<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period
from ___________ to ___________
Commission File Number: 000-21283
SIMULATION SCIENCES INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
601 Valencia Avenue, Suite 100, Brea, California 92823
(Address of principal executive offices) (Zip Code)
95-2487793 (I.R.S. Employer Identification No.)
Registrant's telephone number, including area code:
(714) 579-0412
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes [X] No [ ]
The registrant had 11,045,032 shares of common stock outstanding as of
October 27, 1997.
<PAGE> 2
SIMULATION SCIENCES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 (Unaudited) 3
Consolidated Statements of Operations (Unaudited) -
Three Months and Nine Months Ended September 30, 1996 and 1997 4
Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1996 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 26,320,519 $ 8,581,380
Accounts receivable, less allowance for doubtful accounts of
$722,036 and $895,980 at December 31, 1996 and September 30, 1997 8,981,299 9,154,722
Unbilled accounts receivable 3,671,677 12,083,987
Deferred income taxes 2,930,073 2,930,073
Prepaid expenses and other current assets 379,122 719,010
------------ ------------
Total current assets 42,282,690 33,469,172
LONG-TERM INSTALLMENTS RECEIVABLE, net of unamortized discount
of $1,045,184 and $2,891,500 at December 31, 1996 and September 30, 1997 5,126,866 13,943,819
PROPERTY AND EQUIPMENT
Computer equipment and programs 6,073,879 7,962,350
Furniture and fixtures 3,885,485 4,240,325
------------ ------------
9,959,364 12,202,675
Less accumulated depreciation (5,914,287) (7,245,436)
------------ ------------
Property and equipment, net 4,045,077 4,957,239
GOODWILL, net of accumulated amortization of $58,257 at September 30, 1997 1,271,948
OTHER ASSETS, net 1,568,488 6,299,523
DEFERRED INCOME TAXES 174,656 174,656
------------ ------------
$ 53,197,777 $ 60,116,357
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,901,847 $ 2,569,850
Accrued vacation and bonus payable 1,564,603 2,172,924
Other accrued liabilities 3,732,078 5,397,244
Obligations related to acquisitions 9,435,000
Income taxes payable 2,083,664 1,976,452
Deferred revenue 5,096,380 5,039,001
------------ ------------
Total current liabilities 14,378,572 26,590,471
OBLIGATION RELATED TO ACQUISITION 600,000
COMMITMENTS
STOCKHOLDERS' EQUITY
Series A Redeemable Convertible Preferred Stock,
$.001 par value; 5,000,000 shares authorized,
100,000 shares designated as Series A Participating
Preferred Stock, no shares issued and outstanding
at December 31, 1996 and September 30, 1997 -- --
Common stock - $.001 par value; 30,000,000 shares authorized;
9,987,340 and 11,020,083 shares issued and outstanding at
December 31, 1996 and September 30, 1997 9,987 11,020
Additional paid-in capital 32,552,964 37,888,565
Retained earnings 6,256,254 (4,973,699)
------------ ------------
Total stockholders' equity 38,819,205 32,925,886
------------ ------------
$ 53,197,777 $ 60,116,357
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue (UNAUDITED) (UNAUDITED)
Software license revenue $ 11,644,595 $ 14,986,940 $ 31,281,088 $ 41,913,110
Services and other revenue 452,316 765,140 2,606,800 2,182,302
------------ ------------ ------------ ------------
Total revenue 12,096,911 15,752,080 33,887,888 44,095,412
Cost of revenue
Cost of software license revenue 1,153,690 818,892 2,932,169 2,613,706
Cost of services and other revenue 368,831 696,278 1,921,293 2,001,932
------------ ------------ ------------ ------------
Total cost of revenue 1,522,521 1,515,170 4,853,462 4,615,638
------------ ------------ ------------ ------------
Gross profit 10,574,390 14,236,910 29,034,426 39,479,774
Operating expenses
Sales and marketing 4,566,532 4,442,854 11,905,111 13,188,986
Research and development 2,782,061 4,333,984 9,627,005 11,835,223
General and administrative 1,942,716 2,736,086 5,009,229 7,211,969
In-process research and development and other costs 11,250,000 17,520,000
------------ ------------ ------------ ------------
Total operating expenses 9,291,309 22,762,924 26,541,345 49,756,178
