may elect not to file any such protest; (b) receive, or otherwise
require Landlord to deliver, a copy of any reappraisal notice received by
Landlord from any Taxing Authority; and (c) appeal any order of a Taxing
Authority which determines any such protest. The foregoing waiver and release
covers and includes any and all rights, remedies and recourse of Tenant, now or
at any time hereafter, under Section 41.413 and Section 42.015 of the Texas Tax
Code (as currently enacted or hereafter modified) together with any other or
further laws, rules or regulations covering the subject matter thereof. Tenant
acknowledges and agrees that the foregoing waiver and release was bargained for
by Landlord and Landlord would not have agreed to enter into this Lease in the
absence of this waiver and release. Notwithstanding any such waiver and release,
if Tenant files or otherwise appeals any such protest, then Tenant will be in
breach under this Lease.
Landlord shall have the exclusive right to protest the real
estate tax rate assessed against the Project and/or the appraised value of the
Project determined by any Taxing Authority. However, notwithstanding anything to
the contrary contained in this Lease, Landlord shall upon the request of Tenant
to do so from time to time, make such a protest. Landlord shall diligently
monitor the taxes assessed against the Project as well as the assessed valuation
thereof and shall seek such abatements or other tax benefits or relief for the
Project in the exercise of Landlord's prudent business judgment, subject to the
rights of Tenant under the preceding sentence. Nothing contained herein shall
restrict Tenant from negotiating with tax authorities to effect tax savings on
property owned by Tenant or tax rebates with respect to the Project.
17.32 CONSENTS. Except as stated to the contrary elsewhere in this
Lease, in every instance in which either Landlord or Tenant is required to give
its consent or approval, such consent or approval shall not be unreasonably
withheld or delayed.
17.33 CCR AMENDMENTS. So long as Landlord or an affiliate of Landlord
is Declarant under the CCR, and so long as Tenant either retains or has
exercised its option to rent Building 2, Landlord shall not, without Tenant's
prior written consent, vote for an action or an amendment to the CCR or
authorize or take action (or if Landlord or an affiliate of Landlord is no
longer Declarant under the CCR, vote for an action or an amendment to the CCR)
under the CCR which will result in:
(a) An increase in Quarterly Assessments or Special
Assessments passed through to Tenant as an Operating Expense Increase
resulting from:
(i) Increase in the size in land area of the
Common Facilities.
(ii) A change in method of allocation of
assessments resulting from a modification of
the CCR.
(b) A material degradation of the appearance, usefulness or
First Class Building Standards of the Common Facilities.
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(c) an increase in the Quarterly Assessments passed through to
Tenant as an Operating Expense Increase in any calendar year by more
than ten percent (10%) of the Quarterly Assessments for the prior
calendar year resulting from construction of additional improvements or
modification of existing improvements within the Common Facilities
(except as may be required by governmental or judicial decision or
governmental law).
(d) the construction of any improvements between the Building
and the lake comprising a part of the Common Facilities.
Additionally, Landlord agrees to consult with Tenant in good faith
regarding all matters related to the CCR or Common Facilities. Further,
if Tenant requests that any particular Common Facilities be installed
from time to time, Landlord will consider such request in good faith.
Nothing contained in this Section 17.33 shall be construed so as to prevent
Declarant from initiating or supporting a modification of the Zoning Ordinance,
as defined in the CCR, to allow the development of attached residential and
mixed use commercial/residential buildings and/or retail/commercial free
standing buildings.
17.34 MANAGEMENT. Landlord agrees to consider in good faith (i) any
complaints of Tenant regarding the individual who is the on-site property
management representative and (ii) any request by the Tenant to replace such
individual. Landlord and Tenant shall establish a reasonably detailed protocol
between Tenant's facilities manager and the on-site property management
representative which protocol should include the office, home, fax and "beeper"
numbers for such people and additional people and telephone numbers to contact
in the event such managers are unavailable. Such protocol shall be updated upon
the request of either Landlord or Tenant.
17.35 DEFAULT INTEREST. All sums owed by Landlord to Tenant under this
Lease and not paid on or prior to the date due thereof shall bear interest from
the date due thereof until payment is received at a per annum rate (the "Default
Interest Rate") equal to the lesser of (i) the prime rate announced by Chase
Manhattan Bank, New York, New York, or its successor (the "Prime Rate"), from
time to time (or if the Prime Rate is discontinued, the rate announced as that
being charged to said bank's most creditworthy commercial borrowers) plus three
percent (3%), or (ii) the maximum contract interest rate per annum allowed by
law; provided, however, with respect to the first three (3) times per calendar
year that such sum is not paid on or prior to the date due by Landlord, no
interest shall be payable with respect to such late payments by such party
unless such payments are more than five (5) days late and then such past due
payments shall bear interest from the sixth (6th) day after the due date thereof
until payment is received.
17.36 VACATING THE PREMISES. If none of the Premises are occupied by
Tenant or its permitted assignee or sublessees (or any combination thereof)
after the Commencement Date (i.e., the Premise are 100% vacant) for longer than
180 consecutive days, even though Tenant continues to pay the stipulated Rent
and is not otherwise in default under this Lease, and Tenant or its permitted
assignee or subtenants (or any combination thereof) fails to re-occupy a portion
of the same (Tenant not being obligated to re-occupy all of the Premises) within
90 days after notice from Landlord (which notice may only be furnished by
Landlord after the expiration of the aforementioned 180 day period), then from
and after the expiration of said 90 day notice period Landlord may terminate
this Lease as to (and only as to) all of the Premises without declaring Tenant
in default under this Lease (and Section 15.01 shall not be applicable thereto),
by delivering written notice to Tenant. Space which is vacated on account of
bona fide remodeling or due to force majeure shall not be deemed unoccupied for
purposes of this Section 17.36.
46
<PAGE> 54
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
LANDLORD: TENANT:
COLINAS CROSSING LP, i2 Technologies, Inc.,
a Delaware limited partnership a Delaware corporation
By: Steven A. Means Interests, Inc., By: /s/ W. M. Beecher
a Texas corporation, Name: W. M. Beecher
a general partner Title: Vice President
By: /s/ Steven A. Means
Name: Steven A. Means
Title: President
47
<PAGE> 1
EXHIBIT 99.7
LEASE
Between
COLINAS CROSSING LP,
a Delaware limited partnership
Landlord,
And
i2 TECHNOLOGIES, INC.,
a Delaware corporation
Tenant
<PAGE> 2
EXHIBITS AND RIDERS
EXHIBIT "A" -FLOOR PLAN
<TABLE>
<S> <C>
-FIRST SPACE
-SECOND SPACE
-THIRD SPACE
EXHIBIT "B-1" -LEGAL DESCRIPTION OF LAND
EXHIBIT "B-2" -SITE PLAN
EXHIBIT "B-3" -ADJACENT LAND
EXHIBIT "C" -BUILDING RULES
EXHIBIT "D-1" -WORK LETTER
EXHIBIT "D-2" -BUILDING SHELL IMPROVEMENTS
EXHIBIT "E" -COMMENCEMENT CERTIFICATE
EXHIBIT "F" -PARKING GARAGE
EXHIBIT "G" -PREMISES CERTIFICATE
EXHIBIT "H" -JANITORIAL SPECIFICATIONS
EXHIBIT "I" -MEMORANDUM OF LEASE
EXHIBIT "J" -LETTER OF CREDIT
EXHIBIT "K" -SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
EXHIBIT "L-1" -BUILDING SIGN PARAMETERS
EXHIBIT "M" -CONTRACTOR/VENDOR RULES AND REGULATIONS
EXHIBIT "N" -DESCRIPTION OF BUILDING PLANS AND SPECIFICATIONS
EXHIBIT "N-1" -DESCRIPTION OF UNRESOLVED ITEMS IN BUILDING PLANS AND
SPECIFICATIONS
RIDER 1 -EXTENSION OPTION
</TABLE>
SCHEDULE 1 -DESCRIPTION OF UPGRADES
<PAGE> 3
LEASE
THIS LEASE ("Lease") is entered into as of the 3rd day of August, 1999
("Effective Date"), by and between COLINAS CROSSING LP, a Delaware limited
partnership ("Landlord"), and i2 TECHNOLOGIES, INC., a Delaware corporation
("Tenant").
W I T N E S S E T H:
ARTICLE 1.
==========
1.01. INTRODUCTORY PROVISIONS AND DEFINITIONS. The Lease provisions and
definitions set forth in this Section 1.01 in summary form are solely to
facilitate convenient reference by the parties. If there is any conflict between
this Section and any other provisions of this Lease, the latter shall control.
(a) Addresses for
notices due under
this Lease (See
Article 17)
Landlord Name Colinas Crossing LP
And Address Eighty Eighty North Central Expressway
Suite 1010
Dallas, Texas 75206
Attn: Steven A. Means
With a copy to: Pacific Realty Associates, L.P.
15350 S. W. Sequoia Parkway
Suite 300
Portland, Oregon 97224
Attn: Legal Department
With an additional copy to: Management Office
11701 Luna Road
Dallas, Texas 75234
Attn: Property Manager
Prior To Commencement Date:
1
<PAGE> 4
Tenant Name and i2 Technologies, Inc.
Address: 909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Bill Beecher and/or
V.P. of Operations
With a copy to: i2 Technologies, Inc.
909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Adrianne Court and/or
Director of Facilities
i2 Technologies, Inc.
909 Las Colinas Blvd., Suite 1600
Irving, Texas 75039
Attn: Legal Department
After Commencement Date:
i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Bill Beecher and/or
V.P. of Operations
With a copy to: i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Adrianne Court and/or
Director of Facilities
i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Legal Department
(b) Building: Two Colinas Crossing
11511 Luna Road
Dallas, Texas 75234
containing approximately 181,708
square feet of total Rentable Area.
"Rentable Area" shall be
2
<PAGE> 5
measured in accordance with 1996 BOMA
National Standards ANSI Z265.
(c) Premises: Subject to the provisions of Section
2.04 below, approximately 181,708
square feet of Rentable Area on floors
1 - 6 of the Building, all of which
floor plans are set forth on Exhibit
"A" attached hereto. The floor plans
attached hereto identify the Rentable
Area and Usable Area of each floor of
the Premises as of the Effective Date.
(d) Parking Subject to the provisions of Section
17.11 and Exhibit "F", as follows:
A total number of spaces equal to 726
spaces.
Uncovered Parking
514 unreserved spaces @ $0.00 per
month each during the Primary Term
hereof (and thirty (30) of such spaces
shall be marked for "i2 Visitor
Parking" only)
Covered Parking in the Parking Garage
212 reserved spaces @ $0.00 per month
each during the Primary Term hereof.
(e) Permitted Uses: The Premises are to be used and
occupied by Tenant (and its permitted
assignees and subtenants) for general
business office purposes and for such
other lawful purposes as are permitted
by applicable zoning laws and that
certain Declaration of Covenants,
Conditions and Restrictions dated
April 6, 1994 and recorded in Volume
94066, Page 06090, Dallas County Deed
Records (the "CCR") and consistent
with uses of office space in
comparable office buildings in the
same geographic area in which the
Building is located ("Geographical
Market"). Without limiting the
foregoing, Tenant may maintain in the
Premises (1) accounting facilities,
(2) conference
3
<PAGE> 6
and/or meeting facilities, (3)
classrooms, (4) libraries, (5) coffee
bars, (6) support staff facilities
(including without limitation, word
processing and copy facilities), (7)
lunchrooms, kitchen facilities,
pantries and cafeterias and/or dining
rooms (including any kitchen and
support thereof) for use by Tenant and
its employees and business invitees,
so long as such facilities are
installed and maintained in accordance
with applicable laws (and if alcoholic
beverages are served therein, Tenant
or the operator thereof, if other than
Tenant, shall carry adequate liquor
liability insurance), (8) storage
space incidental to general business
office purposes, (9) executive
restrooms, including showers and
lockers, (10) audio visual, closed
circuit television, radio, electronic
communication, and computer
facilities, (11) print facilities that
may require special venting, (12)
photo dark room facilities, (13)
health or exercise facilities, (14)
restaurants (and if alcoholic
beverages are served therein, Tenant
or the operator thereof, if other than
Tenant, shall carry adequate liquor
liability insurance), (15) vending
machines and snack bars for the sale
of food, confections, non-alcoholic
beverages, newspapers, convenience
items and other such items to
employees and business invitees of
Tenant, (16) an ATM machine issued by
a bank or other financial institution
selected by Tenant, and (17) day care
facility for exclusive use by Tenant's
employees and their families, which
shall be operated in compliance with
all applicable laws. It is the
intention of Landlord and Tenant that
all of the uses recited in the
preceding sentence be strictly
incidental to Tenant's primary use of
the Premises for business offices and
that the Premises shall not be
subleased to third parties for
separate operations whose primary
purpose is to serve the general public
without Landlord's consent.
(f) Primary Term: Eleven (11) years and zero (0) months
(See Article 3).
4
<PAGE> 7
(g) Commencement Date: See Exhibit "D-1" hereto and Section
3.01.
(h) Expiration Date: See Exhibit "D-1" hereto and Section
3.01, subject to extension pursuant to
Rider 1.
(i) Tenant's Pro Rata Share: The ratio the Rentable Area of the
Premises bears to the Rentable Area of
the Building. As of the Effective
Date, Tenant's Pro Rata Share is 100%.
(j) Base Rent: See Section 4.01
(k) Base Operating Expense: Base Operating Expenses per square
foot of Rentable Area in Building 1
(as established pursuant to Article V
of the Building 1 Lease, as defined in
Article 5) and multiplying such square
foot amount by the number of square
feet of Rentable Area in the Premises.
(See Article 5.)
(l) Security Deposit: Upon the Effective Date a Letter of
credit in an amount equal to
$546,827.51 and within 15 business
days after Landlord delivers the
completed Building Shell Improvements
(excluding Delivery Punch List Items)
to Tenant, Tenant shall either amend
the Letter of Credit to increase it to
$4,270,138.00 (or post a substitute
Letter of Credit in such amount). (See
Section 4.03)
(m) Guarantor: N/A
(n) Tenant's Broker: Trammell Crow Company Brokerage
Services Division D/FW & Baker
Commercial Realty Inc. (such brokers
are represented by Phil Puckett and
Phil Baker, respectively )
(o) Address for Payment Funds to be wired to Landlord in
of Base Rent: Portland, Oregon on a monthly basis
pursuant to wiring instructions to be
furnished by Landlord at least ten
(10) days in advance of (i) the first
payment due date and (ii) any
subsequent payment due date prior to
which such wiring instructions have
changed.
5
<PAGE> 8
(p) Common Area: The "Common Area" is comprised of all
portions of the Project other than the
Premises and the management office.
Landlord shall not make any material
changes to the dimensions, location,
configuration or design of the Common
Area (except as required by law)
without Tenant's prior written consent
which shall not be unreasonably
withheld. Material changes (as used
herein) shall include without
limitation changes which would convert
any portion of the Common Area to
leaseable space or reduce Common Areas
by more than five percent (5%) (and,
notwithstanding anything to the
contrary contained in this Lease,
Tenant's consent to these specific
changes may be withheld by Tenant in
its sole discretion). Tenant and its
assignees and subtenants and their
respective employees, agents,
licensees and concessionaires (the
"Tenant - Related Parties") shall have
the nonexclusive right and license to
use the Common Area as constituted
from time to time, and such use to be
in common with Landlord, other tenants
of the Project, management office
personnel and other persons permitted
by Landlord to use the same, and
subject to such reasonable rules and
regulations governing use as Landlord
may from time to time prescribe
(subject to Tenant's consent, which
consent shall not be unreasonably
withheld). Tenant shall not take any
action which would unreasonably
interfere with the rights of other
persons to use the Common Area without
the prior written consent of Landlord.
Landlord may temporarily close any
part of the Common Area for such
reasonable periods of time as may be
necessary to prevent the public from
obtaining prescriptive rights and to
make repairs or alterations, provided
that Tenant's access to the Premises
shall remain available during any such
period. Landlord shall provide Tenant
with reasonable advance notice of any
such temporary closings and shall
endeavor to schedule such closings
during Holidays (as defined in Section
7.01(a)) and other times outside of
Building Operating Hours (as defined
in Section 7.01(a) hereof).
6
<PAGE> 9
ARTICLE 2.
================
2.01. PREMISES. In consideration of the obligation of Tenant to pay
Rent (defined below) as herein provided and in consideration of the other terms,
covenants and conditions hereof, Landlord hereby does lease, let and demise unto
Tenant, and Tenant hereby does lease and rent from Landlord, upon and subject to
the provisions of this Lease, the 181,708 square feet of Rentable Area (subject
to the provisions of Section 2.04 below) which is hereby stipulated and for all
purposes hereof agreed to be as stated in 1.01(c) above and as reflected on the
floor plan(s) attached hereto as Exhibit "A" and incorporated herein for all
purposes (such space so leased to Tenant is herein called the "Premises")
located in the building known as Two Colinas Crossing (subject to the provisions
of Section 7.06(a) below) ("Building") as set forth in Article 1.01(b) and
situated on the tract of land ("Land") described in Exhibit "B-1" attached
hereto and incorporated herein for all purposes (the Building, the Land, and the
parking garage ["Parking Garage"] and parking area [collectively, "Parking
Facilities"] located on the Land and shown on the site plan attached hereto as
Exhibit "B-2" ["Site Plan"] hereinafter collectively referred to as the
"Project"), TO HAVE AND TO HOLD said Premises for the Term, subject to the
provisions of this Lease. Landlord and Tenant acknowledge and agree that the
Project specifically does not include the land shown on the Site Plan which is
described on Exhibit "B-3" ("Adjacent Land") and the improvements thereon, a
portion of which Adjacent Land is owned by Landlord and a portion of which is
subject to certain agreements between Landlord and Tenant as set forth in this
Lease and in the Development Agreement (defined below). The Land and the
Adjacent Land, and the improvements thereon, comprise the complex commonly
referred to as Colinas Crossing ("Complex").
Subject to the terms of this Lease, Tenant shall be entitled to the
following as appurtenances to the Premises: the right to use (i) the Parking
Facilities and other areas of the Project in accordance with Section 17.11 and
Exhibit "F" to this Lease, (ii) the roof of the Building and/or the Parking
Facilities in accordance with Sections 7.09 and 7.10 hereof, (iii) riser space
in the core of the Building pursuant to Section 7.07 hereof, (iv) for Tenant's
exclusive use, the restrooms on floors leased entirely by Tenant and, for
Tenant's nonexclusive use, the restrooms on floors partly, but not entirely,
leased by Tenant, (v) for Tenant's nonexclusive use (subject to the other
provisions of this Lease), the telephone and electric closets on floors leased
entirely by Tenant, and (vi) in common with Landlord and other tenants or
occupants of the Project, their invitees and guests and others, all lobbies,
driveways, sidewalks and other areas and facilities on the Land, in the Building
and other portions of the Project from time to time intended for the common use
of tenants in the Project, and all rights and benefits appurtenant to, or
necessary or incidental to, the use and enjoyment of the Premises by Tenant for
the purposes set forth in Section 1.01(e) above, including, but not limited to,
the right of Tenant, its employees and invitees, in common with Landlord and
other persons, to the benefits of any reciprocal
7
<PAGE> 10
easements and/or use agreements burdening and/or benefiting the Project
(including without limitation, the CCR) to the extent necessary or incidental to
the use and enjoyment of the Premises for the purposes permitted by Section
1.01(e), including without limitation, the right to use the "Common Facilities"
(defined in the CCR) pursuant to the terms of the CCR.
2.02. IMPROVEMENTS BY LANDLORD. Landlord shall be obligated to
construct and pay for the development and construction of the Building Shell
Improvements in accordance with the Development Agreement (as defined below). As
a result thereof, Landlord and Tenant agree that their respective obligations
with respect to the design and construction of the Building Shell Improvements
and the remedies of Landlord and Tenant with respect thereto are as set forth in
the Agreement and are fully binding on Landlord and Tenant as if fully set forth
herein. Construction of the Tenant Improvements (defined in Exhibit "D-1") for
the Premises will be accomplished and the cost of such construction will be paid
in accordance with Exhibit "D-1" attached hereto and made a part hereof.
2.03. CONDITION OF PREMISES. Except as provided in this Lease
(including without limitation, Section 2.02 and Exhibits "D-1", and "D-2" of
this Lease), Tenant acknowledges that Landlord has not undertaken to perform any
modification, alteration, or improvement to the Premises. Landlord represents
and warrants to Tenant that (i) upon completion of the Building Shell
Improvements all Building and Project systems will be new and in good working
order, (ii) the Project will be constructed in accordance with all applicable
laws, regulations, ordinances and codes, and (iii) Landlord is the fee owner of
the Land and the Land is not subject to any ground leases, mortgages, deeds of
trust or other security instruments. Landlord has not made any representations
or warranties with respect to the Project or the Premises except for those set
forth in this Lease. As used herein, "Delivery Punch List Items" shall mean
incomplete work items following substantial completion of the Building Shell
Improvements which do not interfere with Tenant's construction of the Tenant
Improvements (as more particularly described in Paragraph 4 of Exhibit "D-2").