------------ ------------ ------------ ------------
Income (loss) from operations 1,283,081 (8,526,014) 2,493,081 (10,276,404)
Interest and other income, net 135,731 480,482 298,984 1,439,435
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 1,418,812 (8,045,532) 2,792,065 (8,836,969)
Provision for income taxes 609,478 180,000 1,172,692 2,392,984
------------ ------------ ------------ ------------
Net income (loss) $ 809,334 $ (8,225,532) $ 1,619,373 $(11,229,953)
============ ============ ============ ============
Pro forma and net income (loss) per share $ 0.10 $ (0.73) $ 0.21 $ (1.02)
============ ============ ============ ============
Pro forma and weighted average common shares 7,764,970 11,301,677 7,764,970 10,961,360
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
SIMULATION SCIENCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss) $ 1,619,373 $(11,229,953)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 692,227 1,389,406
Provision for doubtful accounts 400,929 175,000
In-process research and development and other costs 17,520,000
Change in operating assets and liabilities, net of the effect of
acquisitions:
Accounts receivable 522,506 685,165
Unbilled accounts receivable (1,944,790) (8,412,310)
Income taxes receivable 555,634
Prepaid expenses and other current assets 61,642 (339,888)
Other assets (1,389,218) (551,765)
Long-term installments receivable (4,829,575) (8,816,953)
Accounts payable 114,104 (370,344)
Accrued vacation and bonus payable 297,011 533,321
Other accrued liabilities 1,145,206 4,841
Income taxes payable 497,360 (107,212)
Deferred revenue (62,271) (1,057,379)
------------ ------------
Net cash used in operating activities (2,319,862) (10,578,071)
Cash flow from investing activities:
Purchases of property and equipment (2,184,932) (2,032,202)
Cash paid for acquisitions (6,555,500)
------------ ------------
Net cash used in investing activities (2,184,932) (8,587,702)
Cash flow from financing activities:
Proceeds from the sale of stock under stock plans 149,877 1,426,634
------------ ------------
Net cash provided by financing activities 149,877 1,426,634
------------ ------------
Net decrease in cash and cash equivalents (4,354,917) (17,739,139)
Cash and cash equivalents at beginning of period 5,442,283 26,320,519
------------ ------------
Cash and cash equivalents at end of period $ 1,087,366 $ 8,581,380
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 274,944 $ 2,039,359
============ ============
Supplemental disclosures related to acquisitions:
The Company acquired certain assets and technology of
other companies as described in Note 5. These acquisitions
are summarized as follows:
In-process research and development $ 16,270,000
Purchased technology 3,304,270
Fair value of assets acquired 3,369,697
Goodwill 1,330,205
Common stock issued (3,910,000)
Cash paid for acquisitions (6,555,500)
Obligations related to acquisitions (10,035,000)
------------
Liabilities assumed $ 3,773,672
============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated balance sheet as of September 30, 1997, the related
consolidated statements of operations for the three and nine month periods ended
September 30, 1996 and 1997, and the consolidated statements of cash flows for
the nine month periods ended September 30, 1996 and 1997 are unaudited and in
the opinion of management contain all necessary adjustments, consisting of
normal recurring adjustments, for a fair presentation of such financial
information. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's 1996 Report on Form 10-K filed with the Securities
and Exchange Commission. Interim results are not necessarily indicative of
results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-Q, and do not contain certain information included in the Company's
audited consolidated financial statements and notes for the year ended December
31, 1996.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of net assets acquired and is amortized using the straight line
method over ten years. The Company periodically evaluates the recoverability of
goodwill and, based on its most recent analysis, believes that no impairment
exists at September 30, 1997.
Purchased technology - Purchased technology represents an allocation of the
purchase price with respect to certain technology acquired by the Company in its
recent acquisitions (Note 5) and is amortized using the straight line method
over 3 years. The Company periodically evaluates the recoverability of purchased
technology and has written-off $1.3 million related to purchased technology
acquired in a previous year. Such amount is included in in-process research
development and other costs in the accompanying unaudited statements of
operations. Based on its most recent analysis, the Company believes that no
impairment exists at September 30, 1997.
2. PRO FORMA AND NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of common and dilutive common equivalent
shares outstanding. Weighted average common and common equivalent shares include
common shares, warrants to purchase shares of common stock, stock options using
the treasury stock method, and the pro forma conversion of all outstanding
shares of preferred stock into shares of common stock. Net income (loss) per
share is computed as described above and includes the actual conversion of the
preferred shares into the same number of common shares upon the completion of
the Company's initial public offering in October 1996.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4D, stock options granted during the twelve months prior to the date of
the initial filing of the Company's Form S-1 Registration Statement have been
included in the calculation of common equivalent shares using the treasury stock
method as if they were outstanding for all periods presented.
3. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128), which
is effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption is not permitted. When adopted, all
previously reported earnings per share amounts must be restated based upon the
provisions of the new standard. Pro forma basic and diluted loss per share
calculated in accordance with SFAS No. 128 would be ($0.75) and
6
<PAGE> 7
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
($0.71) for the three months ended September 30, 1997 and 1996, respectively,
and ($1.06) and ($0.99) for the nine months ended September 30, 1997 and 1996,
respectively.
For the years beginning after January 1, 1998, the Company will adopt SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. The Company is reviewing the
impact of such statements on its financial statements.
4. STOCK PLANS
The following table summarizes stock option activity under the 1994 and 1996
Stock Option Plans for the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- -------------- -----------
<S> <C> <C> <C>
Balance, January 1, 1997 1,464,812 $2.67 - $10.38 193,137
Granted 556,667 9.88 - 18.13 =======
Exercised (216,554) 2.67 - 7.50
Canceled (124,135) 2.67 - 16.25
---------- --------------
Balance, September 30, 1997 1,680,790 2.67 - 18.13 245,445
========== =======
</TABLE>
Options to purchase an additional 383,500 shares of common stock at $22.875
per share were issued and options to purchase 24,949 shares of common stock were
exercised after September 30, 1997. As of September 30, 1997, there was no
activity under the 1996 Director Plan.
Employee Stock Purchase Plans - On June 30, 1997, 80,249 shares of common
stock were purchased under the Company's 1996 Employee Stock Purchase Plans at
$7.65 per share. At September 30, 1997, the Company had a liability of $238,934
recorded in connection with the future purchase of common stock under the plan.
5. ACQUISITIONS
In March 1997, the Company acquired substantially all of the assets of
Visual Solutions, Inc. for $5.7 million, including acquisition costs, consisting
of $1.8 million in cash and $3.9 million in common stock of the Company. Visual
Solutions, Inc. was a privately held Texas corporation providing commercial
simulation software and related services to the process industries. The
acquisition was primarily accounted for under the purchase method of accounting
and the purchase price was allocated to in-process research and development
($5.2 million), goodwill ($0.3 million), purchased technology ($0.1 million) and
accounts receivable ($0.1 million). The amount allocated to in-process research
and development was based upon management's assumptions.
In March 1997, the Company acquired substantially all of the assets of
Salumunek & Assoc., Inc., for approximately $950,000 in cash, including
acquisition costs. Salumunek & Assoc., Inc. was a privately held Texas
corporation providing plant performance monitoring software and related services
to the process industries. The acquisition was accounted for under the purchase
method of accounting and the purchase price was allocated primarily to goodwill.
In May 1997, the Company entered into an agreement and acquired certain
technology from Bayer AG for $1.0 million in cash, to be paid in equal
installments over a five year period. The acquisition was accounted for under
Statement of Financial Accounting Standards No. 68, Research and Development
Arrangements (SFAS No. 68). In accordance with SFAS No. 68, an asset and
liability have been recorded for an amount equal to the purchase price.