As used herein, "Rental Commencement Punch List Items" shall mean incomplete
work items following substantial completion of the Building Shell Improvements
which do not interfere with Tenant's business operations (as more particularly
described in Paragraph 4 of Exhibit "D-2").
2.04. PREMISES CERTIFICATE. Exhibit "A" sets forth the square footage
of Rentable Area of each floor or portion thereof comprising the Premises. Prior
to the Commencement Date, Landlord shall execute and deliver to Tenant an
Exhibit "G" attached hereto, which shall contain Landlord's calculation of the
exact number of square feet of Rentable Area within each floor of the Premises
as of such date, including a breakdown of Landlord's calculations with regard to
Common Areas and the Rentable Area of the Building. Tenant shall have the right
to object to Exhibit "G" by delivering notice to Landlord within thirty (30)
days after Landlord delivers Exhibit "G" to Tenant, failing which Tenant shall
be deemed to have agreed that the information contained in Exhibit "G" is
correct and Tenant shall be required to execute Exhibit "G" within five (5) days
after the expiration of such 30-day period. If Tenant objects to Exhibit "G"
within said thirty (30) day period, Landlord and Tenant shall work together
8
<PAGE> 11
to resolve their differences, failing which the disputes shall be submitted to
arbitration under Section 17.29. After such differences have been resolved
between Landlord and Tenant or by arbitration, Landlord and Tenant shall execute
the corrected Exhibit "G". Tenant shall have the right during such thirty (30)
day period to have Tenant's architect make field measurements of the Project,
Premises, and common areas provided Tenant furnishes Landlord with one (1)
Business Day prior notice of the date such measurements are to be made. Upon the
execution of Exhibit "G" by Landlord and Tenant for all floors of the Premises
and the Project, the Rentable Area of all floors in the Premises and the Project
as shown on the executed Exhibit "G" shall replace the Rentable Area of the
Premises and the Project as shown in Exhibit "A" and in Section 1.01(c) of this
Lease and shall be deemed to be the Rentable Area of the Premises and the
Project as of such date for all purposes under this Lease.
ARTICLE 3
==============
3.01. TERM. The initial term of this Lease shall be for a term of
eleven (11) years ("Primary Term") commencing on the Commencement Date (defined
in Exhibit "D-1") for the Premises and continuing as to all of the Premises
until the day immediately preceding the eleventh (11th) anniversary of the
Commencement Date (defined in Exhibit "D-1"); provided, however, if the Primary
Term commences on a date other than the first day of a calendar month, Landlord
and Tenant shall be deemed to have agreed that the Primary Term shall be
extended through the last day of the calendar month in which the expiration date
falls. The Primary Term of this Lease may be renewed and extended pursuant to
Rider 1 to this Lease (the Primary Term and, to the extent renewed and extended,
any such renewal terms are hereinafter called the "Term").
3.02. COMMENCEMENT CERTIFICATE. Within five (5) days after the
Commencement Date, Landlord shall submit to Tenant a certificate in the form
attached hereto as Exhibit "E" to confirm the occurrence of the Commencement
Date for the Premises. Tenant shall have the right to object to Exhibit "E"
within thirty (30) days after Landlord delivers Exhibit "E" to Tenant, failing
which Tenant shall be deemed to have agreed that all information contained in
Exhibit "E" is correct. If Tenant objects to Exhibit "E" within said thirty (30)
day period, Landlord and Tenant shall work together to resolve their
differences, failing which the dispute may be submitted to arbitration pursuant
to Section 17.29. Immediately upon resolution of such differences, Landlord and
Tenant shall execute and deliver the corrected Exhibit "E".
9
<PAGE> 12
ARTICLE 4.
===============
4.01. BASE RENT.
(a) Subject to the provisions of subsection (b) below, Tenant, in
consideration for this Lease and the leasing of the Premises for the Term,
agrees to pay to Landlord commencing on the Commencement Date of the Premises,
base rental ("Base Rent") equal to the product of the (i) annual rate ("Base
Rental Rate") set forth below for the applicable Lease Year, multiplied by (ii)
the square feet of Rentable Area comprising the Premises.
<TABLE>
<CAPTION>
Lease Years Base Rental Rate
----------- ----------------
<S> <C>
1 - 5 $23.50
6 - expiration of the
Primary Term $25.00
</TABLE>
As used herein, "Lease Year" shall mean a period of one (1) year;
provided, however, the first (1st) Lease Year for the Premises shall commence on
the Commencement Date and end on the date next preceding the first anniversary
thereof; and provided further, Lease Year 2 as to the Premises shall commence
upon the expiration of Lease Year 1 with respect to such space and all
subsequent Lease Years shall commence upon the expiration of the prior Lease
Year with respect to such space.
(b) Notwithstanding the foregoing, if Tenant exercises the Building 3
Option (defined in that certain Development Agreement dated as of March 24, 1999
between Colinas Crossing LP and Tenant, as amended by that certain First
Amendment to Development Agreement dated of even date herewith (collectively,
the "Development Agreement"), the Base Rental Rate for all of the Premises shall
be automatically reduced in this Lease for the period commencing at the
beginning of the sixth (6th) Lease Year and continuing through the remainder of
the Primary Term by 25/100 Dollars ($0.25) per square foot of Rentable Area.
4.02. PAYMENT OF RENT. As used in this Lease, "Rent" shall mean the
Base Rent, the Operating Expense reimbursements pursuant to Section 5.01,
Tenant's Electricity Charge pursuant to Section 5.02B, and all other monetary
obligations provided for in this Lease to be paid by Tenant, all of which shall
constitute rental in consideration for this Lease and the leasing of the
Premises. Tenant shall send Base Rent and other sums due hereunder in legal
tender of the United States of America to Landlord. Base Rent shall be sent by
wire transfer pursuant to the instructions set forth in Section 1.01(o) or to
such other person or at such other address or pursuant to such different wiring
instructions as Landlord may from time to time designate at least ten (10) days
in advance in writing. Rent other than Base Rent shall be paid in a manner
mutually agreeable to Landlord and Tenant. Landlord and Tenant may from time to
time mutually agree to an alternative manner of payment of any portion of Rent.
The Rent shall be paid without notice, demand, abatement, deduction, or offset
except as may be expressly set forth in this Lease. Upon execution of this
Lease, Tenant shall pay to Landlord an amount equal to $355,844.83, which
10
<PAGE> 13
shall be applied to the first month's Base Rent due hereunder on the first
Rental Commencement Date.
Tenant shall pay to Landlord a late charge equal to five percent (5%) of
the amount of Rent due for all Rent which is not paid on or before the fifth
(5th) day following the date such amount is due. Any payments made by Tenant to
Landlord hereunder shall not be deemed a waiver by Landlord of any rights
against the Tenant. The collection of such late charge by Landlord shall be in
addition to and cumulative of any and all other remedies available to such
party.
It is the intention of Landlord and Tenant to conform to all applicable
laws concerning the contracting for, charging and receiving of interest. In the
event that any payments of interest required under this Lease are ever found to
exceed any applicable limits, the charging party shall credit the amount of any
such excess paid by the other party against any amount owing under this Lease or
if all amounts owning under this Lease have been paid, the charging party shall
refund to the other party the amount of such excess. Landlord and Tenant agree
that Landlord shall not be subject to any applicable penalties in connection
with any such excess interest, it being agreed that any such excess interest
contracted for, charged or received pursuant to this Lease shall be deemed a
result of a bona fide error and a mistake. The obligation of Tenant to pay Rent
is an independent covenant, and no act or circumstance, whether constituting a
breach of covenant by Landlord or not, shall release or modify Tenant's
obligation to pay Rent except as otherwise provided in this Lease.
4.03. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
furnish, and (except as otherwise provided in this Section 4.03) maintain in
effect at all times during the Term hereof, an irrevocable standby letter of
credit in the initial amount of $546,827.51 as security for the timely
performance of Tenant's obligations hereunder, in substantially the form set
forth on Exhibit "J" hereto (the "Letter of Credit"). Within 15 business days
after Landlord delivers the completed Building Shell Improvements (excluding
Delivery Punch List Items) to Tenant, Tenant shall either amend the Letter of
Credit to increase it to an aggregate amount of $4,270,138.00 (or post a
substitute Letter of Credit for such amount, in which event Landlord will return
the original Letter of Credit to Tenant within 15 days of receipt of the
substitute Letter of Credit)]. Landlord may draw upon the Letter of Credit in
part upon any Default by Tenant (which continues beyond the notice and cure
periods) to the extent necessary to cover the sums in (i) and (ii) below. In the
event that Landlord draws on such letter of credit following a Default by
Tenant, Landlord shall apply the proceeds thereof to the extent required (i) to
the cost of curing such Default then existing and incurred, and (ii) if this
Lease or Tenant's right to possession of the Premises is terminated as the
result of such Default, to any and all other damages to which Landlord may be
entitled under this Lease. Tenant shall restore the Letter of Credit to the
amount existing prior to such partial draft within ten (10) business days
following Tenant's receipt of notice from Landlord of such partial draft,
failing which Landlord may draw the entire remaining amount available under such
Letter of Credit provided Landlord complies with the provisions below.
Additionally, in the event that the issuing bank notifies Landlord that it will
not renew the Letter of Credit, then Tenant shall have the right to substitute a
Letter of Credit from another financial institution
11
<PAGE> 14
reasonably acceptable to Landlord prior to the expiration date, failing which
Landlord shall have the right to draw the balance then existing under the Letter
of Credit. Additionally, Tenant may at any time replace the Letter of Credit
with a Letter of Credit from another financial institution reasonably acceptable
to Landlord.
Any amount so drawn by Landlord and not applied by Landlord as provided
in (i) and (ii) of the preceding paragraph shall be held as an interest bearing
security deposit for the timely performance of Tenant's obligations hereunder
("Security Account"). Such amount shall be held by Landlord in trust and in a
separate bank account which shall not be commingled with Landlord's other funds.
Such amount shall not constitute an advance payment of rent. Interest earned
thereon shall be for Tenant's benefit and Landlord shall arrange for interest
thereon to be paid to Tenant as requested by Tenant, except to the extent used
to replenish partial drafts. Payment of amounts due under this Lease from the
proceeds of a draw under the Letter of Credit will not relieve Tenant of the
obligation to pay such amount or prevent Tenant's failure to make such payment
from constituting a Default by Tenant, except to the extent Tenant restores the
Letter of Credit to the amount existing prior to Landlord's partial draft
thereon (in which event the sums held in the Security Account shall be returned
to Tenant within fifteen (15) days thereof). Landlord may assign its interest in
the Letter of Credit only in connection with an assignment of this Lease, it
being understood and agreed that Landlord may make an absolute or collateral
assignment of the Letter of Credit in connection with a financing or refinancing
of the Project. Within fifteen (15) days after the expiration or earlier
termination of this Lease the Letter of Credit or sums in the Security Account
(as applicable) shall be returned to Tenant.
The amount of the Letter of Credit required shall be reduced (the
"Pro-Rata Reduction") as of each anniversary of the Commencement Date by an
amount equal to one-eleventh (1/11) of the full initial amount thereof;
provided, however, that each such reduction shall be conditioned upon Tenant's
net worth or shareholders' equity (as applicable) upon each anniversary of the
Commencement Date being not less than Two Hundred Thirty-Five Million Dollars
($235,000,000), as reflected on the most recent Form 10K or Form 10Q filed
pursuant to applicable securities laws.
In addition to the foregoing, the amount of the Letter of Credit
required shall also be reduced (a "Net Worth Reduction") to: (a) seventy-five
percent (75%) of the then-existing amount thereof at such time as Tenant's net
worth or shareholders' equity (as applicable) equals or exceeds Three Hundred
Fifty Million Dollars ($350,000,000); (b) fifty percent (50%) of the
then-existing amount thereof at such time as Tenant's net worth equals or
exceeds Four Hundred Million Dollars ($400,000,000); and (c) twenty-five percent
(25%) of the then-existing amount thereof at such time as Tenant's net worth or
shareholders' equity (as applicable) equals or exceeds Four Hundred Fifty
Million Dollars ($450,000,000). Additionally, Tenant's obligation to maintain
the Letter of Credit shall terminate at such time as Tenant's net worth or
shareholders' equity (as applicable) equals or exceeds Five Hundred Million
Dollars ($500,000,000), in which event Landlord shall return the Letter of
Credit to Tenant within fifteen (15) days of Tenant's request. As used in this
paragraph, Tenant's net worth or shareholders' equity (as applicable)
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shall be the net worth or shareholders' equity (as applicable) reflected in the
Form 10K or Form 10Q required to be filed by applicable securities laws
immediately preceding such reduction or termination, as the case may be.
It is understood and agreed that the Pro-Rata Reduction shall
not be applicable if upon any anniversary of the Commencement Date the amount of
the Letter of Credit has been reduced to an amount less than what the Pro-Rata
Reduction would effect, by virtue of Tenant's previously having qualified for a
Net Worth Reduction.
It is also understood and agreed that if Landlord holds sums in the
Security Account, the Pro Rata Reduction and the Net Worth Reduction shall also
apply to the Security Account, and Landlord shall pay to Tenant the amounts
which are so reduced within fifteen (15) days of the occurrence of the Pro Rata
Reduction or the Net Worth Reduction (as applicable). Further, in no event shall
the Letter of Credit or Security Account be increased for any reason once either
has been reduced as the result of a Pro Rata Reduction or a Net Worth Reduction.
Notwithstanding anything to the contrary contained herein, in
determining Tenant's shareholders' equity for purposes of this Section 4.03, (i)
non-cash charges to Tenant's income statement or balance sheet from mergers
and/or acquisitions shall be added back to Tenant's shareholders' equity for
purposes hereof, and (ii) any reduction to shareholders' equity as a result of
Tenant entering into a merger and/or acquisition accounted for as a pooling of
interests shall be added back to Tenant's shareholders' equity for purposes
hereof.
Upon the occurrence of a Pro Rata Reduction or a Net Worth Reduction,
Tenant shall be permitted to provide Landlord with either (i) a substitute
Letter of Credit for the reduced amount, in which event Landlord shall return
the existing Letter of Credit to Tenant within fifteen (15) days of receipt of
the new Letter of Credit, or (ii) an amendment to the Letter of Credit, in which
event Landlord will sign the amendment and return it to Tenant within fifteen
(15) days of receipt of the amendment.
ARTICLE 5.
============
5.01. OPERATING EXPENSE REIMBURSEMENT. The Base Rent payable under
Section 4.01 of this Lease includes an annual allocation for operating expenses
equal to the Base Operating Expense (defined below) per square foot of Rentable
Area of the Premises. As used herein, "Base Operating Expense" shall mean the
Base Operating Expenses per square foot of Rentable Area in Building 1 (as
established pursuant to Article V of the Building 1 Lease times the number of
square feet of Rentable Area (181,708) in the Premises. In the event that
Operating Expenses (defined in Section 5.02A hereof) of the Project during any
calendar year of the Term shall exceed the Base Operating Expense, Tenant shall
pay to Landlord Tenant's Pro Rata Share of the increase in such Operating
Expenses over the Base Operating Expense in
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accordance with the procedures below ("Additional Rent"). As used herein,
"Building 1" means that building known as i2 Place with an address of 11701 Luna
Road, Dallas, Texas 75234. As used herein, "Building 1 Lease" means that certain
Lease by and between Colinas Crossing LP and Tenant dated March 24, 1999, with
respect to Building 1.
On or before ninety (90) days prior to the Commencement Date (for the
remaining portion of the calendar year in which the Commencement Date occurred),
and on or before the first day of each calendar year thereafter during the Term,
Landlord shall provide to Tenant the Estimated Operating Expense Increase
(defined below) for the upcoming year. In addition to the Base Rent, Tenant
shall pay in advance on the first day of each calendar month during the Term,
installments equal to 1/12th of Tenant's Pro Rata Share of the Estimated
Operating Expense Increase, if any.
Within one hundred twenty (120) days after the end of each calendar
year during the Term, Landlord shall furnish to Tenant a written detailed
statement, certified by Landlord's group controller or other Project officer
knowledgeable of the facts that the statement has been prepared in accordance
with this Lease, of the Actual Operating Expense Increase (hereinafter defined)
for the immediately preceding calendar year, which statement shall itemize each
category of Operating Expenses and set forth Landlord's calculations of Tenant's
Pro Rata Share of the Actual Operating Expense Increase. If Tenant's Pro Rata
Share of the Estimated Operating Expense Increase paid to Landlord during the
previous calendar year exceeds Tenant's Pro Rata Share of the Actual Operating
Expense Increase, then Landlord shall refund the difference to Tenant at the
time Landlord furnishes the statement of the Actual Operating Expense Increase.
If Tenant's Pro Rata Share of Estimated Operating Expense Increase paid to
Landlord during the previous calendar year is less than Tenant's Pro Rata Share
of the Actual Operating Expense Increase, then Tenant shall pay to Landlord the
amount of such underpayment. Unless Tenant takes written exception to any item
within one hundred twenty (120) days after the furnishing of such annual
statement to Tenant, such statement shall be considered final and accepted by
Tenant (unless an error in Landlord's statement is discovered with respect to
any particular line item of Operating Expenses, in which event Tenant shall have
the additional audit rights described below). Any amount due Landlord as shown
on any such statement shall be paid by Tenant within thirty (30) days after it
is furnished to Tenant subject to Tenant's audit right provided below.
Tenant shall have the right to perform an annual audit at Tenant's
expense on Landlord's books and records to the extent necessary to verify
Landlord's calculation of the Base Operating Expense and/or the Actual Operating
Expense Increase for the prior calendar year, provided that such audit shall be
conducted by its internal audit group or a Certified Public Accountant and
further provided that the auditor's report reflecting the results of such audit
shall be promptly delivered to Landlord. Any such audit shall be conducted, if
at all, (i) within one hundred eighty (180) days after the receipt of the annual
statement of the Base Operating Expense or the Actual Operating Expense Increase
(as applicable) from Landlord (unless an error in Landlord's statement is
discovered with respect to any particular line item of Operating Expenses, in
which event Tenant or such certified public accounting firm (on Tenant's behalf)
shall be allowed to examine Landlord's books and records for the two (2) years
preceding the most recently
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completed calendar year statements, but only with respect to the line item(s)
which is/are found to be in error), (ii) during Landlord's normal business
hours, (iii) at the place in Dallas, Texas where Landlord maintains its records
(or such other place in Dallas, Texas as Landlord shall deliver the appropriate
records) and (iv) only after Landlord has received thirty (30) days prior
written notice. Landlord agrees to cooperate in good faith with Tenant in the
conduct of any such audit. If the audit report reflects an overcharge in the
Actual Operating Expense Increase of more than two percent (2%) of the total
Actual Operating Expense, then Landlord shall reimburse Tenant for all
reasonable costs incurred by Tenant due to such audit plus interest on such
overpayment at the Default Interest Rate. Interest on all overpayments or
underpayments discovered by such audit shall be calculated as follows: (i)
one-twelfth (1/12th) of the overpayment or underpayment shall be deemed to have
been paid on the first day of each calendar month in the calendar year to which
such overpayment or underpayment relates, and (ii) each such deemed payment
shall bear interest at the Default Interest Rate, from the date deemed paid
until the overpayment or underpayment is paid to Tenant or Landlord, as the case
may be. If the audit report reflects that the Actual Operating Expense Increase
was overstated or understated in the audited calendar year, Tenant shall, within
twenty (20) days after receipt of such report, pay to Landlord the amount of any
underpayment or, if applicable, Landlord shall pay to Tenant the amount of any
overpayment. Any disputes may be resolved by arbitration pursuant to Section
17.29.
The "Estimated Operating Expense Increase" shall equal Landlord's good
faith and reasonable estimate of Operating Expenses for the applicable calendar
year, less the Base Operating Expense. Landlord's statement of the Estimated
Operating Expense Increase shall control for the year specified in such
statement and for each succeeding year during the Term until Landlord provides a
new statement of the Estimated Operating Expense Increase. The "Actual Operating
Expense Increase" shall equal the actual Operating Expenses for the applicable
calendar year, less the Base Operating Expense. If Operating Expenses change
during a calendar year or if the number of square feet of Rentable Area in the
Premises changes, Landlord may revise the estimated Additional Rent two (2)
times during such year by giving Tenant written notice to that effect and
thereafter Tenant shall pay to Landlord, in each of the remaining months of such
year, an amount commensurate with the change in the estimated Additional Rent
divided by the number of months remaining in such year.