7
<PAGE> 8
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1997, the Company acquired certain technology and assets from
Raytheon Engineers & Constructors, Inc. for $1.1 million in cash, including
transaction costs, plus assumed liabilities of $30,000. The acquisition was
primarily accounted for under the purchase method of accounting and the purchase
price was primarily allocated to in-process research and development. The amount
allocated to in-process research and development was based upon management's
assumptions.
In September 1997, the Company acquired certain business planning
products from Shell Oil Products Company for $1.6 million, including
transaction costs. The purchase price is to be paid in cash in the fourth
quarter of 1997. The acquisition was accounted for under the purchase method of
accounting and the purchase price was allocated to intangible assets.
In September 1997, the Company acquired certain royalty rights and a
purchase option with respect to certain advanced multivariable process control
technology from Shell Oil Products Company for $1.1 million, including
transaction costs. The purchase price is to be paid in cash in the fourth
quarter of 1997. The acquisition was accounted for under the purchase method of
accounting and the purchase price was allocated to intangible assets.
In September 1997, the Company acquired an irrevocable, perpetual,
exclusive royalty-free license with respect to certain solver and modeling
technology from Shell Oil Products Company for a total of $6.2 million,
including transaction costs. The purchase price is to be paid in 1998 as
follows: $1.7 million in cash and $4.5 million in common stock. The acquisition
was accounted for under the purchase method of accounting and the purchase price
was allocated to in-process research and development ($6.0 million) and goodwill
($0.2 million). The amount allocated to in-process research and development was
based upon management's assumptions.
On September 30, 1997, the Company acquired substantially all of the assets
of W.R. Biles & Associates, Inc. for $5.6 million, including acquisition costs.
The purchase price consisted of $2.5 million in cash and $2.7 of assumed net
liabilities (net of $0.8 million in assets), plus transaction costs. W.R. Biles
& Associates, Inc. was a privately held Texas based corporation providing
process information solutions to companies in the chemical, pharmaceutical, food
and beverage and other industries. The acquisition was accounted for under the
purchase method of accounting and the net purchase price was allocated to
in-process research and development ($4.0 million), purchased technology ($1.6
million), accounts receivable ($0.7 million) and fixed assets ($0.1 million) and
accrued liabilities ($3.7 million). The amount allocated to in-process research
and development was based upon management's assumptions.
The following unaudited pro forma information presents results of operations
of the Company for the year ended December 31, 1996 and the nine month period
ended September 30, 1997, as if the W.R. Biles and Associates, Inc. acquisition
had been consummated as of the beginning of 1996. The pro forma information is
presented for information purposes only. It is based on historical information
and does not necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of future results of operations of the combined
enterprise.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Total revenues $56,185,185 $48,823,800
Net loss ( 2,286,959) ( 8,550,341)
Loss per share ($ 0.30) ($ 0.78)
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Simulation Sciences Inc. is a leading provider of commercial application
software and related services to the petroleum, petrochemical, industrial
chemical and other process industries, as well as the engineering and
construction firms that support those industries. The Company's software
products are designed to increase customers' profitability by reducing their
capital investment costs, increasing yields, improving product quality and
enhancing management decision making.
The Company generally licenses its software pursuant to non-cancelable, one
to five year term licenses. The Company receives over 90% of its worldwide
revenue from licenses of its software products. These licenses obligate the
Company to provide customer support, maintenance and any product updates. During
the past five years, the substantial majority of all licenses have been renewed.
Revenue from the Company's primary simulation product, PRO/II, accounted for
approximately 70% of total revenue in each of the last three years. The
remainder of the Company's revenue is derived from the license of other products
and services.