5.02A. OPERATING EXPENSES. The term "Operating Expenses" shall mean and
include all those reasonable amounts, expenses, and costs of whatsoever nature
(other than electricity for the Project) that Landlord incurs, pays or becomes
obligated to pay because of or in connection with the ownership, operation,
management, repair, or maintenance of the Project. Operating Expenses shall be
determined on an accrual basis in accordance with generally accepted accounting
principles consistently applied and shall include, without limitation, the
following:
(a) Wages, salaries, fees, related taxes, insurance, benefits, and
reimbursable expenses of all personnel engaged in operating, repairing, and
maintaining the Project and providing traffic control about the Project;
provided, however, that (i) if during the Term such personnel are also working
on other projects being operated by Landlord, their wages, salaries, fees and
related
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expenses shall be allocated by Landlord in good faith among all of such projects
and only that portion of such expenses allocable to the Project shall be
included as an "Operating Expense," and (ii) such wages, salaries, fees, taxes,
insurance, benefits and expenses for personnel senior to the most senior
property manager responsible for the day-to-day operation of the Project and
executives of Landlord or Landlord's affiliates shall be excluded.
(b) Cost of all labor, supplies, tools, equipment and materials used in
operating, repairing, and maintaining the Project (excluding costs paid by
proceeds of condemnation or insurance).
(c) The actual cost of all utilities (except for electricity for the
Project) for the Project, including, without limitation, water, sewer charges,
gas and fuel oil, less any rebates, credits or reductions paid to Landlord by
the provider of any such utilities (and in no event may Landlord charge any
mark-up on such utilities).
(d) Cost of all maintenance (including specifically, without
limitation, roof maintenance and maintenance of the Building systems), security
(to the extent performed by Landlord rather than Tenant), window cleaning,
elevator maintenance, landscaping, repair, janitorial, and other similar service
agreements for the Project and the equipment and other personal property of
Landlord therein and thereon used in connection with the operation, management,
repair or maintenance of the Project.
(e) Cost of all insurance relating to the Project and its occupancy or
operations, including but not limited to (i) the cost of casualty and liability
insurance applicable to the Project or Landlord's personal property used in
connection with the operation of the Project, (ii) the cost of business
interruption insurance in such amounts as will reimburse Landlord for all losses
of earnings and other income attributable to the ownership and operation of the
Project for one (1) year, and (iii) the cost of insurance against such perils
and occurrences as are commonly insured against by prudent landlords
(specifically including, without limitation, floods and earthquakes).
(f) Costs of repairs to and maintenance of the Project undertaken by
Landlord, excluding any such costs as are paid by the proceeds of insurance or
condemnation proceeds, by Tenant, or by other third parties, and excluding any
alterations of space occupied by other tenants of the Building.
(g) A management fee for management services rendered in connection
with the Project, which fee shall not exceed three percent (3%) of the gross
revenues received by Landlord with respect to the Project for any calendar year
(provided, however, the management fee percentage so included in Operating
Expenses cannot be more than the percentage included in Base Operating Expense
in the Building 1 Lease during the Primary Term and any Extension Term after the
Base Year). The management fee percentage for each Extension Option shall not
exceed three percent (3%) of the gross revenues received by Landlord with
respect to the Project for the Base Year used for such Extension Term.
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(h) Amortization of (a) Required Capital Improvements, and (b) Cost
Savings Improvements to the extent of the actual savings, plus reasonable
financing costs (at an annual rate equal to the lesser of (A) one percent (1%)
over the Prime Rate, or (B) the maximum lawful rate). "Required Capital
Improvements" shall mean capital improvements or replacements made in or to the
Project in order to conform to any applicable laws or amendment thereto (to the
extent of such amendment only) which becomes effective after the Commencement
Date (including any amendments to ADA or TAS [to the extent of such amendments
only] which become effective after the Commencement Date. "Cost Savings
Improvements" shall mean any capital improvements or replacements which reduce
Operating Expenses. The cost of Cost Savings Improvements and Required Capital
Improvements will be amortized by spreading such costs on a straight line basis
over its useful life using generally accepted accounting principles.
(i) Landlord's central accounting costs, legal fees, and other such
third party fees relating to the operation of the Project (but excluding
accounting and legal services in connection with negotiations and disputes with
specific tenants).
(j) Rent for the property manager's office, if any, in the Building
(not exceeding fair market rents for comparable space in the Geographical Market
and not to exceed 1,000 square feet of Rentable Area) but excluding the rent for
a pro rata portion of such office to the extent such office is not used solely
for the management of the Project (e.g., if a portion of such office is used for
leasing activities or development activities or for management of buildings
other than the Project, a pro rata portion of such rent shall not be included
based upon the percentage of activities conducted in the office other than
management of the Project).
(k) The Project's share of quarterly assessments for maintaining the
"Common Facilities" (as defined in the CCR) authorized by Section 4.03 of the
CCR ("Quarterly Assessments"), as such share is determined under the CCR.
(l) The Project's share (as determined pursuant to the CCR) of all
special assessments authorized by Section 4.04 of the CCR ("Special
Assessments") if the aggregate of the Project's share of Special Assessments in
any calendar year are less than thirty percent (30%) of the actual Project's
share of Quarterly Assessments included in Operating Expenses the previous
calendar year pursuant to clause (k) above ("Thirty Percent Level"). If the
aggregate of the Project's share of Special Assessments in any calendar year
equals or exceeds the Thirty Percent Level, then the aggregate amount of the
Special Assessments in such calendar year shall be amortized to spread such
costs on a straight line basis at the rate of 10% per annum over the useful life
of the improvements comprising the Special Assessment and included in Operating
Expenses on such basis (in lieu of 100% of such Special Assessments being
included in the year of the Special Assessment).
(m) Costs incurred by Landlord in maintaining the Common Areas.
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(n) All reasonable costs incurred by Landlord in connection with
Landlord's protests of real estate taxes assessed upon the Project, including,
without limitation, appraisal costs, tax consultant charges and reasonable
attorney's fees.
Nothing contained in this Section 5.02 shall be construed as requiring
Landlord to provide any services which are not specifically set forth in this
Lease as obligations of Landlord.
Notwithstanding anything herein to the contrary, and in addition to the
exclusions and limitations on Operating Expenses set forth above, the following
items shall be excluded from Operating Expenses:
(1) Costs incurred in connection with the initial construction
of the Project;
(2) Except to the extent provided specifically in subsection
(h) above as to the Project only (and not any premises of
tenants), costs of alterations or improvements of the Project,
the Premises, and the premises of tenants in other areas of
the Building, including any alterations and improvements
necessary for any of such premises to comply with the ADA (as
defined in Section 17.07) or Texas Accessibility Statute
(TAS);
(3) Interest, principal payments, and other costs of any
indebtedness encumbering the Building or the Project;
(4) Costs of correcting latent defects of the construction of
the Project, the improvements within the Premises, or the
premises of other Building tenants.
(5) Depreciation and any other non-cash expense items;.
(6) Legal fees, space planner's fee, architectural fees, real
estate commissions, and marketing and advertising expenses
incurred in connection with leasing and construction of the
Project or any improvements on the Land;
(7) Costs of repairs, restoration, replacements or other work
that are otherwise includable as Operating Expenses but are
occasioned by (1) fire, windstorm or other casualty of an
insurable nature (whether such destruction be total or
partial) and (aa) payable by insurance required to be carried
by Landlord under this Lease (whether or not such insurance is
actually carried), or (bb) otherwise paid by insurance then in
effect obtained by Landlord, (2) the exercise by a
governmental authority of the right of eminent domain, whether
such taking be total or partial, or (3) the act of any other
tenant in the Project, or any other tenant's agents,
employees, licensees or invitees;
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(8) Any bad debt losses, rent losses or losses or reserves for
bad debt or rent losses;
(9) Costs associated with the operation of the business of the
legal entity which constitutes Landlord as the same is
distinguished from the cost and operation of the Building,
including legal entity information, internal entity accounting
and legal matters;
(10) Costs of defending any lawsuits with mortgagees or
potential Building purchasers (except as the actions of Tenant
may be an issue) now or in the future;
(11) Costs of selling, syndicating, financing, mortgaging, or
hypothecating any of the Landlord's interest in the Project or
the other improvements located on the Land;
(12) Costs of disputes between Landlord and any third party
not relating to the operation of the Building or Project;
(13) The wages of employees who do not directly devote the
majority of their time to the Building; provided, however, the
reasonable costs associated with such employees who do not
devote the majority of their time to the Building may be
reasonably prorated for such an amount shall be included as an
Operating Expense to the extent that such employees devote
their time to the Building and are not (i) senior to the most
senior property manager responsible for the day-to-day
operation of the Project, or (ii) executives of Landlord or
Landlord's affiliates;
(14) Unless otherwise permitted for the reduction of Operating
Expenses in subsection (i) above, the cost of replacement of
HVAC, mechanical, security, electrical, plumbing systems,
replacement of the foundations, floors, walls, roofs, and
structural elements of the Building outside the scope of
routine maintenance and repair;
(15) Expenses directly relating to the gross negligence of the
Landlord or its employees or agents or the cost of any claim
that Landlord was required to have insured against pursuant to
the terms of this Lease;
(16) All amounts that would otherwise be included in Operating
Expenses which are paid to Landlord, any affiliate of
Landlord, the property management company for the Project or
any affiliate of the property management company to the extent
the costs of such services exceed the competitive rates in the
Geographical Market for such services (it being agreed that
the specific amounts set forth in this Lease which are paid to
such persons and/or entities are competitive rates in the
Geographical Market);
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(17) The cost of utility installation and tap-in charges;
(18) leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in connection with
leasing, renovating or improving space for tenants or
prospective tenants of the Project;
(19) allowances, concessions and other costs (including
permit, license and inspection fees) incurred in renovating or
otherwise improving or decorating, painting or redecorating
space for tenants or vacant space;
(20) Landlord's costs of any services sold to tenants for
which Landlord is entitled to be reimbursed by such tenants as
an additional charge or rental over and above the basic rental
and operating expenses payable under the lease with such
tenant or other occupant;
(21) Costs incurred due to violation by Landlord or its agents
or employees of any of the terms and conditions of this Lease
or any other lease relating to the Project;
(22) Attorneys' fees, costs, disbursements and other expenses
incurred in connection with, or similar costs incurred in
connection with disputes with tenants, other occupants, or
prospective tenants, or similar costs and expenses incurred in
connection with negotiations or disputes with consultants,
management agents, purchasers or mortgagees of the Project
(however, such costs and expenses related to negotiations or
disputes with consultants related to the management and/or
operation of the Building shall be included within Operating
Expenses);
(23) Costs incurred (less costs of recovery) for any items to
the extent covered by a manufacturer's, materialman's,
vendor's or contractor's warranty (a "Warranty") which are
paid by such manufacturer, materialman, vendor or contractor
(Landlord shall pursue a breach of warranty claim for items
covered by a Warranty unless Landlord determines in good faith
that such action would not be in the best interest of the
tenants of the Project);
(24) Rental payments made under any ground or underlying lease
or leases, except to the extent that a portion of such rental
payments is expressly for ad valorem/real estate taxes or
insurance premiums on the Project;
(25) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling or change of ownership of the
Project, including brokerage commissions, attorneys' and
accountants' fees, closing costs, title insurance premiums,
transfer taxes and interest charges;
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(26) Costs, fines, interest, penalties, legal fees or costs of
litigation incurred due to the late payments of taxes, utility
bills and other costs incurred by Landlord's failure to make
such payments when due;
(27) Costs which are to be capitalized in accordance with
generally accepted accounting principles not included under
subsection (h) above;
(28) Costs and expenses of all electricity for the Project and
the costs and expenses of all other utilities directly metered
to tenants of the Project and payable separately by such
tenants and costs of additional electrical equipment installed
in premises of other tenants of the Project, and the costs of
heating, ventilating and air-conditioning services provided to
other tenants of the Project during hours other than Building
Operating Hours (defined below), whether or not such costs are
payable by such other tenants;
(29) Advertising, marketing, or promotional costs associated
with the Project;
(30) Costs or expenses relating to another tenant's or
occupant's space that were (i) incurred in rendering any
service or benefit to such tenant that Landlord was not
required, or were for a service in excess of the service that
Landlord was required, to provide Tenant hereunder, or (ii)
otherwise in excess of the Building Standard Services (defined
in Section 7.01 below) then being provided by Landlord to all
tenants of the Project on a uniform basis, whether or not such
other tenant is actually charged therefor by Landlord;
(31) Costs incurred to correct violations by Landlord of any
laws or amendment thereto in effect prior to the Commencement
Date;
(32) The costs of acquiring, insuring (to the extent only that
such items must be separately scheduled), or maintaining
(including any special cleaning or security, but only to the
extent such maintenance or security is in excess of Building
Standard Services) art work located in the Project (whether
permanently or temporarily);
(33) Costs incurred by Landlord to monitor, encapsulate or
remove any asbestos, polychlorinated biphenyls or other
Environmental Pollutants (unless same are caused by the
Tenant-Related Parties, or any other party in contractual
privity with any of them);
(34) The cost of installing, operating and maintaining any
specialty service such as an observatory, broadcast
facilities, luncheon club, athletic or recreational club,
restaurant, delicatessen, hair salon or other retail use;
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(35) The cost of any work or service performed for the benefit
of any improvements other than those comprising the Project;
(36) Any lease payments for rented equipment, the cost of
which equipment (1) would constitute a capital expenditure
under clause 27 above if the equipment were purchased, and (2)
would not qualify for inclusion under subsection (i) above;
(37) Increased insurance premiums to the extent caused by
Landlord's or any other tenant's hazardous acts;
(38) Charitable or political contributions; and
(39) All taxes, assessments, and governmental charges and fees
of whatsoever nature, whether now existing or subsequently
created, attributable to the Project or its occupancy or
operation, including, without limitation, (1) taxes and
assessments attributable to the personal property of other
tenants, (2) federal and state taxes on income, (3) death
taxes, (4) any taxes imposed in connection with any change in
ownership of the Building, (5) franchise taxes, and (6) any
taxes imposed or measured on or by the income of Landlord from
the operation of the Project, and including all such taxes
whether assessed to or paid by Landlord or third parties.
5.02B. TENANT'S ELECTRICITY CHARGE. Tenant covenants and agrees to pay
to Landlord as additional Rent without any setoff or deduction whatsoever except
as set forth in this Lease, Tenant's Pro Rata Share as set forth in Section
1.01(i) of all electricity consumed from and after the Commencement Date in the
use, occupancy, and operation of the Project (hereinafter called "Tenant's
Electricity Charge"). The cost of electricity consumed from the Effective Date
through the Commencement Date shall be paid in accordance with Exhibit "D-1".
Landlord shall provide a monthly written itemized bill to Tenant for Tenant's
Electricity Charge throughout the Term and Tenant shall pay same within thirty
(30) days after receipt of each such bill. Landlord shall bill Tenant for
Tenant's Electricity Charge for the last month or portion thereof of the Term of
this Lease as soon as practicable after the termination of this Lease and Tenant
shall pay same within thirty (30) days after receipt of such bill; the Tenant's
obligation to pay such billing shall survive the termination of this Lease. All
payments for Tenant's Electricity Charge are to be predicated upon separate and
specific bills by Landlord and are not to be included as part of the Base Rent
payment required to be paid pursuant to Section 1.01(j) hereof. Electrical power
which is separately metered or is otherwise separately assessable to tenants of
the area served by such facilities and the cost of normal and after hours air
conditioning supplied to tenants of the area so the area so served shall be
excluded in computing Tenant's Pro Rata Share of such costs as aforesaid.
Landlord shall not be permitted to charge any mark-up on electricity actual
costs and Tenant shall be entitled to a credit against Tenant's Electricity
Charge in an amount equal to Tenant's Pro Rata Share of any credit, rebate or
reduction paid or provided to Landlord by the electrical utility provider.
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Notwithstanding anything to the contrary hereinbefore contained, if
Tenant elects to install meters measuring electricity used in all of the
Premises, Tenant shall pay the portion of Tenant's Electricity Charge relating
to the Premises directly to the utility company based on actual use as measured
by such meters in lieu of paying such portion of Tenant's Electricity Charge to
Landlord. Any meters installed by Tenant shall be installed at Tenant's cost and
expense (subject to such costs being paid by the Finish Allowance pursuant to
Exhibit "D-1").
5.03. PRORATION AND ADJUSTMENT OF OPERATING EXPENSES.
(a) If this Lease commences on other than the first day of a calendar
year, or if this Lease expires on other than the last day of a calendar year,
then the Operating Expenses for all of such calendar year shall be prorated
according to the portion of the Term that occurs during such calendar year. If
at any time the Building is not fully occupied or Landlord is not supplying all
services to all portions of the Building during an entire calendar year, then,
Base Operating Expense, Operating Expenses, the Actual Operating Expense
Increase and the Estimated Operating Expense Increase shall be adjusted as
though the Building had been one hundred percent (100%) occupied and Landlord
were supplying all services to all of the Building during the entire calendar
year.
(b) Landlord shall use its reasonable efforts to make payments in a
time and manner to avoid late payment penalty charges and to obtain the
appropriate discounts to the extent such discounts are in the best interest of
the Project. Landlord shall operate the Project in an efficient manner designed
to minimize Operating Expenses consistent with maintaining services at a level
consistent with First Class Building Standards (defined below). Landlord agrees
to consult with Tenant, solicit its input, and consider Tenant's suggestions as
to how to minimize Operating Expenses.
(c) At Tenant's request, all supply and service contracts providing for
annual payments in excess of $10,000 will be competitively bid by independent
third parties each year.
(d) As used herein, "First Class Building Standards" shall mean a
quality that is equal to or in excess of the quality of first class office
projects (including associated parking facilities) located in the Geographical
Market.
5.04. TAXES.
Commencing on the Commencement Date and continuing thereafter during
the Term, Tenant shall be obligated to pay to Landlord each calendar year during
the Term (subject to adjustment of the Tax Stop pursuant to Rider 1) the amount
("Tenant's Tax Obligation") by which (if any) (a) Tenant's Pro Rata Share of all
ad valorem taxes assessed against the Project in such calendar year ("Premises
Share of Taxes") exceeds (b) the product of Two and 88/100 Dollars
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($2.88) multiplied by the number of square feet of Rentable Area comprising the
Premises ("Tax Stop"), which Tenant's Tax Obligation shall be paid as provided
below.
On or before ninety (90) days prior to the Commencement Date (with
respect to the remaining portion of the calendar year in which the Commencement
Date occurs) and prior to the commencement of each calendar year during the Term
after the calendar year in which the Commencement Date occurs, Landlord shall
furnish to Tenant a statement reflecting Landlord's reasonable and good faith
estimate of Tenant's Tax Obligation for such calendar year ("Estimated Tenant's
Tax Obligation"). Tenant shall pay to Landlord prior to the first (1st) day of
each calendar month during the Term one-twelfth (1/12) of the Estimated Tenant's
Tax Obligation for such calendar year. Prior to ninety (90) days after the
expiration of each calendar year during the Term, Landlord shall furnish to
Tenant a statement reflecting the actual ad valorem taxes for such calendar year
and the actual Tenant's Tax Obligation for such calendar year (together with a
copy of the tax bills from the applicable taxing authorities). If the Estimated
Tenant's Tax Obligation for such calendar year is less than the actual Tenant's
Tax Obligation, Tenant shall pay the difference to Landlord within thirty (30)
days of receipt of such statement. If the Estimated Tenant's Tax Obligation is
more than the actual Tenant's Tax Obligation, Landlord shall refund such excess
to Tenant with the delivery of the statement to Tenant. Additionally, if the
Premises Share of Taxes is less than the Tax Stop, Landlord shall pay such
difference to Tenant simultaneously with delivery of the statement to Tenant.
With respect to any partial calendar year during the Term, Tenant's Tax
Obligation hereunder shall be prorated based on the number of days of such
calendar year in the Term. Landlord shall provide Tenant with copies of all tax
assessments, appraisals and notices received by Landlord from the taxing
authorities within ten (10) days of Landlord's receipt thereof.
Landlord agrees that Tenant shall receive the benefit of all rebates
which are made with respect to such taxes whenever such rebates are received,
even if received by Landlord after the applicable calendar year. Within ten (10)
days of Tenant's request, Landlord shall join Tenant in entering into any
tri-party agreements reasonably necessary in order to reduce the taxes on the
Project.
Landlord recognizes that Tenant may enter into a bi-party agreement
("Rebate Agreement") with a governmental entity pursuant to which such entity
will rebate directly to Tenant a portion of the taxes paid by Tenant under this
Lease. If Tenant enters into such Rebate Agreement, Landlord acknowledges that
Tenant shall receive the full benefit of such rebate, Landlord shall not be
entitled to any portion thereof and such rebate shall not affect Tenant's
obligations under this Section 5.04. Additionally, within ten (10) days of
Tenant's request, Landlord agrees to furnish each calendar year a letter to the
applicable governmental authority (in a form reasonably acceptable to Tenant)
which evidences that Tenant's obligations under this Lease for the payment of
Base Rent and Tenant's Tax Obligation result in Tenant effectively paying
Tenant's Pro Rata Share of all taxes assessed against the Project (as a portion
of the taxes are a component of the Base Rent), recognizing that such rebate
shall apply to taxes paid by Tenant pursuant to this Lease.
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It is understood and agreed that if the present method of taxation
changes such that in lieu of the whole or any part of any ad valorem taxes
assessed against the Project, there is levied on Landlord a capital tax directly
on the rents received from the Project or another tax, assessment or charge
based in whole or in part upon such rents which is a substitute for such ad
valorem taxes , then all such taxes, assessments or charges, or the part thereof
so based, shall be deemed to be "ad valorem taxes assessed against the Project,"
as such term is used in this Section 5.04.
ARTICLE 6.
=================
6.01. USE. Tenant shall use and occupy the Premises only for the
Permitted Uses set forth in Section 1.01(e) hereof, and for no other purposes.
Tenant shall not use or permit the Premises or any portion thereof to be used
for any purpose other than the Permitted Uses or for any unlawful purpose or in
any unlawful manner, and shall comply with the CCR and all federal, state, and
local governmental laws, ordinances, orders, rules and regulations applicable to
the Premises and the occupancy thereof (except to the extent Landlord is
responsible therefor pursuant to other provisions of this Lease) and Tenant
shall give prompt written notice to Landlord of any notification to Tenant of
any claimed violation thereof. Notwithstanding anything to the contrary
contained in this Lease, Landlord agrees that Tenant may enter into contracts or
subleases with third party vendors of Tenant's choice for the purpose of
operating any of the facilities referred to in the Permitted Uses in Section
1.01(e). Tenant shall not do or permit anything to be done in the Premises, nor
bring or keep anything therein which will in any way cause cancellation of any
insurance policy covering the Project or any part thereof or any of its
contents. In the event that, by reason of any acts of Tenant or any of the
Tenant-Related Parties or their conduct of business for other than the Permitted
Uses, there shall be any increase in the rate of insurance on the Building or
its contents, Tenant hereby agrees to pay such increase. Tenant shall not do
anything in or about the Premises and/or Project which will in any way obstruct
or unreasonably interfere with the rights of other tenants or occupants of the
Project. Tenant shall not permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer to be committed any waste in or upon the
Premises.
ARTICLE 7.
=================
7.01. LANDLORD'S SERVICES. Landlord shall, at Landlord's expense,
except as provided to the contrary in this Lease, furnish to Tenant the
following services ("Building Standard Services"), all of which Building
Standard Services shall comply with applicable laws, and the quality of such
services shall be equal to or in excess of First Class Building Standards:
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(a) Central heat and air conditioning in season during Building
Operating Hours (defined below), so that the average indoor conditions
maintained in the Premises during Building Operating Hours shall be a minimum of
72(0)F dry bulb +/-2(0) in the winter when the outdoor temperature is not lower
than 22(0)F dry bulb and a maximum of 76(0)F dry bulb +/-2(0) in the summer when
the outdoor temperature is not higher than 99(0)F dry bulb, assuming sustained
peak loading conditions of one (1) person per 200 square feet of Rentable Area
and a combined light and power demand load of eight (8) watts per square foot of
Rentable Area.
Landlord will furnish air conditioning, ventilating and heating for
full floor increments designated by Tenant at times other than Building
Operating Hours, in which event Tenant shall pay Landlord (i) the actual costs
for the provision of utilities, and (ii) during the Primary Term, $10.45 per
hour for the entire Premises (and not on a floor-by-floor basis). If Landlord
replaces obsolete HVAC equipment during the Term, then the hourly rate of $10.45
may be adjusted during the Extension Terms as agreed to by Landlord and Tenant
(with disputes relating thereto to be resolved by arbitration pursuant to
Section 17.29 hereof) to reflect current estimates of accelerated depreciation
of such equipment resulting from overtime usage. Tenant shall be provided with
means (via access cards or otherwise) to access air conditioning, ventilating
and heating outside of Building Operating Hours. Tenant shall be charged for a
minimum of two (2) hours of such after hours air conditioning, ventilating and
heating, even if Tenant has requested less than two (2) hours of such services.
The condenser water system will be made available to Tenant in the core
on each floor of the Premises as an alternate source of cooling for Tenant
installed HVAC units. Tenant shall not be charged for the use of such condensing
system water.
As used herein, "Building Operating Hours" shall mean 7:00 a.m. through
7:00 p.m. on weekdays and 8:00 a.m. through 1:00 p.m. on Saturdays, exclusive of
Holidays.
As used herein, "Holidays" shall mean New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
(b) Janitor service shall be provided to the Premises five (5) days per
week, exclusive of Holidays, consistent with the janitorial specifications set
forth in Exhibit "H"; provided, however, if Tenant's leasehold improvements
(including without limitation, floor coverings) require that Landlord provide
special or additional cleaning in excess of the janitorial specifications in
Exhibit "H" or if Tenant desires services not included in the janitorial
specifications, Tenant may either (1) independently contract with individuals or
entities that furnish such desired cleaning or other services, or (2) request
that Landlord cause such special or additional cleaning or other services to be
completed at Tenant's sole cost and expense. Landlord specifically reserves the
right to modify the janitorial services specifications set forth in Exhibit "H"
as in its reasonable judgment shall from time to time be required for the
safety, protection and cleanliness of the Project, the operation thereof, the
preservation of good order therein or the protection and comfort of the other
tenants of the Project and their agents, employees and guests
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(subject to Tenant's approval, which approval shall not be unreasonably
withheld). Landlord agrees to make any changes to the janitorial specifications
reasonably requested by Tenant provided such changes are consistent with First
Class Building Standards.
In the event that the janitorial service being provided to the Premises
by Landlord consistently fails to conform with the specifications set forth in
Exhibit "H" or is otherwise unsatisfactory to Tenant, then Landlord shall
arrange a meeting between Tenant and the contractor providing the janitorial
services to the Premises within ten (10) days of Tenant's request so that any
problems with the janitorial services being provided to the Premises can be
addressed and remedied. If, within thirty (30) days after such meeting, the
janitorial services shall continue to fail to conform with the specifications
set forth in Exhibit "H" or remain unsatisfactory to Tenant in its reasonable
judgment, then the janitorial service contract shall be terminated in accordance
with its terms, and thereafter Tenant shall be entitled to participate in the
process by which Landlord solicits bids for the janitorial services contract,
and Tenant shall have the right to approve the contractor which is selected to
provide the janitorial services for the Premises. Landlord agrees that all
contracts for janitorial services shall contain a provision entitling Landlord
to terminate the contract without penalty with no more than ninety (90) days
prior notice.
(c) Twenty-four (24) hours per day, every day of the year, hot (i.e.,
thermostat set in the range of 105 to 110 Fahrenheit for comfort and energy
conservation purposes) and cold domestic water in restrooms, toilets, drinking
fountains and sinks in the Premises.
(d) Electric lighting service for the Parking Facilities, Common Areas
(including the ground floor lobby of the Building) of the Project and the public
areas of the Project at such times consistent with First Class Building
Standards, including, but not limited to, lighting of the Parking Garage in
accordance with First Class Building Standards twenty-four (24) hours a day,
every day of the year.
(e) A security system for the Project which will permit Tenant and its
employees access to the Premises twenty-four (24) hours per day every day of the
year subject to reasonable rules and regulations promulgated by Landlord with
respect thereto (subject to Tenant's approval, which shall not be unreasonably
withheld).
Tenant shall, at its sole cost and expense, (x) locate Tenant's
security personnel within the Premises and at the Security Desk (defined below)
as Tenant shall determine desirable, and (y) install and operate such additional
security systems as it shall determine desirable for the purpose of limiting
access to or within the Premises subject to Landlord's approval, which shall not
be unreasonably withheld, and provided such systems are located solely within
the Premises, comply with applicable laws, are coordinated with any security
services which may be provided to the entire Project by Landlord and Landlord is
provided with access to the Premises (excluding Security Areas [defined below]).
Landlord and Tenant agree to consult and collaborate with one another to design
and/or upgrade the Project security system to accommodate the needs of
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Tenant. Additionally, Landlord agrees that the operating terminal for the
security system shall be located in the Premises in a location secured with a
lock and Tenant shall have the sole key to such lock. Tenant and Landlord will
cooperate in establishing a system to permit the property manager to access the
system accompanied by a representative of Tenant. At Tenant's option, Tenant
shall either "cap" or remove any upgrades made to the original security system
at Tenant's request upon the expiration or termination of this Lease. Landlord
agrees that Tenant shall be permitted to install a security desk in the ground
floor lobby of the Building ("Security Desk") subject to Landlord's approval of
the design thereof (which shall not be unreasonably withheld) and Landlord shall
reimburse Tenant for the costs incurred by Tenant with respect thereto, not to
exceed $10,000.00, within thirty (30) days of receipt of an invoice therefor
from Tenant. The Security Desk may be staffed by Tenant or Tenant's contractor
twenty-four (24) hours a day, every day of the year, or such fewer hours as
Tenant deems reasonably necessary to provide the access control service desired
by Tenant under this subsection (e). On the first (1st) day of each month during
each Lease Year during the Term (subject to adjustment of the Security Amount
pursuant to Rider 1), Landlord shall pay to Tenant one-twelfth (1/12) of the sum
of $30,000, being the amount budgeted by Landlord per year for Landlord's
furnishing security personnel during the hours from 4:00 p.m. to 11:00 p.m.
Monday through Friday and 7:00 a.m. to 1:00 p.m. Saturday ("Security Amount").
In calculating the Base Operating Expense and Operating Expenses after 1999,
Landlord shall not include such budgeted amount therein.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, LANDLORD SHALL NOT BE
RESPONSIBLE OR LIABLE IN ANY MANNER FOR FAILURE OF ANY SUCH SECURITY PERSONNEL,
SERVICES, PROCEDURES OR EQUIPMENT TO PREVENT, CONTROL, OR APPREHEND ANYONE
SUSPECTED OF CAUSING PERSONAL INJURY OR DAMAGE IN, ON OR AROUND THE PROJECT
(EXCEPT TO THE EXTENT CAUSED BY LANDLORD'S GROSS NEGLIGENCE OR INTENTIONAL
TORTIOUS ACTS).
(f) Twenty-four (24) hours per day, every day of the year, sufficient dedicated
electrical capacity transformed to a panel box located in the core of each floor
of the Premises to operate (1) incandescent lights, typewriters, calculating
machines, photocopying machines, stand alone network computers and appropriate
dedicated lines, word processing equipment, personal computers,
telecommunications and other machines of similar low voltage electrical
consumption (120/208 volts), provided that the National Electrical Code ("NEC")
calculation for demand load for said low electrical voltage on each such floor
shall not exceed three (3) watts per square foot of Rentable Area for the
Premises on each floor; and (2) fluorescent lighting and equipment of high
voltage electrical consumption (277/480 volts) provided that the total NEC
design demand load for said lighting shall not exceed two (2) watts per square
foot of Rentable Area for the Premises on such floor (each such NEC design
demand load to be hereinafter referred to as the "Building Standard Rated
Electrical Design Load"). In addition to the foregoing, Landlord agrees that the
high voltage (277/480 volts, three phase) power available in the Building bus
duct at each floor on which the Premises are located will have a total
(inclusive of the above described
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Building Standard Rated Electrical Design Load) capacity available to Tenant of
at least eight (8) watts per square foot of Rentable Area contained on such
floor.
Additionally, Tenant shall have the right to install an emergency
generator in the Project (or any replacement therefor) to provide emergency
power only to the Premises. Tenant shall be responsible for the costs (if any)
to connect the emergency generator to any portions of the Premises. The
emergency generator will be located in an area of the Building approved by
Landlord, which approval shall not be unreasonably withheld. Tenant shall
maintain the emergency generator at Tenant's sole cost and expense. At the
expiration or earlier termination of the Lease, the emergency generator shall
belong to Tenant and Tenant shall be permitted to remove it at Tenant's cost.
Tenant shall also promptly repair at Tenant's cost any damage to the Premises or
the Building caused by such removal. The cost and installation cost of the
emergency generator shall not be funded out of the Finish Allowance.
Additionally, Tenant shall have the right, at Tenant's cost (subject to
Landlord's approval and to such costs being paid with the Finish Allowance
pursuant to Exhibit "D-1") to cause additional electrical power to be installed
to provide power to the Building from a separate electrical service feed.
If Tenant's electrical equipment and lighting require electrical
circuits, transformers or other additional equipment in the Premises in excess
of Tenant's pro rata share of the Project's electrical or HVAC systems as to the
Premises (which additional equipment shall be hereinafter referred to as the
"Additional Electrical Equipment"), Tenant may (at Tenant's cost [subject to
such costs being paid with the Finish Allowance pursuant to the provisions of
Exhibit "D-1"], including the cost to design, install, maintain and replace the
Additional Electrical Equipment) install the same. The method of design and
installation of any Additional Electrical Equipment required by Tenant shall be
subject to the prior written approval of Landlord (which approval shall not be
unreasonably withheld).
If any of Tenant's electrical equipment requires conditioned air in
excess of Building Standard air conditioning, the same shall be installed, or
the installation supervised by Landlord, on Tenant's behalf, and Tenant shall
pay all design and installation costs (subject to such costs being paid with the
Finish Allowance pursuant to the provisions of Exhibit "D-1") relating thereto.
The type, location and method of installation of any such air
conditioning shall be subject to Landlord's approval (which approval shall not
be unreasonably withheld). Tenant shall maintain such air conditioning equipment
at Tenant's sole cost and expense.
(g) Replacement of Building standard halogen and/or fluorescent light
bulbs and tubes and incandescent down light bulbs in the Parking Facilities and
the Common Area of the Project, landscaped areas on the Land and all other
public areas of the Project, and upon Tenant's request and at Tenant's sole cost
and expense (which shall be paid separately and not included in Operating
Expenses), Landlord will replace any and all light bulbs and tubes in the
Premises.
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Landlord shall charge Tenant not more than the amount paid by Landlord for such
bulbs and tubes.
(h) Non-exclusive elevator cab passenger service to the Premises shall
be provided twenty-four (24) hours per day every day of the year of sufficient
capacity to service the Premises, subject to temporary cessation for ordinary
repair and maintenance (but as to each floor of the Premises, such temporary
cessation for ordinary repair and maintenance shall not occur simultaneously for
all passenger cabs serving such floor), subject to reasonable security measures
or other means of controlling access imposed by Landlord after Building
Operating Hours and on Holidays, and during times when life safety systems
override normal operating systems.
(i) Subject to the provisions of this Lease, maintenance and cleaning
of the Building, Building Shell Improvements, Parking Facilities, Common Areas,
landscaped areas on the Land, and all other public areas of the Project.
(j) Shared access to and use of the loading dock for Tenant's loading,
unloading, delivery, and pick-up activities during Building Operating Hours
including the right to leave vehicles standing at the loading dock for enough
time to load or unload and pick up and deliver goods to and from the Premises,
subject, however, to reasonable rules and regulations as are promulgated by
Landlord from time to time (subject to Tenant's approval, which approval shall
not be unreasonably withheld). Tenant shall also have access to and use of the
loading dock for the purposes set forth above during non-Building Operating
Hours but only by contacting Landlord's or Tenant's security personnel, as
applicable, by telephone (which security personnel shall be available for such
purpose at all times and will respond promptly).
(k) Sanitary sewer service twenty-four (24) hours per day, every day of
the year, subject to temporary interruption for ordinary repair and maintenance
and emergencies.
(l) Trash removal from the Project at a designated location, and if
requested by Tenant, collection and removal of white paper and aluminum cans for
recycling.
(m) At all times during Building Operating Hours, and subject to
reasonable prior notice at all other times, non-exclusive use of the Project
freight elevators to the Premises, subject to temporary cessation for ordinary
repair and maintenance, and during times when life safety systems override
normal Project operating systems. Landlord shall use reasonable efforts to
accommodate Tenant's scheduling needs.
(n) Cold domestic water for drinking fountains at one (1) location at
the Building core on each floor comprising the Premises.
(o) Access to the Premises twenty-four (24) hours a day every day of
the year.
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(p) Any other services that may from time to time be reasonably
necessary to ensure that the maintenance and repair of the Project are in
accordance with First Class Building Standards.
7.02. INTENTIONALLY DELETED
7.03. INTERRUPTION OF SERVICES
(a) Landlord shall furnish Tenant with at least twenty-four (24) hours
prior written notice of any interruption in the Building Standard Services that
are scheduled by Landlord for repairs or maintenance, excluding repairs and
maintenance necessitated by an emergency. Landlord shall endeavor to provide
Tenant with at least seventy-two (72) hours prior written notice of such
non-emergency-based repairs or maintenance.
(b) Notwithstanding anything herein to the contrary, the obligations of
the Landlord to provide the services and utilities provided above shall be
subject to governmental regulation (e.g., rationing, temperature, control, etc.)
and any such regulation which requires Landlord to provide or not provide such
services or utilities other than as herein provided, shall not constitute a
default hereunder, but rather compliance with such regulation shall be deemed to
be compliance by Landlord hereunder.
(c) Except as expressly provided in this Lease to the contrary, failure
by Landlord to furnish the Building Standard Services, or any cessation thereof,
shall not render Landlord liable for damages to either person or property, nor
be construed as an eviction of Tenant, nor work an abatement of rent, nor
relieve Tenant from fulfillment of any covenant or agreement hereof. In addition
to the foregoing and except as otherwise provided in this Lease, should any of
the equipment or machinery, for any cause, fail to operate or function properly,
Tenant shall have no claim for a rebate of rent or for damages on account of an
interruption in services occasioned thereby or resulting therefrom so long as
Landlord uses reasonable efforts to promptly and diligently repair said
equipment or machinery and to restore said services.
Notwithstanding the foregoing, in the event that (1) all or any portion
of the Premises become reasonably impracticable for Tenant to use to conduct its
business because Landlord for any reason (except due to the causes in subsection
(b) above or as the result of Tenant's gross negligence or willful misconduct)
is unable or fails to provide any of the Building Standard Services, and (2)
such failure (a "Basic Services Failure") continues for a period in excess of
the lesser of (i) three (3) business days or (ii) the number of days following
such failure after which Landlord's business interruption insurance becomes
payable, Tenant shall receive a full abatement of Rent due under this Lease for
such portion of the Premises so affected from the date of the Basic Services
Failure until such portion of the Premises is again reasonably practicable for
Tenant to use to conduct its business. Additionally, in the event a Basic
Services Failure continues for a period of ninety (90) consecutive days or more
or more than ninety (90) days in any twelve (12) month period, and as a result
of such Basic Services Failure twenty-five percent
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(25%) of the Rentable Area of the Premises becomes reasonably impracticable for
Tenant to use to conduct its business, Tenant, at its option, shall be entitled
to terminate the Lease by delivering written notice of termination to Landlord,
in which event the Lease shall terminate and neither Landlord nor Tenant shall
be liable for any obligations one to the other under this Lease accruing after
such termination, including without limitation, any obligations of Tenant for
the payment of Base Rent and Additional Rent. Notwithstanding the foregoing, if
the Basic Services Failure is the result of a casualty to the Building covered
by Section 10.01, the provisions of Section 10.01 shall apply to such Basic
Services Failure.
7.04. KEYS AND LOCKS. Prior to the Commencement Date, Landlord shall
furnish to Tenant seven hundred eighty (780) access cards necessary for Tenant's
employees to access the Building and the Premises. Additional access cards will
be furnished at a charge (which shall not exceed the actual cost thereof to
Landlord) by Landlord on an order signed by Tenant or Tenant's authorized
representative. All such access cards shall remain the property of Landlord.
Tenant shall be permitted to install additional locks or other access control
devices in the Premises provided Tenant furnishes Landlord with a duplicate set
of keys or a master key and/or access cards to all such locks other than those
locks securing Security Areas (defined in Article 12). Landlord shall be
relieved of all obligations under this Lease it cannot perform with respect to
Security Areas and to areas it should have been, but was not, provided a key
and/or access card and Tenant shall indemnify and defend and hold Landlord and
its agents harmless from and against all liability, claims, loss, cost, damage
or expense incurred by Landlord or its agents as a result thereof. In addition,
with respect to Security Areas and any areas for which Landlord should have
been, but was not, provided an access card, Landlord may, in an emergency
situation where in Landlord's good faith judgment immediate entry is required to
prevent or minimize personal injury, death or property damage, use force to gain
entry into such areas, and Landlord shall not be liable to Tenant for damages
resulting from such use of force and Tenant shall indemnify and defend and hold
Landlord and its agents harmless from and against all liability, claims, loss,
cost, damage or expense incurred by Landlord or its agents as a result thereof.
Upon termination of this Lease, Tenant shall surrender to Landlord all keys
and/or access cards to the Premises, and give to Landlord an explanation of the
combination of all locks for safes, safe cabinets and vault doors, if any, in
the Premises.
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7.05. GRAPHICS AND BUILDING DIRECTORY.
(a) Tenant may install, with Landlord's prior approval of the method of
illumination, if any, and methods of installation or attachment, which approval
will not be unreasonably withheld, and at Tenant's sole cost and expense
(subject, however, to reimbursement as a portion of the Finish Allowance)
graphics desired by Tenant on the walls of elevator lobbies on all floors of the
Building and on the entrance doors to the Premises on all floors of the Building
and a sign in the main lobby of the Building in a location designated by Tenant
and subject to Landlord's approval which shall not be unreasonably withheld.