The Company recognizes revenue from product licensing agreements in
accordance with the American Institute of Certified Public Accountants Statement
of Position No. 91-1, Software Revenue Recognition ("SOP 91-1"). SOP 91-1
generally requires recognition of license revenue upon shipment or renewal and
recognition of revenue for maintenance and support ratably over the life of the
contract. However, if license fees and maintenance and support charges are not
separately identified, then all revenue from the contract must be recognized
ratably over its life. More than 95% of the Company's license contracts entered
into before 1996 did not separately identify software license fees and charges
for maintenance and support obligations. As a result, the Company recognized
revenue from these contracts ratably over the terms of such contracts in
accordance with SOP 91-1 ("Ratable Revenue"). The remaining contracts identified
the cost of the license fee and maintenance and support separately and, under
SOP 91-1, the Company recognized revenue from the license portion of the
contracts upon shipment or renewal ("License Revenue") and from the maintenance
and support portion of such contracts as Ratable Revenue. Accordingly, the
revenue recognized under a contract resulting in License Revenue recognition
will be higher in the quarter of shipment or renewal, and lower in later
quarters, than that recognized under a contract resulting only in Ratable
Revenue recognition. In order to more closely conform to industry-standard
practices regarding licenses and maintenance agreements, the Company began
entering into contracts for new and renewing customers that separately identify
software license fees and maintenance and support charges, resulting in
recognition of License Revenue on an increased portion of contracts. The
substantial majority of the Company's new and renewal contracts now contain
terms that result in License Revenue. For this reason, the Company does not
believe that revenue and results of operations for periods ended on or prior to
June 30, 1996 will be directly comparable to results for future periods.
Furthermore, because the Company had only begun to recognize License Revenue
during the quarter ending March 31, 1996, the Company does not believe that
revenue and results of operations for the nine month period ended September 30,
1997 are directly comparable to the results for the year earlier period. Revenue
recognition on certain service offerings is based on percentage of completion
and on attainment of project milestones.
During 1997, the Company has pursued its strategy of acquiring complementary
businesses, products and technologies to broaden the Company's product and
service offerings and to further penetrate its markets. During the first nine
months of 1997, the Company completed eight acquisitions of assets, licenses
or technologies. See "Note 5 of Notes to Unaudited Consolidated Financial
Statements -- Acquisitions".
9
<PAGE> 10
A. RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and September 30, 1997
The following table sets forth certain items in the Company's consolidated
statements of operations in thousands of dollars and as a percentage of total
revenue for the three months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1997
---------------- -----------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
(in thousands)
Revenue
Software license revenue $ 11,645 96.3% $ 14,987 95.1%
Services and other revenue 452 3.7 765 4.9
-------- ----- -------- -----
Total revenue 12,097 100.0 15,752 100.0
Cost of revenue
Cost of software license revenue 1,154 9.5 819 5.2
Cost of services and other revenue 369 3.1 696 4.4
-------- ----- -------- -----
Total cost of revenue 1,523 12.6 1,515 9.6
-------- ----- -------- -----
Gross profit 10,574 87.4 14,237 90.4
Operating expenses
Sales and marketing 4,566 37.7 4,443 28.2
Research and development 2,782 23.0 4,334 27.5
General and administrative 1,943 16.1 2,736 17.4
In-process research and development and other costs 11,250 71.4
-------- ----- -------- -----
Total operating expenses 9,291 76.8 22,763 144.5
-------- ----- -------- -----
Income (loss) from operations 1,283 10.6 (8,526) (54.1)
Interest and other income, net 135 1.1 480 3.0
-------- ----- -------- -----
Income (loss) before provision for income taxes 1,418 11.7 (8,046) (51.1)
Provision for income taxes 609 5.0 180 1.1
-------- ----- -------- -----
Net income (loss) $ 809 6.7% $ (8,226) (52.2)%
======== ===== ======== =====
</TABLE>
Total Revenue. Total revenue increased 30% to $15.8 million for the three
months ended September 30, 1997 from $12.1 million for the three months ended
September 30, 1996. Software license revenue, which includes revenue from
software licenses, maintenance and support fees, increased 29% to $15.0 million
for the three months ended September 30, 1997 from $11.6 million for the three
months ended September 30, 1996. The increase in software license revenue was
primarily attributable to renewals of licenses for higher fees, addition of new
products and services to renewing contracts and licenses to new customers.