Notwithstanding the foregoing, except as specifically provided in this
subsection (a) or Section 7.06 below, in no event may Tenant install any
graphics that may be visible from the exterior of the Building.
(b) Tenant may install, and Landlord shall maintain to the extent so
installed, a Building directory computer terminal in the lobby of the Building
with a minimum capacity determined by Tenant which shall contain a computerized
listing of Tenant's name, certain officers, employees and departments of Tenant,
and such other information as Tenant shall reasonably require. Landlord shall
pay to Tenant the lesser of (i) $5,000 or (ii) the actual cost of the
acquisition and installation of such computer terminal within thirty (30) days
after Landlord's receipt of an invoice therefor from Tenant.
7.06. PROJECT NAME, IDENTITY AND SIGNS.
(a) The Project shall initially be named "Two i2 Place." After the
Commencement Date and upon furnishing at least thirty (30) days prior written
notice to Landlord, Tenant shall have the right to rename the Project from time
to time during the Term to a name selected by Tenant and approved by Landlord;
provided, however, in no event shall Tenant be permitted to change the name of
the Project more than one (1) time in any one (1) Lease Year. Tenant shall pay
all costs reasonably incurred in changing the Project Signs (defined below) as
the result of any changes to the Project name made by Tenant after the
Commencement Date. In no event shall Landlord refer to the Building or Project,
or authorize any third party to refer to the Building or Project, by any name
other than the name selected by Tenant and approved by Landlord pursuant to this
subsection (a).
(b) The following exterior signs (collectively, the "Project Signs")
for the Project shall be installed and maintained by Landlord at Tenant's cost
and expense (subject, however, to reimbursement for the costs of the design,
acquisition and installation of such signage as a portion of the Finish
Allowance in accordance with Exhibit "D-1" and except as provided in clause (i)
below):
(i) Two (2) monument signs will be installed prior to
the Commencement Date by Landlord on the Land in the location
shown on Exhibit "B-2" attached hereto at Landlord's cost and
expense which are of a design agreed to by Landlord and Tenant
each acting in good faith (and the cost of such signs
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shall not be paid from the Finish Allowance). Prior to the
Commencement Date, Landlord will cause the signs to identify
Tenant, the name of the Project determined pursuant to Section
7.06(a) above, the address of the Project and the name of the
Complex as mutually agreed upon by Landlord and Tenant each
acting in good faith and in accordance with the specifications
on Exhibit "L-1" and as otherwise agreed by Landlord and
Tenant (and Tenant shall pay for the cost of installing such
names except that Landlord shall pay for the cost of
installing the Complex name and the Project address). Landlord
agrees that Landlord shall not install the name of Landlord,
any other tenant of the Building, or other person or entity or
information on these signs.
(ii) Within sixty (60) days after delivery of signs
to Landlord, signage depicting Tenant's name and/or logo shall
be prominently located by Landlord at the top of the Building
on any two (2) faces of the Building selected by Tenant, the
exact location of such signs to be approved by Landlord, which
approval shall not be unreasonably withheld. The signage will
be designed by Tenant consistent with the parameters set forth
on Exhibit "L-1". Tenant shall pay for the reasonable cost of
removal of such signage and any repairs necessitated by such
removal upon the expiration or earlier termination of this
Lease. No part of such sign shall extend above the parapet of
the Building.
(iii) Tenant shall have the right to erect temporary
signs during the applicable option periods defined in
Paragraphs 2 and 3 of the Development Agreement on the sites
for Buildings 3 and 4 for the purpose of identifying future
premises of Tenant.
Except for the signage described in this Section 7.06, Landlord shall
not install or permit any other signs to be placed or allowed to remain on the
exterior of the Project, in the main floor lobbies of the Project, and/or on the
Land without Tenant's prior written consent, which consent may be withheld in
Tenant's sole discretion, other than (1) directional and traffic control signs,
or (2) signs required by legal requirements.
7.07. RISER SPACE. Tenant shall have the right to use riser space in
the core of the Building, at no cost to Tenant, for cabling communications
purposes.
7.08. FIBER OPTIC CABLE CARRIERS. Tenant acknowledges that Landlord is
negotiating a lease with Southwestern Bell Telephone Company ("SWB") to provide
fiber optic cable service to the Building. Tenant shall be allowed to select
additional fiber optic cable carriers that will service the Building provided
that the terms of the lease with such additional carriers shall be no more
favorable to such carriers than those of the SWB lease. So long as all
installation is coordinated with Landlord, such fiber optic carriers shall be
allowed to install dual feed fiber optic cabling to the Building. Landlord shall
not impose any charge to Tenant for the use of such fiber optics (however,
Tenant shall pay any amounts charged to Tenant by the fiber optic carriers
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and/or Tenant's Pro Rata Share of any amount charged to Landlord by the fiber
optic carriers). Any additional conduits necessary to accommodate service by
such additional carriers shall be paid by Tenant.
7.09. COMMUNICATIONS EQUIPMENT. Tenant may, at Tenant's sole cost and
expense (except to the extent such costs are paid with the Finish Allowance as
provided in Exhibit "D-1") and without charge from Landlord, install, operate
and maintain antenna and satellite equipment ("Communications Equipment") on any
portion of the roof area of the Building as long as Landlord approves the manner
of installation and screening of the equipment (which approval shall not be
unreasonably withheld). The installation and operation of such equipment must be
in compliance with the CCR and all applicable laws, rules and regulations.
Landlord shall not take any actions that would in any way interfere with
Tenant's use of the Communications Equipment or the transmission or reception of
signal. Landlord and its representatives agree to cooperate reasonably with
Tenant in connection with obtaining any permit, license, zoning variance,
special use permit or other authorization. Landlord also will provide space at
no expense to Tenant in the core of the Building necessary to accommodate
Tenant's conduit and other requirements related to such Communications
Equipment. Any assignee or sublessee of this Lease or the Premises or a portion
thereof shall have the right to use such equipment. Tenant shall have the right
to sublease the rights to use such Communications Equipment to affiliates,
subtenants, and assignees. Tenant shall not install any Communications Equipment
which would adversely affect or compromise the structural integrity of the
Building (or if so, Landlord may construct reinforcements necessary to
accommodate same at Tenant's cost and expense). Tenant shall remove all such
Communication Equipment upon the expiration or earlier termination of this Lease
and repair any damage caused by such removal, all at Tenant's cost and expense.
Landlord shall have the right to enter into temporary agreements which allow
third parties to install, operate and maintain communications equipment on the
roof of the Building provided that at such time as the location of such third
party equipment or the operation thereof interferes with Tenant's Communications
Equipment or if Tenant desires to install additional Communications Equipment,
Landlord shall upon request of Tenant cause such temporary agreements to be
terminated and the third party communications equipment removed.
7.10. ADDITIONAL HVAC COMPRESSORS. With the prior written approval of
Landlord as to location (which approval shall not be unreasonably withheld) and
provided that same shall not adversely affect or compromise the structural
integrity of the Building, Tenant may, as part of the Tenant Improvements,
install, operate, maintain and repair additional HVAC compressors on the roof of
the Building or at such other location reasonably acceptable to Landlord (and
Landlord shall not charge Tenant rent therefor). At Tenant's option and to the
extent available, the cost of such compressors shall be paid out of the Finish
Allowance. Tenant shall pay all applicable utility charges with respect thereto.
Upon the expiration or earlier termination of the Lease, the HVAC compressors
shall belong to Tenant and Tenant shall be permitted to remove them. Tenant
shall promptly repair all damage caused by such removal, at Tenant's expense.
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ARTICLE 8.
=================
8.01. ALTERATIONS. The construction and installation of Tenant
Improvements is governed by Exhibit "D-1". After the installation of the Tenant
Improvements pursuant to Exhibit "D-1", Tenant shall not make or allow to be
made any alterations, installations, additions, or improvements in or to the
Premises, without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If Landlord fails to approve or disapprove any request
within ten (10) business days after receipt of all necessary information,
Landlord shall be deemed to have approved such alteration. Should Tenant desire
to perform any alterations which are significant enough to require plans, Tenant
shall submit such plans and specifications for same to Landlord for Landlord's
written approval before beginning such work. Upon receipt by Tenant of the
written approval of Landlord of such plans and specifications, and upon payment
by Tenant to Landlord of the reasonable out-of-pocket fees incurred by Landlord
to have such plans and specifications reviewed, Tenant may proceed to make such
approved alterations so long as they are in compliance with such approved plans
and specifications and are performed by a contractor approved by Landlord, which
consent shall not be unreasonably withheld. All installations shall be at
Tenant's sole cost and expense. Without in any way limiting Landlord's consent
rights, Landlord shall not be required to give its consent until (a) Landlord
approves the contractor or person making such and approves such contractor's
insurance coverage to be provided in connection with the work (such approval not
to be unreasonably withheld), (b) Landlord approves final and complete plans and
specifications for the work to the extent plans and specifications are necessary
for such work and (c) the appropriate governmental agency, if any, has approved
the plans and specifications for such work to the extent plans and
specifications are necessary for such work. All work performed by Tenant or its
contractor relating to the installations shall conform to applicable
governmental laws, rules and regulations, including, without limitation, the
Disability Acts. If Tenant requests that Landlord perform such installations,
Tenant shall pay Landlord, as additional Rent, the cost thereof, plus five
percent (5%) as reimbursement for Landlord's overhead; however, in no event
shall such fee be payable with respect to the installation of Tenant
Improvements pursuant to Exhibit "D-1". Each payment shall be made to Landlord
within thirty (30) days after receipt of an invoice from Landlord.
Notwithstanding anything to the contrary herein before contained, it
shall not be necessary for Tenant to secure Landlord's approval of any
alterations, improvements or additions to the Premises provided such alterations
cost less than $75,000, do not adversely affect the structure, HVAC system or
exterior of the building or the Common Areas, and are not visible from the
Common Area or the exterior of the Building. However, Tenant shall give Landlord
prior written notice of all alterations, regardless of whether Landlord has the
right to approve same.
All work performed by Tenant with respect to the Premises shall (a) be
performed so as not to alter the exterior appearance of the Building, (b) be
performed so as not to adversely affect the structure or safety of the Building,
(c) comply with all laws, including without limitation all
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building, safety, fire, and other codes and governmental and insurance
requirements, (d) be completed promptly and in a good and workmanlike manner and
in a quality not less than Building Standard, (e) be performed at Tenant's
expense, and (f) be performed in such a manner that no valid mechanic's,
materialman's, or other similar liens (collectively, the "Liens") be attached to
Tenant's leasehold estate and in no event shall Tenant permit, or be authorized
to permit, any Liens (valid or alleged) or other claims to be asserted against
Landlord or Landlord's rights, estates, and interests with respect to the
Project or this Lease. Landlord will have the right, but not the obligation, to
inspect periodically the work in the Premises.
If any Lien is filed against the Premises or the Project or any portion
thereof, Tenant shall cause same to be discharged within forty-five (45) days
after the lien is filed by paying or bonding over said Lien. If Tenant fails to
comply with the foregoing sentence, Landlord shall (without limitation of its
other rights or remedies) have the right, but not the obligation, to discharge
said Lien and Tenant shall immediately reimburse Landlord for any sum of money
expended by Landlord in connection with obtaining such discharge (together with
an additional ten percent (10%) thereof to cover Landlord's administrative
costs), which amount shall be deemed to be Rent hereunder for all purposes.
Any approval by Landlord (or Landlord's architect and/or engineers) of
any of Tenant's contractors or Tenant's drawings, plans or specifications which
are prepared in connection with any construction of improvements (including
without limitation, the Tenant Improvements) in the Premises shall not in any
way be construed as or constitute a representation or warranty of Landlord as to
the abilities of the contractor or the adequacy or sufficiency of such drawings,
plans or specifications or the improvements to which they relate, for any use,
purpose or condition.
8.02. REMOVAL OF TRADE FIXTURES AND PERSONAL PROPERTY. Tenant agrees to
remove all of its trade fixtures and personal property, including without
limitation, all computers, generators, UPS power system, HVAC compressors,
cafeteria equipment, telephones, satellite dishes and related equipment and
cabling, on or before the date of expiration or termination of the Term. Upon
the expiration or termination of this Lease, Tenant shall have no obligation to
remove alterations, additions, or improvements or otherwise make any physical
improvements to the Premises unless Landlord's approval for the installation
thereof was conditioned upon such removal upon the expiration or termination of
the Lease; provided, however, Landlord shall not be permitted to require Tenant
to remove any Non-Removable Improvements or any other improvements other than
extraordinary improvements which will affect the leasability of the Premises
after the expiration of the Term (i.e., interior stairwells, emergency
generators, HVAC compressors on the roof, and communications equipment on the
roof). Additionally, Tenant shall not be required to remove, and shall not
remove, any of the following improvements: (1) wall and fixed partitioning (but
not easily removable shelving), (2) wallcoverings, (3) doors (including frame
and hardware), (4) floor coverings (other than area rugs), (5) Building Shell
Improvements, (6) ceiling and all elements thereof (including without limitation
ceiling grid and ceiling tile) and any improvements above the ceiling (excluding
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computer, telephone or telecommunications cables; provided Tenant restores any
damage caused by the removal of such items, including damage to the ceiling),
(7) light fixtures (excluding chandeliers), (8) wall switches and outlets, (9)
exit lights, (10) telephone wall penetrations with pullstring, (11) blinds (but
not curtains), (12) automatic fire sprinkler system, (13) decorative molding,
and (14) any other improvements necessary for the Premises to be a functional,
integral unit ("Non-Removable Improvements"). Tenant shall have the right to
remove all improvements other than Non-Removable Improvements, including all
computer and telecommunications equipment and related items. Tenant shall repair
all damage done to the Premises or the Project by removal of any improvements by
Tenant (except to the extent caused by Landlord's negligence) and restore any
areas so affected by such removal so as to be consistent with surrounding areas.
If Tenant fails to deliver the Premises in the condition aforesaid, then
Landlord may restore the Premises to such a condition at Tenant's expense
including an overhead charge of ten percent (10%). All property not removed
within the time period required hereunder shall thereupon be conclusively
presumed to have been abandoned by Tenant and the same shall be the property of
Landlord.
8.03. REPAIRS BY LANDLORD. Landlord shall repair and maintain the Land,
the Building, the Parking Facilities, all utilities, the structural portions of
the Project, including the roofing system, exterior walls, support beams,
foundations, columns, exterior doors and windows and lateral support of the
Building, the Building Shell Improvements and all Building systems, the Building
service areas and other Common Areas, and all areas of the Project for the
common non-exclusive use of all tenants in the Project, in a first-class
condition comparable to the first-class buildings in the Geographical Market
(including all structural alternations required by law) except to the extent
such maintenance and repairs are caused by the act of Tenant, its agents,
servants or employees (subject to Section 9.03). Additionally, Landlord agrees
to exercise all remedies available to Landlord under the Declaration to cause
the Adjacent Land and Common Facilities to be maintained in accordance with
First Class Building Standards.
8.04. REPAIRS BY TENANT. Tenant shall, at Tenant's sole cost and
expense, keep the Premises (excluding any items Landlord is obligated to repair
and maintain in Section 8.03 or to the extent caused by the act of Landlord or
its agents, servants, contractors or employees) and any appliances therein in
good condition and repair, reasonable wear and tear excepted. Tenant shall, upon
the expiration or earlier termination of this Lease, surrender the Premises to
the Landlord in good condition, ordinary wear and tear and damage caused by
casualty condemnation or the actions of Landlord, its agents or employees
excepted. Subject to Section 9.03, any injury or damage to the Premises or
Project, or the appurtenances or fixtures thereof, caused by or resulting from
the act of Tenant or any of the Tenant-Related Parties shall be repaired or
replaced by Tenant. If Tenant fails to maintain the Premises or fails to repair
or replace any damage to the Premises or Project resulting from the act of
Tenant, or any of the Tenant-Related Parties, and such failure continues beyond
the cure periods provided in Section 15.01(b) below, Landlord may, but shall not
be obligated to, cause such maintenance, repair or replacement to be done, as
Landlord deems necessary, and Tenant shall immediately pay to Landlord all costs
related thereto, plus a charge for overhead of ten percent (10%) of such cost.
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ARTICLE 9.
=================
9.01. LANDLORD'S INSURANCE. Landlord covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Landlord
will carry and maintain the insurance set forth in Section 9.01(a) and (b) of
this Article.
(a) General Comprehensive Public Liability Insurance insuring against
claims for personal or bodily injury or death or property damage occurring upon,
in or about the Project to afford protection to the limit of not less than
$5,000,000.00 combined single limit in respect to injury or death to any number
of persons and property damage arising out of any one (1) occurrence, with a
reasonable deductible. Tenant shall be named as an additional insured
thereunder, and Landlord shall furnish Tenant a certificate evidencing such
coverage being in effect in substantially the following form: "i2 Technologies,
Inc. is included as an additional insured but only as to claims covered by the
indemnity given Tenant by Colinas Crossing LP in Section 9.04 of the lease of
premises at 11511 Luna Road, Dallas, Texas dated August ___, 1999."
(b) Landlord shall at all times during the term hereof maintain in
effect an all-risk policy (including coverage against fire, wind, tornado,
earthquake, vandalism, malicious mischief, flood, water damage and sprinkler
leakage) or policies covering the Project (excluding personal property of
Tenant, but including the leasehold improvements in the Premises) for the full
insurable value on a replacement cost basis with reasonable deductibles
customary for owners of first class buildings in the Geographical Market.
Any insurance provided for in Subsections 9.01(a) and (b) above may be
effected by a policy or policies of blanket insurance covering additional items
or locations or assureds, provided that the requirements of Sections 9.01(a) and
(b) are otherwise satisfied. Tenant shall have no rights in any policy or
policies maintained by Landlord.
9.02. TENANT'S INSURANCE. Tenant covenants and agrees that from and
after the date of delivery of the Premises from Landlord to Tenant, Tenant will
carry and maintain, at its sole cost and expense, the insurance set forth in
paragraphs (a) and (b) of this Section 9.02.
(a) General Comprehensive Public Liability Insurance against claims for
personal or bodily injury or death or property damage occurring upon, in or
about the Premises (including contractual indemnity and liability coverage),
such insurance to insure both Tenant and its employees and to afford protection
to the limit of not less than $5,000,000.00, combined single limit, in respect
to injury or death to any number of persons and all property damage arising out
of any one (1) occurrence, with a reasonable deductible. Landlord shall be named
as an additional insured thereunder, and Tenant shall furnish Landlord a
certificate evidencing such coverage being
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in effect in substantially the following form: "Colinas Crossing LP is included
as an additional insured but only as to claims covered by the indemnity given
Landlord by i2 Technologies, Inc. in Section 9.04 of the Lease of the premises
at 11511 Luna Road, Dallas, Texas dated August ___, 1999."
(b) Property insurance on an all-risk basis (including coverage against
fire, wind, tornado, vandalism, malicious mischief, water damage and sprinkler
leakage) covering all personal property of Tenant located in the Premises, in an
amount not less than one hundred percent (100%) of full replacement cost
thereof. Such policy will be written in the name of Tenant. The property
insurance may provide for a reasonable deductible.
(c) All such insurance in Sections 9.01 and 9.02 will be issued and
underwritten by companies which are respectable and financially sound. Tenant
shall deliver to Landlord and Landlord shall deliver to Tenant duly executed
originals of the certificates of all policies of insurance required by Sections
9.01 and 9.02 (as applicable) evidencing in-force coverage. Further, each party
shall deliver to the other renewals thereof at least thirty (30) days prior to
the expiration of the respective policy terms.
9.03. WAIVER OF RECOVERY. ANYTHING IN THIS LEASE TO THE CONTRARY
NOTWITHSTANDING, LANDLORD AND TENANT EACH HEREBY RELEASES THE OTHER, AND THE
OTHER'S PARTNERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES, FROM ANY AND ALL
LIABILITY AND RESPONSIBILITY TO THE RELEASING PARTY AND TO ANYONE CLAIMING BY OR
THROUGH IT OR UNDER IT, BY WAY OF SUBROGATION OR OTHERWISE, FOR ALL RIGHTS OF
RECOVERY, ACTIONS, CAUSES OF ACTION, COSTS, EXPENSES, CLAIMS, OR DEMANDS
WHATSOEVER WHICH ARISE OUT OF DAMAGE OR DESTRUCTION OF PROPERTY OCCASIONED BY
PERILS WHICH CAN BE INSURED BY AN ALL RISK PROPERTY INSURANCE COVERAGE FORM
INCLUDING COVERAGE FOR EARTHQUAKE AND FLOOD REGARDLESS OF THE AMOUNTS OF THE
PROCEEDS PAYABLE UNDER SUCH INSURANCE AND THE CAUSE OR ORIGIN, INCLUDING
NEGLIGENCE OF THE OTHER PARTY HERETO, OR ITS AGENTS, OFFICERS, PARTNERS,
SHAREHOLDERS, SERVANTS OR EMPLOYEES. LANDLORD AND TENANT GRANT THIS RELEASE ON
BEHALF OF THEMSELVES AND THEIR RESPECTIVE INSURANCE COMPANIES AND EACH
REPRESENTS AND WARRANTS TO THE OTHER THAT IT IS AUTHORIZED BY ITS RESPECTIVE
INSURANCE COMPANY TO GRANT THE WAIVER OF SUBROGATION CONTAINED IN THIS SECTION
9.03. THIS RELEASE AND WAIVER SHALL BE BINDING UPON THE PARTIES WHETHER OR NOT
INSURANCE COVERAGE IS IN FORCE AT THE TIME OF THE LOSS OR DESTRUCTION OF
PROPERTY REFERRED TO IN THIS SECTION 9.03.