Services and other revenue, which includes integration, Rigorous On-line
Modeling ("ROM"), consulting and training services, was $0.8 million and $0.5
million for the three months ended September 30, 1997 and 1996, respectively.
The increase in services and other revenue primarily related to an increase in
non-ROM activity.
Total Cost of Revenue. Total cost of revenue was $1.5 million for the three
months ended September 30, 1997 and 1996. Cost of software license revenue,
which includes costs of production and distribution, customer support and
maintenance, and royalties, decreased 29% to $0.8 million from $1.2 million for
the three months ended September 30, 1997 and 1996, respectively. Cost of
software license revenue as a percentage of software license revenue was 5% and
10% in the three months ended September 30, 1997 and 1996, respectively. The
decrease as a percentage of software license revenue was due primarily to the
increase in software license revenue. Cost of services and other revenue, which
includes costs of personnel involved in project execution and training, as well
as travel, third-party professional fees and related administrative costs,
10
<PAGE> 11
increased 89% to $0.7 million from $0.4 million for the three months ended
September 30, 1997 and 1996, respectively. Cost of services and other revenue as
a percentage of services and other revenue increased to 91% from 82% for the
three months ended September 30, 1997 and 1996, respectively.
Sales and Marketing. Sales and marketing expenses decreased 3% to $4.4
million for the three months ended September 30, 1997 from $4.6 million for the
three months ended September 30, 1996. Sales and marketing expenses as a
percentage of total revenue were 28% and 38% for the three months ended
September 30, 1997 and 1996, respectively. The Company anticipates that sales
and marketing expenses will increase in dollars and may fluctuate as a
percentage of total revenue in the future.*
Research and Development. Research and development expenses increased 56% to
$4.3 million for the three months ended September 30, 1997 from $2.8 million for
the three months ended September 30, 1996. Research and development expenses as
a percentage of total revenue were 28% and 23% for three months ended September
30, 1997 and 1996, respectively. The increase in dollars was primarily due to an
increase in the number of technical professionals , including support staff, as
well as personnel hired in connection with acquisitions. The Company expects to
continue to devote substantial resources to its research and development efforts
to continue to develop and support the Company's highly complex software
products.* Accordingly, the Company anticipates that research and development
expenses will increase in dollars and may fluctuate as a percentage of total
revenue in the future.*
General and Administrative. General and administrative expenses increased
41% to $2.7 million for the three months ended September 30, 1997 from $1.9
million for the three months ended September 30, 1996. General and
administrative expenses as a percentage of total revenue were 17% and 16% in the
three months ended September 30, 1997 and 1996, respectively. The increase in
general and administrative expenses in dollars was primarily due to the costs
associated with being a publicly held company, personnel-related costs, costs
associated with the Company's tax planning program, and consulting and legal
expenses. The Company anticipates that its general and administrative expenses
will increase in dollars and may fluctuate as a percentage of total revenue in
the future.*
In-process Research and Development and Other Costs. In-process research
and development expense of $10.0 million for the three months ended September
30, 1997 was due to the allocation of a portion of the purchase price of
technology acquired from Shell Oil Products Company and W. R. Biles &
Associates, Inc. The amounts allocated to in-process research and development
were based upon management's assumptions. Other costs of $1.3 million is due to
the write off of amounts paid in a previous year in connection with certain
technology acquired from Shell Oil Products Company. (See "Note 5 of Notes to
Unaudited Consolidated Financial Statements - Acquisitions").
Interest and Other Income, Net. Interest and other income, net increased
$345,000 to $480,000 for the three months net ended September 30, 1997 from
$135,000 for the three months ended September 30, 1996. The increase was
primarily attributable to interest income associated with the proceeds received
in the Company's initial public offering in the fourth quarter of 1996 and an
increase in interest income from the effect of the change in contract terms.