9.04. INDEMNITY. Except as otherwise expressly provided in this Lease
to the contrary, Landlord shall not be liable to Tenant, or to Tenant's agents,
servants, employees, assignees, subtenants, licensees or concessionaires for any
damage to person or property caused
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by the negligence or intentional torts of Tenant, or its agents, servants,
employees, assignees, subtenants, licensees or concessionaires, and Tenant
agrees to indemnify and hold Landlord, and its affiliates and their respective
partners, officers, directors, shareholders, employees and agents harmless from
all liability and claims for any such damage. Except as otherwise expressly
provided in this Lease to the contrary, Tenant shall not be liable to Landlord,
or to Landlord's agents, servants or employees for any damage to person or
property caused by the negligence or intentional torts of Landlord, or its
agents, servants or employees, and Landlord agrees to indemnify and hold Tenant,
and its affiliates and their respective partners, officers, directors,
shareholders, employees and agents harmless from all liability and claims for
such damage.
ARTICLE 10.
================
10.01. CASUALTY. If the Project shall be damaged by fire or other
casualty and (i) the risk is covered by insurance carried or required to be
carried by Landlord hereunder (whether or not actually maintained by Landlord)
and the cost of repairing such damage shall not be greater than fifty percent
(50%) of the then full replacement cost thereof, or (ii) the damage results from
a risk not covered by insurance maintained or required to be maintained (whether
or not actually maintained by Landlord) pursuant to this Lease to an extent less
than twenty percent (20%) of the replacement cost of the Project, or (iii)
Tenant has the right to terminate this Lease as provided below and does not
terminate this Lease, then, subject to the following provisions of this Article,
Landlord shall repair the Project (including all leasehold improvements in the
Premises) to the condition prior to the casualty. If repairs are not commenced
within ninety (90) days of the casualty, diligently prosecuted thereafter, or
substantially completed within two hundred seventy (270) days after the
commencement of such repairs, Tenant may terminate this Lease by giving written
notice to Landlord or Tenant may restore and offset the costs of restoration,
plus interest at the Default Interest Rate, against Rent. The Rent required to
be paid hereunder shall be abated in proportion to the portions of the Premises,
if any, which are rendered untenantable by fire or other casualty hereunder
until repairs of the Project are completed, or if the Project are not repaired,
until the termination date hereunder. Notwithstanding the foregoing, if the
Project is damaged by fire or other casualty to an extent greater than twenty
percent (20%) of the then full replacement cost thereof resulting from an act of
war, then Landlord shall have the right to terminate this Lease by giving
written notice to Tenant. If Landlord fails to give Tenant such written notice
within thirty (30) days following the occurrence of such casualty, then Landlord
shall repair the Project as set forth above.
If the Project shall be damaged (a) by fire or other casualty not
covered by insurance maintained or required to be maintained (whether insured or
not) by this Lease to an extent greater than twenty percent (20%) of the
replacement cost of the Project, or (b) the damage results from a risk covered
by insurance maintained or required to be maintained by this Lease to an extent
greater than fifty percent (50%) of the then full replacement cost thereof, then
Tenant may terminate this Lease by giving written notice to Landlord; if Tenant
fails to deliver such
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notice within thirty (30) days following the occurrence of such casualty, then
Landlord shall diligently proceed to repair the Project (including all leasehold
improvements in the Premises) to the condition prior to the casualty, failing
which Tenant may terminate this Lease by delivering written notice thereof to
Landlord or Tenant may restore and offset the costs of restoration, plus
interest at the Default Interest Rate, against Rent.
If a casualty damages any portion of the Project which renders any
portion of the Premises reasonably impracticable for the conduct of Tenant's
business, and if, in the reasonable determination of Landlord which shall be
made within thirty (30) days following the date of the casualty, the damaged
property cannot be repaired so as to make the Premises tenantable within two
hundred seventy (270) days from the date of commencement of repairs, then Tenant
shall have the right to terminate this Lease by notifying Landlord in writing of
such termination within sixty (60) days of the casualty.
If this Lease is terminated as provided above, all Rent shall be
apportioned and paid up to the termination date. Landlord shall not be required
to repair or replace any personal property of Tenant.
10.02. END OF TERM CASUALTY. Notwithstanding anything to the contrary
in this Article 10, Landlord and Tenant shall have the right to terminate this
Lease if a casualty affecting greater than twenty percent (20%) of the Project
occurs during the last twelve (12) months of the Term (as it may have been
extended).
ARTICLE 11.
=================
11.01. CONDEMNATION.
(a) If all or substantially all of the Premises, or such portion of the
Premises or the Project as would render the continuance of Tenant's business
from the Premises impracticable, should be permanently taken or condemned for
any public purpose, then this Lease, at the option of Tenant upon the giving of
notice to Landlord within ten (10) days from the date of such condemnation or
taking, shall forthwith cease and terminate as provided in subsection (c) below.
(b) If all or substantially all of the Project, or so much thereof as
to cause the remainder not to be economically feasible to operate, as reasonably
determined by Landlord should be permanently taken or condemned for any public
purpose and Landlord demolishes the Project on account of such taking or
condemnation, then Landlord shall have the option of terminating this Lease by
notice to Tenant within ten (10) days from the date of such condemnation or
taking.
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(c) If this Lease is terminated as provided in subsections (a) or (b)
above, this Lease shall cease and expire as if the date of transfer of
possession of the Premises, the Project, or any portion thereof, was the
expiration date of this Lease.
If this Lease is not terminated by either Landlord or Tenant as
aforesaid, Tenant shall pay all Rent up to the date of transfer of possession of
such portion of the Premises so taken or condemned and this Lease shall
thereupon cease and terminate with respect to such portion of the Premises so
taken or condemned as if the date of transfer of possession of the Premises was
the expiration date of the Lease Term relating to such portion of the Premises.
Thereafter the Base Rent and Additional Rent shall be calculated based on the
Rentable Area of the Premises not so taken or condemned. If any such
condemnation or taking occurs and this Lease is not so terminated, Landlord
shall immediately after the date of such condemnation, commence to repair the
Premises or the Project, as the case may be, so that the remaining portion of
the Premises or Project, as the case may be, shall constitute a complete
architectural unit, and in the case of the Premises reasonably fit for Tenant's
occupancy and business as reasonably determined by Tenant and Landlord (with any
disagreement between Tenant and Landlord to be resolved by arbitration pursuant
to Section 17.29 hereof). If Landlord fails to commence such repairs within
sixty (60) days after the condemnation or cause such repair to the Premises to
be substantially completed within one hundred eighty (180) days after the date
Landlord commences such restoration work, then Tenant shall have the right to
terminate this Lease by notifying Landlord in writing of such termination.
(d) In the event of any condemnation or taking of the Premises, Tenant,
or anyone claiming under it, at its expense may, jointly with Landlord, appear,
claim and prove, in proceedings relative to such taking, (i) the value of any
fixtures, furniture, furnishings, leasehold improvements and other personal
property that were condemned but which under the terms of this Lease Tenant is
permitted to remove at the end of the Lease Term, (ii) the unammortized cost of
leasehold improvements that are not so removable by Tenant at the end of the
Lease Term and that were installed solely at Tenant's expense (i.e., not paid by
Landlord or with allowances provided by Landlord), (iii) the loss of Tenant's
business as the result of such condemnation, and (iv) relocation and moving
expenses as the result of such condemnation.
ARTICLE 12.
===============
12.01. ACCESS. Tenant agrees that Landlord and its agents may enter the
Premises for the purpose of inspecting and making such repairs (structural or
otherwise), additions, improvements, changes or alterations to the Premises or
the Project as may be permitted or required under this Lease and to exhibit the
same to prospective purchasers and mortgagees or, during the last eighteen (18)
months of the Lease Term, prospective tenants. Landlord's entries in the
Premises shall be preceded by reasonable notice (except in the case of an
emergency) and shall not interfere with Tenant's use and occupancy of the
Premises for the Permitted Uses. Except for
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emergency repairs, Landlord will make all repairs in the Premises that could
materially interfere with Tenant's use and enjoyment of the Premises after
Building Operating Hours. With respect to any of the aforementioned entries by
Landlord into and upon any part of the Premises other than for emergencies,
Tenant shall be entitled to have a representative accompany Landlord.
Notwithstanding any of the foregoing, unless otherwise instructed by Tenant in
writing, Landlord shall not enter areas designated by Tenant as high security
areas (the "Security Areas") (provided Tenant has furnished Landlord with prior
written notice of the location of the Security Areas) unless (a) Landlord shows
reasonable cause and provides twenty-four (24) hours advance notice, or (b) an
emergency situation exists in respect of which emergency situation the
provisions of Section 7.02 shall apply. To the extent that Landlord's access to
any portion of the Premises (including without limitation the Security Areas) is
restricted or limited by Tenant, Landlord shall be relieved of its obligations
to perform those covenants that require access to such space during the time
Landlord is denied access to such space and Landlord shall have no liability or
responsibility to Tenant for any occurrences in such space during the time
Landlord is denied access to such space unless caused by Landlord or its agents
or employees. Tenant shall indemnify and defend and hold Landlord and its agents
harmless from and against all liability, loss, cost, damage, claim or expense
incurred by Landlord or its agents in connection therewith. Landlord and its
brokers shall have access to the Premises upon reasonable advance notice to
Tenant for the purpose of showing same to prospective tenants of other property
owned by Landlord in the Complex; subject, however to the following
restrictions: (1) Landlord and such brokers must give Tenant at least 24 hours
advance notice; (2) Landlord and such brokers shall not have access to Security
Areas or any other area Tenant believes sensitive or confidential activities or
materials are located; (3) Landlord must identify the prospective tenants and
Tenant shall not be required to give access to any persons Tenant believes are
competitors of Tenant's business; (4) Landlord and such brokers cannot interfere
with the conduct of Tenant's business, (5) such access need not be granted to
Landlord more than twice each calendar month, and (6) Tenant shall have the
right to require that a representative of Tenant accompany Landlord, the brokers
and the prospective tenants.
ARTICLE 13.
===============
13.01 SUBORDINATION. Provided that Landlord, Tenant and the Underlying
Party (defined below) execute a subordination, non-disturbance and attornment
agreement in recordable form reasonably acceptable to Tenant and the Underlying
Party (and Landlord and Tenant agree that the subordination, non-disturbance and
attornment agreement attached hereto as Exhibit "K" is reasonable and a
subordination, non-disturbance and attornment agreement which is substantively
the same as Exhibit "K" shall be reasonable) this Lease is and shall be subject
and subordinate to any and all ground or similar leases which may hereafter
affect the Project, all mortgages which may hereafter encumber or affect the
Project and to all renewals, modifications, consolidations, replacements and
extensions of any such leases and/or mortgages (the "Underlying Documents");
provided, however, that at the option of any Underlying Party, this Lease shall
be
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superior to the lease or mortgage of such Underlying Party. Tenant shall execute
promptly any subordination, non-disturbance and attornment agreement or other
appropriate certificate or instrument evidencing same reasonably acceptable to
Tenant that Landlord may request. In addition, as a part of any non-disturbance
agreement, the applicable Underlying Party must agree that the provisions of
this Lease governing the application of insurance proceeds and condemnation
awards shall be prior to such Underlying Party's ground lease or security
documents. As used in this Lease, the term "Underlying Party" shall mean the
holder of the Landlord's interest under any ground or similar lease and/or the
mortgagee or purchaser at foreclosure with respect to any mortgage. Tenant
agrees that any Underlying Party may unilaterally subordinate its mortgage or
lease to this Lease at any time by filing a notice of such subordination in the
Official Public Records of Real Property of the County where the Building is
located. Notwithstanding anything to the contrary contained in this Lease, the
Underlying Documents shall in all events be subordinate to the terms of the
Development Agreement. Without limiting the foregoing, in the event of the
termination of any ground or similar lease affecting the Project or the
enforcement by the trustee or the beneficiary under any mortgage or deed of
trust of remedies provided by law or such deed of trust, Tenant's rights to
terminate this Lease set forth in the Development Agreement shall be binding
upon any successor in interest (whether or not the events giving rise to such
termination occurred prior to or after such termination or enforcement).
13.02. ATTORNMENT. Provided Landlord, Tenant and the Underlying Party
execute the non-disturbance agreement in Section 13.01, in the event of the
termination of any ground or similar lease affecting the Project or the
enforcement by the trustee or the beneficiary under any mortgage or deed of
trust of remedies provided by law or by such mortgage or deed of trust, Tenant
will automatically become the Tenant 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 (a) any payment of Rent for
more than one (1) month in advance, or (b) any amendment or modification of this
Lease made without the written consent of such trustee or such beneficiary or
such successor in interest of which Tenant has prior notice. Upon request by any
such successor in interest, Tenant shall execute and deliver within ten (10)
days of receipt an instrument or instruments confirming the attornment provided
for herein reasonably satisfactory to Tenant.
13.03. QUIET ENJOYMENT. Provided an event of Default by Tenant is not
in existence, Tenant shall and may peaceably and quietly enjoy the Premises for
the Term, subject to the provisions of this Lease and Landlord agrees to defend
such title to Tenant's interest in the Premises as to any person.
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ARTICLE 14.
===============
14.01. ASSIGNMENT. Except as permitted in this Lease, Tenant shall not
assign or in any manner transfer this Lease or any estate or interest herein, or
sublet the Premises or any part thereof, or grant any license, concession or
other right of occupancy of any portion of the Premises without the prior
written consent of Landlord, which shall not be unreasonably withheld. If Tenant
desires at any time to enter into an assignment of this Lease or a sublease of
the Premises or any portion thereof, Tenant shall give written notice to
Landlord of its desire to do so, which notice shall contain (i) the name of the
proposed assignee or subtenant, and (ii) the nature of the proposed assignee's
or subtenant's business to be carried on in the Premises. Landlord shall give
Tenant notice of either its consent or its denial of consent to the proposed
assignment or sublease within fifteen (15) days of receipt of Tenant's request
and information reasonably necessary to enable Landlord to make an informed
decision regarding its consent, failing which the proposed sublease or
assignment shall be deemed approved. Changes in ownership of Tenant shall not be
considered an assignment.
Tenant shall, despite any permitted assignment or sublease, remain
directly and primarily liable for the performance of all of the covenants,
duties, and obligations of Tenant hereunder and Landlord shall be permitted to
enforce the provisions of this Lease against Tenant or any assignee or sublessee
without demand upon or proceeding in any way against any other person; provided,
however, if Tenant assigns all of its interest under this Lease to an assignee
that is a Credit Assignee (defined below) as of the date of such assignment and
such assignee assumes all obligation under this Lease thereafter accruing,
Tenant shall be relieved of its obligations under this Lease accruing after such
assignment. As used herein, a "Credit Assignee" shall mean an assignee that as
of the date of such assignment has at least the minimum investment grade credit
rating of Moody or Standard & Poor's.
Notwithstanding anything to the contrary contained herein, Tenant may,
without the prior written consent of Landlord, sublet the Premises or any part
thereof to an affiliate, parent or subsidiary of Tenant, or assign this lease to
an affiliate, parent or subsidiary of Tenant, or permit occupancy of any portion
of the Premises by an affiliate, parent or subsidiary of Tenant, but only so
long as such affiliate, parent or subsidiary, controls or is controlled by or is
under common control with Tenant. Any such assignee hereunder shall be subject
to the terms of Sections 1.01(e) and 6.01 hereof. For purposes, hereof "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such entity, whether
through the ownership of voting securities or by contract or otherwise. In
addition, without the consent of Landlord, Tenant and any subsequent assignee
shall have the right to assign this lease or sublet the Premises to (i) any
corporate successor of Tenant by merger, dissolution, or otherwise, or (ii)
purchaser of substantially all of Tenant's assets.
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If Tenant shall assign this Lease or sublet any part of the Premises
for consideration in excess of the sum of (A) pro-rata portion of the Rent
applicable to the space subject to the assignment or sublet, plus (B) the
reasonable out-of-pocket costs and expenses incurred by Tenant under or in
connection with such sublease or assignment (including without limitation, the
costs for (i) broker's commissions paid by Tenant with regard to the transfer,
(ii) reasonable legal fees with regard to the transfer, (iii) expenses of
finishing out or renovation of the space involved), (iv) expenses of marketing
and advertising, and (v) cash rental concessions, then Tenant shall pay to
Landlord as Additional Rent fifty percent (50%) of any such excess within thirty
(30) days of receipt, and Tenant shall be entitled to retain the remaining fifty
percent (50%) of such excess.
14.02. CONSENT. Consent by Landlord to a particular assignment or
sublease shall not be deemed a consent to any other or subsequent transaction.
If this Lease is assigned or if the Premises or any portion thereof are
subleased without the permission of Landlord, then Landlord may nevertheless
collect rent from the assignee or sublessee and apply the net amount collected
to the Rent payable hereunder, but no such transaction or collection of rent or
application thereof by Landlord shall be deemed a waiver of any provision hereof
or a release of Tenant from the performance by Tenant of its obligations
hereunder.
14.03. TRANSFER BY LANDLORD.
In the event of the transfer and assignment by Landlord of its interest
in this Lease and in the Project to a person expressly assuming Landlord's
obligations under this Lease accruing before and after the transfer, Landlord
shall thereby be released from any further obligations hereunder, and Tenant
agrees to look solely to such successor in interest of the Landlord for
performance of such obligations. Any security given by Tenant to secure
performance of Tenant's obligations hereunder may be assigned and transferred by
Landlord to such successor in interest, and Landlord shall thereby be discharged
of any further obligation relating thereto from the date of closing.
ARTICLE 15.
===============
15.01 DEFAULT BY TENANT. Each of the following shall constitute a
"Default" by Tenant:
(a) The failure of Tenant to pay the Base Rent, or any other
installment of Rent when due, and the continuance of such failure for a period
of ten (10) days after receipt of written notice thereof from Landlord;
provided, however, Landlord shall not be required to give such ten (10) day
notice, and Tenant shall not be entitled to same, more than two (2) times during
any calendar year, and any such subsequent failure during such calendar year
shall be a Default by Tenant upon the occurrence thereof without any notice
whatsoever to Tenant; or
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(b) Tenant shall fail to fulfill or perform, in whole or in part, any
of its obligations under this Lease (other than the payment of Rent) and such
failure or non-performance shall continue for a period of thirty (30) days after
written notice thereof has been given by Landlord to Tenant, provided that if
such failure or non-performance cannot be cured within such thirty (30) day
period, such thirty (30) day period shall be extended so long as Tenant promptly
commences a cure and diligently prosecutes such cure to completion; or
(c) The entry of a decree or order by a court having jurisdiction
adjudging Tenant or any guarantor to be bankrupt or insolvent or approving as
properly filed a petition seeking reorganization of Tenant or guarantor under
the National Bankruptcy Act, or any other similar applicable Federal or State
law, or a decree or order of a court having jurisdiction for the appointment of
a receiver or liquidator or a trustee or assignee in bankruptcy or insolvency of
Tenant or Guarantor or its property or for the winding up or liquidation of its
affairs; or Tenant or guarantors shall institute proceedings to be adjudicated a
voluntary bankruptcy or shall consent to the filing of any bankruptcy,
reorganization, receivership or other proceeding against Tenant or guarantor, or
any such proceedings shall be instituted against Tenant or guarantor and the
same shall not be vacated within one hundred twenty (120) days after the same
are commenced; or
(d) Tenant shall make an assignment for the benefit of Tenant's
creditors or admit in writing Tenant's inability to pay the debts of Tenant
generally as they may become due.
15.02. RIGHTS UPON DEFAULT BY TENANT.
(a) This Lease and the Term and estate hereby granted and the demise
hereby made are subject to the limitation that if and whenever there shall occur
any event of Default, as enumerated above, Landlord may, at Landlord's option,
without any additional notice or demand whatsoever (any such notice and demand
being expressly waived by Tenant) and without judicial process, in addition to
any other remedy or right given hereunder or by law or equity, do any one or
more of the following:
(1) Terminate this Lease by written notice to Tenant
and draw upon the Letter of Credit called for in Section 4.03
of this Lease in accordance with the terms thereof, in which
event Tenant shall immediately surrender possession of the
Premises to Landlord;
(2) Terminate Tenant's right to possession of the
Premises under this Lease without terminating this Lease
itself, by written notice to Tenant and draw upon the Letter
of Credit called for in Section 4.03 of this Lease in
accordance with the terms thereof, in which event Tenant shall
immediately surrender possession of the Premises to Landlord;
or
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(3) Enter upon and take possession of the Premises in
accordance with applicable laws and expel or remove Tenant and
any other occupant therefrom and draw upon the Letter of
Credit called for in Section 4.03 of this Lease in accordance
with the terms thereof, with or without having terminated this
Lease.
(b) Any right of Tenant, through contract, statute or otherwise, to
receive notice of Landlord's intent to exercise any of Landlord's remedies
hereunder is hereby waived by Tenant. Any right of Tenant through contract,
statute, or otherwise to cure any Default before Landlord may exercise any of
its remedies hereunder is hereby waived by Tenant (however, Tenant does not
waive the cure periods in Section 15.01 above).
(c) In the event of any Default described in subsection (b) of Section
15.01, Landlord shall have the right to enter upon the Premises in accordance
with applicable laws without being liable for prosecution or any claim for
damages therefor, and do whatever Tenant is obligated to do under the terms of
this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses
which Landlord may incur in thus effecting compliance with Tenant's obligations
under this Lease, and Tenant further agrees that Landlord shall not be liable
for any damages resulting to Tenant from such action.
(d) It is hereby expressly stipulated by Landlord and Tenant that any
of the above listed actions including, without limitation, termination of this
Lease, termination of Tenant's right to possession, and re-entry by Landlord,
will not affect the obligations of Tenant for the unexpired Term of this Lease,
including the obligations to pay unaccrued monthly rentals and other charges
provided in this Lease for the remaining portion of the Term of the Lease.
(e) Exercise by Landlord of any one or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord. No such alteration of locks or other security devices and no removal
or other exercise of dominion by Landlord over the property of Tenant or others
at the Premises shall be deemed unauthorized or constitute a conversion, Tenant
hereby consenting, after any event of Default, to the aforesaid exercise of
dominion over Tenant's property within the Premises. All claims for damages by
reason of such re-entry and/or repossession and/or alteration of locks or other
security devices in accordance with applicable laws are hereby waived, as are
all claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process.
Tenant agrees that any re-entry by Landlord may be pursuant to a
judgment obtained in forcible detainer proceedings or other legal proceedings or
without the necessity for any legal proceedings but in accordance with all
applicable laws, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
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(f) In the event Landlord elects to terminate this Lease by reason of
an event of Default, then notwithstanding such termination, the Tenant shall be
liable for and shall pay to the Landlord, at the address specified in Section
1.01(a) above, the sum of all Rent accrued to the date of such termination,
plus, as damages, the reasonable cost of recovering and reletting the Premises
for its current use (not costs of renovating for a different use), and an amount
equal to the total of the Rent provided in this Lease for the remaining portion
of the Term of the Lease (had such Term not been terminated by Landlord prior to
the Expiration Date stated in Section 3.01), less the reasonable rental value of
the Premises for such period; such amount to be discounted to present value at
the rate of six percent (6%) per annum. In no event shall Tenant be liable for
concessions or allowances given a replacement tenant.
In the event Landlord elects to terminate this Lease by reason of an
event of Default, in lieu of exercising the right of Landlord under the
preceding paragraph, Landlord may instead hold Tenant liable for all Rent
accrued to the date of such termination, plus such Rent as would otherwise have
been required to be paid by Tenant to Landlord during the period following
termination of the Term measured from the date of such termination by Landlord
until the Expiration Date stated in Section 3.01 (had Landlord not elected to
terminate the Lease on account of such event of Default) diminished by any net
sums thereafter received by Landlord through reletting the Premises during said
period (after deducting reasonable expenses incurred by Landlord as provided in
Section 15.03 hereof). Actions to collect amounts due by Tenant as provided for
in this paragraph may be brought from time to time by Landlord during the
aforesaid period, on one or more occasions, without the necessity of Landlord's
waiting until expiration of such period; and in no event shall Tenant be
entitled to any excess of rent obtained by reletting over and above the Rent
provided for in this Lease. If Landlord elects to exercise the remedy prescribed
in this paragraph, this election shall in no way prejudice Landlord's right at
any time hereafter to cancel said election in favor of the remedy prescribed in
the foregoing paragraph.
(g) In the event that Landlord elects to repossess the Premises without
terminating this Lease, then Tenant shall be liable for and shall pay to
Landlord at the address specified in Section 1.01(a) above, all Rent accrued to
the date of such repossession, plus Rent required to be paid by Tenant to
Landlord during the remainder of the Term until the Expiration Date of the Term
as stated in Section 3.01, diminished by any net sums thereafter received by
Landlord through reletting the Premises during said period (after deducting
reasonable expenses incurred by Landlord as provided in Section 15.03). Actions
to collect amounts due by Tenant as provided in this paragraph may be brought
from time to time by Landlord during the aforesaid period, on one or more
occasions, without the necessity of Landlord's waiting until expiration of the
Term and in no event shall Tenant be entitled to any excess of any rent obtained
by reletting over and above the Rent provided for in this Lease.
(h) Landlord shall exercise reasonable efforts to mitigate its damages
arising from a Default of Tenant hereunder.
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15.03. EXPENSE OF REPOSSESSION. It is further agreed that, in addition
to payments required pursuant to Section 15.02 above, Tenant shall compensate
Landlord for all expenses incurred by Landlord in repossession (including among
other expenses, the total amount of any increase in insurance premiums caused by
the vacancy of the Premises).
15.04. CUMULATIVE REMEDIES; WAIVER OR RELEASE. The remedies of Landlord
and Tenant under this Lease shall be deemed cumulative and not exclusive of each
other. No action, omission or commission by Landlord or Tenant, including
specifically, the failure to exercise any right, remedy or recourse, shall be
deemed a waiver or release of the same. A waiver or release shall exist and be
effective only as set forth in a written document executed by Landlord and
Tenant, and then only to the extent recited therein. A waiver or release with
reference to any one event shall not be construed as continuing as to, or as a
bar to, or as a waiver or a release of, any right, remedy or recourse as to any
other or subsequent event.
15.05. ATTORNEY'S FEES. In the event of any legal action or proceeding
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action (including, without limitation, all costs of
appeal) and such amount shall be included in any judgment rendered in such
proceeding.
15.06. FINANCIAL STATEMENTS. Each party warrants and represents that
all financial statements, operating statements or other financial data at any
time given to the other are, or will be, as of their respective dates, true and
correct in all material respects.
15.07. NEGATION OF LIEN FOR RENT. Landlord hereby expressly waives and
negates any and all contractual liens and security interests, statutory liens
and security interests or constitutional liens and security interests arising by
operation of law to which Landlord might now or hereafter be entitled on all
property of Tenant now or hereafter placed in or upon the Premises (except for
judgment liens that may hereafter arise in favor of Landlord). The waiver and
negation contained herein shall not waive, negate or otherwise affect any
unsecured claim Landlord may have.
15.08. DEFAULT BY LANDLORD. If Landlord fails to perform or observe any
covenant, term, provision or condition of this Lease, and such default should
continue beyond a period of ten (10) days as to a monetary default or thirty
(30) days (or such longer period as is reasonably necessary to remedy such
non-monetary default, provided Landlord shall continuously and diligently pursue
such remedy at all times until such default is cured) as to a non-monetary
default, after in each instance written notice thereof is given by Tenant to
Landlord [and a copy of said notice is sent simultaneously therewith to any
party (including without limitation a mortgagee) entitled to receive notice
pursuant to Section 17.04 hereof (the "Notice Parties")] then, in any such event
Tenant shall have the right to (i) cure such default, and Landlord shall
reimburse Tenant for all reasonable sums expended in so curing said default
(which reimbursement Tenant may effect through the withholding of Rent), and/or
(ii) commence such
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actions at law or in equity to which Tenant may be entitled (other than an
action to terminate this Lease). Tenant shall be entitled to offset against Base
Rent (provided that such offset shall be limited to twenty percent (20%) of any
Base Rent installment), or to counterclaim for any amounts owed to Tenant by
Landlord pursuant to this Lease, plus interest thereon at the Default Interest
Rate, to the extent that such amounts remain unpaid. Notwithstanding the
foregoing, Tenant may offset against all Base Rent and other Rent next coming
due without limitation (and not just 20% thereof) (1) any portion of the Finish
Allowance not paid by Landlord to Tenant when due in accordance with Exhibit
"D-1", (2) any portion of the Security Amount not paid by Landlord to Tenant
when due in accordance with Section 7.01 (e), (3) any portion of the sums owed
to Tenant under Section 5.04 not paid when due, and/or (4) any amounts
determined to be Landlord's liability pursuant to Section 17.29 or in any
judgment entered by a court and to which execution has not been stayed (through
appeal or bond), plus interest on all such sums in (1), (2), (3) and (4) at the
Default Interest Rate. Tenant agrees that the cure of any default by any of the
Notice Parties shall be deemed a cure by Landlord under this Lease. The
foregoing provisions shall not limit other remedies available to Tenant under
this Lease or at law or in equity.
ARTICLE 16.
==================
16.01. HAZARDOUS WASTE.
(a) The term "Environmental Law" shall mean any federal, state or local
statute, regulation or ordinance or any judicial or other governmental order
pertaining to the protection of health, safety or the environment. The term
"Hazardous Substance" shall mean any hazardous, toxic, infectious or radioactive
substance, waste and material as defined or listed by any Environmental Law and
shall include, without limitation, petroleum oil and its fractions.
(b) Tenant shall not cause or authorize any Hazardous Substance to be
spilled, leaked, disposed of or otherwise released on or under the Project.
Tenant may use and sell in the Project only those Hazardous Substances typically
used and sold in the prudent and safe operation of the business permitted by
Sections 1.01(e) and 6.01 of this Lease. Tenant may store such Hazardous
Substances in the Project, but only in quantities necessary to satisfy Tenant's
reasonably anticipated needs. Tenant shall comply with all Environmental Laws
and exercise the highest degree of care in the use, handling and storage of
Hazardous Substances and shall take all practicable measures to minimize the
quantity and toxicity of Hazardous Substances used, handled or stored on the
Premises.
(c) Tenant shall immediately notify Landlord upon becoming aware of the
following: (i) any spill, leak, disposal or other release of a Hazardous
Substance on, under or adjacent to the Premises; (ii) any notice or
communication from any governmental agency or any other person relating to any
Hazardous Substance on, under or adjacent to the Premises; or (iii) any
violation
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of any Environmental Law with respect to the Premises or Tenant's activities on
or in connection with the Premises.
(d) In the event of a spill, leak, disposal or other release of a
Hazardous Substance on or under the Premises caused by Tenant or any of the
Tenant-Related Parties, or the threat of the same, Tenant shall (i) immediately
undertake all emergency response necessary to contain, cleanup and remove the
released Hazardous Substance, (ii) promptly undertake all investigatory,
remedial, removal and other response action necessary or appropriate to ensure
that any Hazardous Substances contamination is eliminated as required by
applicable Environmental Law, and (iii) provide Landlord copies of all
correspondence with any governmental agency regarding the release (or threatened
or suspected release) or the response action, a detailed report documenting all
such response action, and a certification that any contamination has been
eliminated. All such response action shall be performed, all such reports shall
be prepared and all such certifications shall be made by an environmental
consultant reasonably acceptable to Landlord.
(e) In the event of a spill, leak, disposal or other release of a
Hazardous Substance on or under the Premises caused by Landlord, or any of its
contractors, agents or employees or by Landlord's previous tenants of the
Premises, or the threat of the same, Landlord shall (i) immediately undertake
all emergency response necessary to contain, cleanup and remove the released
Hazardous Substance, (ii) promptly undertake all investigatory, remedial,
removal and other response action necessary or appropriate to ensure that any
Hazardous Substances contamination is eliminated as required by applicable
Environmental Law, and (iii) provide Tenant copies of all correspondence with
any governmental agency regarding the release (or threatened or suspected
release) or the response action, a detailed report documenting all such response
action, and a certification that any contamination has been eliminated. All such
response action shall be performed, all such reports shall be prepared and all
such certifications shall be made by an environmental consultant reasonably
acceptable to Tenant.
(f) Upon expiration of this Lease or sooner termination of this Lease
for any reason, Tenant shall remove all Hazardous Substances and facilities used
for the storage or handling of Hazardous Substances from the Premises and
restore the affected areas by repairing any damage caused by the installation or
removal of the facilities. Following such removal, Tenant shall certify in
writing to Landlord that all such removal is complete.
(g) Landlord represents and warrants to Tenant that to the best of
Landlord's actual knowledge, the Premises and Project do not presently contain
any Hazardous Substance. Additionally, Landlord agrees that Landlord shall not
cause or authorize any Hazardous Substance to be generated, treated, stored,
released or disposed of, or otherwise placed, deposited in or located on the
Premises or Project by Landlord or its agents, contractors or employees, and no
activity shall be taken by Landlord or its agents or employees on the Premises
or Project that would cause or contribute to (x) the Premises to become a
generation, treatment, storage or disposal facility within the meaning of, or
otherwise bring the Premises within the ambit
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of Environmental Law, (y) a release or threatened release of toxic or hazardous
wastes or substances, pollutants or contaminants, from the Premises or Project
within the meaning of, or otherwise result in liability in connection with the
Premises within the ambit of Environmental Law, or (z) the discharge of
pollutants or effluents into any water source or system, the dredging or filling
of any waters, or the discharge into the air of any emissions, that would
require a permit under Environmental Law.
(h) Notwithstanding the provisions of Article 14 of this Lease, it
shall not be unreasonable for Landlord to withhold its consent to any
assignment, sublease or other transfer of Tenant's interest in this Lease if a
proposed transferee's anticipated use of the Premises involves the generation,
storage, use, sale, treatment, release or disposal of any Hazardous Substance
other than those typically used and sold in the prudent and safe operation of
the businesses permitted by Sections 1.01(e) and 6.01 of this Lease.
(i) Tenant shall indemnify, defend and hold harmless Landlord, its
employees and agents, any persons holding a security interest in the Premises,
and the respective successors and assigns of each of them from and against any
and all claims, demands, liabilities, damages, fines, losses, costs (including
without limitation the cost of any investigation, remedial, removal or other
response action required by Environmental Law) and expenses (including without
limitation reasonable attorneys' fees and expert fees in connection with any
trial, appeal, petition for review or administrative proceedings) arising out of
or in any way relating to the use, treatment, storage, generation, transport,
release, leak, spill, disposal or other handling of Hazardous Substances on the
Premises by Tenant or any Tenant-Related Parties. Tenant's obligations under
this paragraph shall survive the expiration or termination of this Lease for any
reason. Landlord's rights under this paragraph are in addition to and not in
lieu of any other rights or remedies to which Landlord may be entitled under
this Lease or otherwise.
(j) Landlord shall indemnify, defend and hold harmless Tenant and its
employees and agents and the respective successors and assigns of each of them
from and against any and all claims, demands, liabilities, damages, fines,
losses, costs (including without limitation the cost of any investigation,
remedial, removal or other response action required by Environmental Law) and
expenses (including without limitation attorneys' fees and expert fees in
connection with any trial, appeal, petition for review or administrative
proceeding) arising out of or in any way relating to the actual or alleged use,
treatment, storage, generation, transport, release, leak, spill, disposal or
other handling of Hazardous Substances on the Premises by Landlord, or any of
its contractors, agents or employees or by Landlord's previous tenants of the
Premises. Landlord's obligations under this paragraph shall survive the
expiration or termination of this Lease for any reason. Tenant's rights under
this paragraph are in addition to and not in lieu of any other rights or
remedies to which Tenant may be entitled under this Agreement or otherwise.
(k) All representations, warranties and indemnities contained in this
Article 16 shall survive the termination of this Lease.
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ARTICLE 17.
==================
17.01. SUBSTITUTE PREMISES. Deleted intentionally.
17.02. ESTOPPEL LETTERS. Within ten (10) business days after the
written request of either Landlord or Tenant, the other party will execute, from
time to time, either an estoppel certificate or a three-party agreement among
Landlord, Tenant and any third party certifying, to the best of such party's
knowledge and belief, to such facts (if true) as Landlord or Tenant, as the case
may be, or such third party, may reasonably require in connection with the
business dealings of the parties and the status of certain matters pertaining to
this Lease.
17.03. HOLDOVER.
Subject to the provisions of subsection (b) below, if Tenant shall
remain in possession of the Premises after the expiration or earlier termination
of this Lease, Tenant will be deemed to be a tenant at sufferance and shall be
subject to immediate eviction and removal and shall pay for each month or
partial month of holdover period as rent an amount equal to the greater of (i)
one hundred fifty percent (150%) of the then actual rental rate prevailing on
the date of such termination or expiration, or (ii) one hundred fifty percent
(150%) of the prevailing then actual market rental rate for the Premises on the
date of such expiration or termination. The remaining in possession by Tenant or
the acceptance by Landlord of the payment of said rent shall not be construed as
an extension or renewal of this Lease unless extended by Landlord pursuant to
the preceding sentence. Tenant shall indemnify Landlord against all claims for
damages by any other tenant to whom Landlord may have leased all or any part of
the Premises effective upon the termination of this Lease.
17.04. NOTICE. Any notice or communication required or permitted in
this Lease shall be given in writing, sent by (i) personal delivery, (ii)
expedited delivery service with proof of delivery, or (iii) United States
registered or certified mail, return receipt requested, addressed as provided in
Section 1.01(a) or to such other address or to the attention of such other
person as shall be designated from time to time in writing by the applicable
party and sent in accordance herewith. Any such notice or communication shall be
deemed to have been delivered, whether actually received or not, four (4)
business days following deposit in the US Mail, postage paid, certified or
return receipt requested at the address and in the manner provided herein, or
any such notice or communication shall have been deemed to have been given as of
the date so delivered and actually received at the address and in the manner
provided herein in the case of personal delivery. Either party shall have the
right to change its address to which notices shall thereafter be sent and the
party to whose attention such notice shall be directed by giving the other party
notice thereof in accordance with the provisions of this Section 17.04.
Additionally, each of Landlord and Tenant may designate up to four (4)
additional addresses to which copies of all notices shall be sent.
Notwithstanding anything contained in this Section 17.04 to the contrary, any
notice
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regarding a party's change of address or designation of additional addressees
shall become effective only upon ten (10) days prior notice thereof.
17.05. RULES AND REGULATIONS. Tenant, as well as any permitted assignee
or sublessee, will comply with Building Rules adopted by Landlord, which are set
forth in Exhibit "C" attached hereto and made a part hereof for all purposes.
Landlord shall have the right to change such Building Rules or to amend them in
any reasonable manner for the safety, care and cleanliness of the Project, and
the Premises, and for preservation of good order therein, subject to Tenant's
approval (which approval shall not be unreasonably withheld) all of which
changes and amendments will be sent by Landlord to Tenant in writing and shall
be thereafter binding upon, carried out and observed by Tenant. Tenant shall
exercise diligent efforts to cause compliance with such Building Rules by the
employees, servants, agents and invitees of Tenant. If the Building Rules and
the terms of this Lease conflict, the terms of this Lease shall control.
Landlord shall enforce the Building Rules in a uniform manner.
17.06. LANDLORD'S LIABILITY. If Tenant shall recover a money judgment
against Landlord, such judgment shall be satisfied only out of the right, title
and interest of Landlord in the Project and neither Landlord nor its partners,
directors, shareholders, agents or employees shall be liable for any deficiency,
it being agreed that Landlord shall never be personally liable for any such
judgment. Landlord's interest in the Project shall include all insurance
proceeds, condemnation awards, and sales and refinancing proceeds.
17.07. AMERICANS WITH DISABILITIES ACT AND TEXAS ARCHITECTURAL BARRIERS
ACT. Notwithstanding anything to the contrary contained in the Lease, Landlord
and Tenant agree that the responsibility for compliance with the Americans with
Disability Act of 1990 ("ADA") shall be allocated as follows: (i) Landlord shall
be responsible for compliance with the provisions of Title III of ADA for all
exterior and interior areas of the Building not included within the Premises and
for the restrooms in the Premises and all structural alternations necessary to
cause the Premises to comply with the ADA; (ii) Landlord shall be responsible
for the compliance with the provisions of Title III of ADA for any construction,
renovations, alterations and repairs made by Landlord, its agents or
contractors; (iii) Tenant shall be responsible for compliance with the
provisions of Title III of the ADA in the Premises for any construction,
renovations, alterations and repairs made within the Premises if such
construction, renovations and repairs are made by Tenant, its employees, agents
or contractors (except for the restrooms and any structural alternations in the
Premises, which are Landlord's responsibility under this Lease); and (iv) except
for the restrooms and any structural alterations, which are Landlord's
responsibility under this Lease, Tenant shall be responsible for causing the
interior of the Premises to comply with the provisions of Title III of the ADA.
17.08. AUTHORIZATION. If either party signs as a corporation, each of
the persons executing this Lease on behalf of such party represents and warrants
that it is a duly organized and existing corporation, that it 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
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corporation were authorized to do so by appropriate corporate actions. If either
party is a general partnership, limited partnership, trust, or other legal
entity, each individual executing this Lease on behalf of said entity represents
and warrants that he or she is duly authorized to execute this Lease on behalf
of such entity and in accordance with such entity's governing instruments, and
that this Lease is binding upon such entity. Upon either party's request, the
other party shall furnish such party with proper proof of due authorization for
its execution of this Lease.
17.09. BROKERS. Except as provided in that certain Professional
Services Fee Agreement dated January 30, 1999 (as amended by that certain letter
agreement dated March 11, 1999) by and between Landlord and the brokers in
Section 1.10(n) ("Brokers") pursuant to which Landlord has agreed to pay a real
estate brokerage fee upon the terms described therein, Tenant represents that it
has not engaged, and owes no fee to, any other broker, agent or similar party
with respect to the transactions contemplated by this Lease. Accordingly, Tenant
agrees to indemnify and hold harmless Landlord from and with respect to any
other claims for a brokerage fee, finder's fee or similar payment with respect
to this Lease which is made by any party claiming by, through or under Tenant
(other than the Brokers). Similarly, Landlord agrees to indemnify and hold
harmless Tenant from and with respect to any claims for a brokerage fee,
finder's fee or similar payment with respect to this Lease which is made by
Brokers or any party claiming by, through or under Landlord.
17.10. MEMORANDUM OF LEASE. Tenant shall not record this Lease.
Notwithstanding the foregoing, Landlord and Tenant shall enter into the
Memorandum of Lease attached hereto as Exhibit "I" for the purpose of recording
the same, and Tenant may, at Tenant's expense, record the same.
17.11. PARKING. Exhibit "F" attached hereto sets forth the agreements
between Landlord and Tenant relating to the Parking Facilities.
17.12. TIME OF ESSENCE. Time is of the essence of this Lease and all of
its provisions in which performance is a factor.
17.13. ENTIRE AGREEMENT. This Lease, including the Exhibits and Riders
attached hereto (which Exhibits and Riders are hereby incorporated herein and
shall constitute a portion hereof)and the Development Agreement, contain the
entire agreements between Landlord and Tenant with respect to the subject
matters hereof. Landlord acknowledges that Tenant has certain rights in the
Development Agreement to terminate this Lease and the Development Agreement does
contain restrictions on sale or conveyance of the Project, which rights and
restrictions are binding on Landlord and any successors and assigns of Landlord.
17.14. AMENDMENT. Any agreement hereafter made between Landlord and
Tenant shall be ineffective to modify, release or otherwise affect this Lease,
in whole or in part, unless such agreement is in writing and signed by the party
to be bound thereby.
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17.15. SEVERABILITY. If any term or provision of this Lease shall, to
any extent, be held invalid or unenforceable by a final judgment of a court of
competent jurisdiction, the remainder of this Lease shall not be affected
thereby.
17.16. SUCCESSORS. This Lease shall bind and inure to the benefit of
the respective heirs, legal representatives, successors, and assigns of the
parties hereto.
17.17. CAPTIONS. The captions in this Lease are inserted only as a
matter of convenience and for reference only and they in no way define, limit,
or describe the scope of this Lease or the intent of any provisions hereof.
17.18. NUMBER AND GENDER. All genders used in this Lease shall include
the other genders, the singular shall include the plural, and the plural shall
include the singular, whenever and as often as may be appropriate.
17.19. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
17.20. CHANGES TO THE PROJECT. No material changes shall be made to the
location, configuration, layout or design of the Building, Common Areas, Parking
Facilities, the Premises or any aspect of the Project without Tenant's prior
written consent which shall not be unreasonably withheld, conditioned or delayed
(except as they relate to the Premises or as otherwise provided in Section
1.01(p), which may be withheld in Tenant's sole discretion)
17.21. NO PRESUMPTION AGAINST DRAFTER. Landlord and Tenant understand,
agree and acknowledge that: (i) this lease has been freely negotiated by both
parties; and (ii) that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this lease or any of its terms or
conditions, there shall be no inference, presumption or conclusion drawn
whatsoever against either party by virtue of that party having drafted this
lease or any portion thereof.
17.22. EXAMINATION OF LEASE. Submission by Landlord of this instrument
to Tenant for examination or signature does not constitute a reservation of or
option for lease. This Lease will be effective as a lease or otherwise only upon
execution by and delivery to both Landlord and Tenant.
17.23. DEFINED TERMS AND MARGINAL HEADINGS. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as singular. If more
than one person is named as Tenant, the obligations of such persons are joint
and several. The headings and titles to the articles, sections and subsections
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
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17.24. NO REPRESENTATIONS. Landlord and Landlord's agents have made no
warranties, representations or Promises (express or implied) with respect to the
Premises, the Building or any other part of the Property (including, without
limitation, the condition, use or suitability of the Premises, the Building or
the Property), except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this Lease.
17.25. IMPROVEMENTS ON ADJACENT LAND. In no event may any improvements
be located on the portion of Adjacent Land which is owned by Landlord or any
affiliate of Landlord closer to the Building or any subsequent building leased
by Tenant on the Adjacent Land than the improvements shown on the site plan
attached hereto as Exhibit "B-2".
17.26 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease with respect to events which occurred prior to such termination or
expiration of this Lease.
17.27. COMPETITORS OF TENANT. Except in the exercise of Landlord's
remedy to repossess the entire Premises upon the default of Tenant hereunder,
Landlord shall not lease or grant any rights to occupy any space in the Project
to any person or entity other than Tenant. The foregoing does not limit Tenant's
rights under Section 14.01 of this Lease.
17.28. FIRST OFFER ON SALE.
(a) If at any time during the Term, Landlord desires to sell all or any
portion of the Project, Landlord shall notify Tenant in writing (the "Sale
Notice") of the terms upon which Landlord is willing to sell such portion of the
Project. Tenant shall thereupon have the prior right and option to purchase such
portion of the Project ("ROFO") at the price and on the terms and conditions
stated in the Sale Notice. Nothing contained herein shall prohibit Landlord from
having discussions with other prospective purchasers of such portion of the
Project. Tenant may exercise the ROFO by giving Landlord written notice thereof
(the "Exercise Notice") within fifteen (15) calendar days after the date of
receipt by Tenant of the Sale Notice.
(b) In the event Tenant effectively exercises its ROFO under Section
17.28(a) hereof, Tenant and Landlord shall, within twenty (20) business days
following Landlord's receipt of the Exercise Notice, execute a contract of sale
(the "Tenant Contract") at the same price and upon the same terms and conditions
as stated in the Sale Notice.
(c) Should Tenant fail to deliver the Exercise Notice pursuant to
Section 17.28(a) hereof, Tenant's ROFO shall be deemed waived, and Landlord
shall thereafter be entitled to sell such portion of the Project to any third
party upon the ROFO Terms (hereinafter defined). "ROFO Terms" shall mean terms
no less favorable to Landlord than the terms and conditions
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contained in the Sale Notice, however, the purchase price may be up to five
percent (5%) less than that set forth in the Sale Notice.
(d) Notwithstanding the provisions of subparagraph (c) hereof, if
Landlord does not subsequently enter into a contract of sale with a third party
on the ROFO Terms within two hundred seventy (270) days after the Sale Notice,
or consummate the sale of such portion of the Project to such third party upon
ROFO Terms within three hundred sixty (360) days after the Sale Notice, then
Landlord may not sell such portion of the Project unless it again offers such
portion of the Project to Tenant pursuant to this Section 17.28.
(e) Notwithstanding any other provision of this Section 17.28, Tenant's
ROFO shall not apply to any of the following transactions: (i) any sale or
transfer of all or any portion of the Project or any interest therein to any
affiliate of the Landlord; (ii) any sale or transfer in connection with
permanent or interim financing for the Project, including any sale/leaseback,
joint venture or other similar arrangement; and (iii) the granting of any
mortgage or other lien, or any conveyance with respect thereto by foreclosure,
deed in lieu of foreclosure or the like. Any of the above mentioned transactions
shall not terminate Tenant's ROFO, but such ROFO shall thereafter continue to
bind the transferee.
(f) Tenant's ROFO is not continuing in nature, and Landlord shall have
no obligation to re-offer to Tenant except as set forth in subparagraph (d)
above.
17.29 ARBITRATION.
(a) Either Landlord or Tenant may require that any dispute under this
Lease be submitted to arbitration pursuant to this Section 17.29. All
arbitrations shall occur at a location in Dallas, Texas chosen by the
arbitrators and shall be conducted pursuant to the Arbitration Rules for the
Real Estate Industry (effective on May 1, 1994, and as subsequently amended) of
the American Arbitration Association (or the successor organization, or if no
such successor organization exists, then from an organization composed of
persons of similar professional qualifications). To the extent the provisions of
this Section 17.29 vary from or are inconsistent with the Arbitration Rules for
the Real Estate Industry (effective on May 1, 1994, and as subsequently amended)
of the American Arbitration Association or any other arbitration tribunal, the
provisions of this Section 17.29 shall govern. All arbitrations will be governed
by the provisions of this Section 17.29, the Arbitration Rules for the Real
Estate Industry (effective on May 1, 1994, and as subsequently amended) of the
American Arbitration Association (to the extent not inconsistent with this
Section 17.29), and the laws of the State of Texas (to the extent not
inconsistent with any of the foregoing). The party desiring such arbitration
shall give notice to that effect to the other party and simultaneously therewith
also shall give notice to the director (the "Director") of the Dallas, Texas
regional office of the American Arbitration Association (or the successor
organization, or if no such successor organization exists, then from an
organization composed of persons of similar professional qualifications),
requesting such organization to select, as soon as possible but in any event
within the next thirty (30) days, three neutral
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arbitrators with, if reasonably possible, recognized expertise in the subject
matter of the arbitration. At the request of either party, the arbitrators shall
authorize the service of subpoenas for the production of documents or attendance
of witnesses. Within thirty (30) days after their appointment, the arbitrators
so chosen shall hold a hearing at which each party may submit evidence, be heard
and cross-examine witnesses, with each party having at least ten (10) days'
advance notice of the hearing. The hearing shall be conducted such that each of
Landlord and Tenant shall have reasonably adequate time to present oral evidence
or argument, but either party may present whatever written evidence it deems
appropriate prior to the hearing (with copies of any such written evidence being
sent to the other party). In the event of the failure, refusal or inability of
any arbitrator to act, a new arbitrator shall be appointed in his stead, which
appointment shall be made in the same manner as hereinbefore provided. The
decision of the arbitrators so chosen shall be given within a period of thirty
(30) days after the conclusion of such hearing and shall be accompanied by
conclusions of law and findings of fact. The decision in which any two
arbitrators so appointed and acting hereunder concur shall in all cases be
binding and conclusive upon the parties and shall be the basis for a judgment
entered in any court of competent jurisdiction. The fees and expenses of
arbitration under this Section 17.29 shall be apportioned to Landlord and Tenant
in such a manner as decided by the arbitrators. Landlord and Tenant may at any
time by mutual written agreement discontinue arbitration proceedings and
themselves agree upon any such matter submitted to arbitration.
(b) Notwithstanding anything to the contrary contained in subsection
(a) above, if the purpose of the arbitration is to determine the Extension
Rental Rate under Rider 1, then the provisions of Rider 1 shall apply.
17.30. EXTENSION AND ADDITIONAL RIGHTS AND OPTIONS. Deleted
Intentionally.
17.31 TAX PROTESTS. Tenant has no right to protest the real estate tax
rate assessed against the Project and/or the appraised value of the Project
determined by any appraisal review board or other taxing entity with authority
to determine tax rates and/or appraised values (each a "Taxing Authority").
Tenant hereby knowingly, voluntarily and intentionally waives and releases any
right, whether created by law or otherwise, to (a) file or otherwise protest
before any Taxing Authority any such rate or value determination even though
Landlord may elect not to file any such protest; (b) receive, or otherwise
require Landlord to deliver, a copy of any reappraisal notice received by
Landlord from any Taxing Authority; and (c) appeal any order of a Taxing
Authority which determines any such protest. The foregoing waiver and release
covers and includes any and all rights, remedies and recourse of Tenant, now or
at any time hereafter, under Section 41.413 and Section 42.015 of the Texas Tax
Code (as currently enacted or hereafter modified) together with any other or
further laws, rules or regulations covering the subject matter thereof. Tenant
acknowledges and agrees that the foregoing waiver and release was bargained for
by Landlord and Landlord would not have agreed to enter into this Lease in the
absence of this waiver and release. Notwithstanding any such waiver and release,
if Tenant files or otherwise appeals any such protest, then Tenant will be in
breach under this Lease.
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Landlord shall have the exclusive right to protest the real
estate tax rate assessed against the Project and/or the appraised value of the
Project determined by any Taxing Authority. However, notwithstanding anything to
the contrary contained in this Lease, Landlord shall upon the request of Tenant
to do so from time to time, make such a protest. Landlord shall diligently
monitor the taxes assessed against the Project as well as the assessed valuation
thereof and shall seek such abatements or other tax benefits or relief for the
Project in the exercise of Landlord's prudent business judgment, subject to the
rights of Tenant under the preceding sentence. Nothing contained herein shall
restrict Tenant from negotiating with tax authorities to effect tax savings on
property owned by Tenant or tax rebates with respect to the Project.
17.32 CONSENTS. Except as stated to the contrary elsewhere in this
Lease, in every instance in which either Landlord or Tenant is required to give
its consent or approval, such consent or approval shall not be unreasonably
withheld or delayed.
17.33 CCR AMENDMENTS. So long as Landlord or an affiliate of Landlord
is Declarant under the CCR, Landlord shall not, without Tenant's prior written
consent, vote for an action or an amendment to the CCR or authorize or take
action (or if Landlord or an affiliate of Landlord is no longer Declarant under
the CCR, vote for an action or an amendment to the CCR) under the CCR which will
result in:
(a) An increase in Quarterly Assessments or Special
Assessments passed through to Tenant as an Operating Expense Increase
resulting from:
(i) Increase in the size in land area of the
Common Facilities.
(ii) A change in method of allocation of
assessments resulting from a modification of
the CCR.
(b) A material degradation of the appearance, usefulness or
First Class Building Standards of the Common Facilities.
(c) an increase in the Quarterly Assessments passed through to
Tenant as an Operating Expense Increase in any calendar year by more
than ten percent (10%) of the Quarterly Assessments for the prior
calendar year resulting from construction of additional improvements or
modification of existing improvements within the Common Facilities
(except as may be required by governmental or judicial decision or
governmental law).
(d) the construction of any improvements between the Building
and the lake comprising a part of the Common Facilities.
Additionally, Landlord agrees to consult with Tenant in good faith
regarding all matters related to the CCR or Common Facilities. Further,
if Tenant requests that any particular
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Common Facilities be installed from time to time, Landlord will
consider such request in good faith.
Nothing contained in this Section 17.33 shall be construed so as to prevent
Declarant from initiating or supporting a modification of the Zoning Ordinance,
as defined in the CCR, to allow the development of attached residential and
mixed use commercial/residential buildings and/or retail/commercial free
standing buildings.
17.34 MANAGEMENT. Landlord agrees to consider in good faith (i) any
complaints of Tenant regarding the individual who is the property management
representative and (ii) any request by the Tenant to replace such individual.
Landlord and Tenant shall establish a reasonably detailed protocol between
Tenant's facilities manager and the property management representative which
protocol should include the office, home, fax and "beeper" numbers for such
people and additional people and telephone numbers to contact in the event such
managers are unavailable. Such protocol shall be updated upon the request of
either Landlord or Tenant.
17.35 DEFAULT INTEREST. All sums owed by Landlord to Tenant under this
Lease and not paid on or prior to the date due thereof shall bear interest from
the date due thereof until payment is received at a per annum rate (the "Default
Interest Rate") equal to the lesser of (i) the prime rate announced by Chase
Manhattan Bank, New York, New York, or its successor (the "Prime Rate"), from
time to time (or if the Prime Rate is discontinued, the rate announced as that
being charged to said bank's most creditworthy commercial borrowers) plus three
percent (3%), or (ii) the maximum contract interest rate per annum allowed by
law; provided, however, with respect to the first three (3) times per calendar
year that such sum is not paid on or prior to the date due by Landlord, no
interest shall be payable with respect to such late payments by such party
unless such payments are more than five (5) days late and then such past due
payments shall bear interest from the sixth (6th) day after the due date thereof
until payment is received.
17.36 VACATING THE PREMISES. If none of the Premises are occupied by
Tenant or its permitted assignee or sublessees (or any combination thereof)
after the Commencement Date (i.e., the Premise are 100% vacant) for longer than
180 consecutive days, even though Tenant continues to pay the stipulated Rent
and is not otherwise in default under this Lease, and Tenant or its permitted
assignee or subtenants (or any combination thereof) fails to re-occupy a portion
of the same (Tenant not being obligated to re-occupy all of the Premises) within
90 days after notice from Landlord (which notice may only be furnished by
Landlord after the expiration of the aforementioned 180 day period), then from
and after the expiration of said 90 day notice period Landlord may terminate
this Lease as to (and only as to) all of the Premises without declaring Tenant
in default under this Lease (and Section 15.01 shall not be applicable thereto),
by delivering written notice to Tenant. Space which is vacated on account of
bona fide remodeling or due to force majeure shall not be deemed unoccupied for
purposes of this Section 17.36.
17.37 TERMS OF DEVELOPMENT AGREEMENT. Landlord and Tenant acknowledge
and agree that certain terms and provisions of the Development Agreement pertain
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directly to this Lease, including without limitation, subparagraphs (d) through
(g) of Section 1 thereof. Landlord and Tenant hereby agree (except set forth in
Sections 17.38 and 17.40 below) that all such terms and provisions are
incorporated herein by reference for all purposes, and that in the event of any
conflict or inconsistency between such terms and provisions and those of this
Lease, the terms of the former shall govern and control.
17.38 BUILDING 2 OPTION. Notwithstanding anything contained to the
contrary in the Development Agreement, it is agreed that (i) Tenant has timely
and properly exercised the Building 2 Option (as defined in the Development
Agreement) and (ii) Landlord and Tenant have entered into this Lease in
accordance with and pursuant to the terms of the Development Agreement.
17.39 PLANS AND SPECIFICATIONS. Notwithstanding the terms of Exhibit
"D-1" attached hereto, the plans and specifications for Building 2, as described
on Exhibit "N" attached hereto, are hereby approved by Tenant for all purposes
except for those items set forth on Exhibit "N-1" attached hereto. Landlord and
Tenant shall negotiate diligently and in good faith to approve the items set
forth on Exhibit "N-1" on or before August 31, 1999, and in the event of their
failure to do so, either party may submit such unresolved matters to arbitration
pursuant to Section 17.29 of this Lease.
17.40 UPGRADES AND CREDITS. Landlord and Tenant agree that Schedule 1
attached hereto contains a complete list of the Upgrades (defined in the
Development Agreement) and credits which exist as of the Effective Date herein
based upon the plans and specifications as they exist as of the Effective Date.
Landlord and Tenant also agree that the costs of Upgrades and credits for those
items listed on Exhibit "N-1" will be determined on or prior to August 31, 1999.
If Landlord and Tenant cannot agree to such items on or prior to August 31,
1999, such items may be resolved by arbitration pursuant to Section 17.29 of
this Lease.
Notwithstanding the provisions of Paragraph 1(d) of the Development
Agreement, Landlord and Tenant agree that to the extent (i) the total costs of
Upgrades as determined pursuant to Paragraph 1(d) of the Development Agreement
for Upgrades set forth in Schedule 1 plus any additional Upgrades requested by
Tenant and agreed to by Landlord pursuant to Paragraph 1(d) of the Development
Agreement ("Costs"), exceed (ii) the total amount of credits set forth on
Schedule 1 plus any additional credits available due to changes made to the
plans and specifications in accordance with Paragraph 1(d) of the Development
Agreement after the Effective Date ("Credits"), Tenant will be obligated to pay
such excess as such costs are incurred within thirty (30) days after demand
therefor and Base Rental shall not be adjusted as the result thereof as set
forth in Section 1(d) of the Development Agreement. Alternatively, if Credits
exceed Costs, Landlord will be obligated to pay such excess to Tenant within
thirty (30) days of such determination and Base Rental shall not be adjusted as
the result thereof.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
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LANDLORD: TENANT:
COLINAS CROSSING LP, i2 Technologies, Inc.,
a Delaware limited partnership a Delaware corporation
By: Steven A. Means Interests, Inc., By: /s/ DAVID C. BECKER
a Texas corporation, Name: David C. Becker
a general partner Title: Vice President of Finance
By: /s/ STEVEN A. MEANS
Name: Steven A. Means
Title: President
65