Provision for Income Taxes. The Company's effective tax rate on pre-tax
income, excluding the in-process research and development and other costs,
decreased to 39% from 43% for the three months ended September 30, 1997 and
1996, respectively, due to the Company's implementation of a tax planning
program.
Net Income (loss). Net loss was $8.2 million for the three months ended
September 30, 1997 compared to net income of $809,000 for the three months ended
September 30, 1996. Excluding the $11.3 million in charges for in-process
research and development and other costs, net income for the three months ended
September 30, 1997 would have been approximately $2.0 million.
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
11
<PAGE> 12
Nine Months Ended September 30, 1996 and September 30, 1997
The following table sets forth certain items in the Company's consolidated
statements of operations in thousands of dollars and as a percentage of total
revenue for the nine months ended September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1996 1997
------------------ -------------------
AMOUNT % AMOUNT %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
(in thousands)
Revenue:
Software license revenue $ 31,281 92.3% $ 41,913 95.1%
Services and other revenue 2,607 7.7 2,182 4.9
-------- ----- -------- -----
Total revenue 33,888 100.0 44,095 100.0
Cost of revenue:
Cost of software license revenue 2,932 8.6 2,613 5.9
Cost of services and other revenue 1,922 5.7 2,002 4.6
-------- ----- -------- -----
Total cost of revenue 4,854 14.3 4,615 10.5
-------- ----- -------- -----
Gross profit 29,034 85.7 39,480 89.5
Operating expenses:
Sales and marketing 11,905 35.1 13,189 29.9
Research and development 9,627 28.4 11,835 26.8
General and administrative 5,009 14.8 7,212 16.4
In-process research and development and other costs 17,520 39.7
-------- ----- -------- -----
Total operating expenses 26,541 78.3 49,756 112.8
-------- ----- -------- -----
Income (loss) from operations 2,493 7.4 (10,276) (23.3)
Interest and other income, net 299 0.9 1,439 3.3
-------- ----- -------- -----
Income (loss) before provision for income taxes 2,792 8.3 (8,837) (20.0)
Provision for income taxes 1,173 3.5 2,393 5.5
-------- ----- -------- -----
Net income (loss) $ 1,619 4.8% $(11,230) (25.5)%
======== ===== ======== =====
</TABLE>
Total Revenue. Total revenue increased 30% to $44.1 million for the nine
months ended September 30, 1997 from $33.9 million for the nine months ended
September 30, 1996. Software license revenue, which includes revenue from
software licenses, maintenance and support fees, increased 34% to $41.9 million
for the nine months ended September 30, 1997 from $31.3 million for the nine
months ended September 30, 1996. The increase in software license revenue was
primarily attributable to the effect of the change in contract terms, renewals
of licenses for higher fees, addition of new products and services to renewing
contracts and licenses to new customers. Services and other revenue, which
includes integration, ROM, consulting and training services, decreased 16% to
$2.2 million from $2.6 million for the nine months ended September 30, 1997 and
1996, respectively. The decrease in services and other revenue primarily relates
to a decrease in ROM projects.
Total Cost of Revenue. Total cost of revenue decreased 5% to $4.6 million
for the nine months ended September 30, 1997 from $4.9 million for the nine
months ended September 30, 1996. Cost of software license revenue, which
includes costs of production and distribution, customer support and maintenance,
and royalties, was $2.6 and $2.9 million for the nine months ended September 30,
1997 and 1996, respectively. Cost of software license revenue as a percentage of
software license revenue was 6% and 9% in the nine months ended September 30,
1997 and 1996, respectively. The decrease as a percentage of software license
revenues was due primarily to the increase in software license revenues. Cost of
services and other revenue, which includes costs of personnel involved in
project execution and training, as well as travel, third-party professional fees
and related administrative costs, was $2.0 million and $1.9 million for the nine
months ended September 30, 1997 and 1996, respectively. Cost of services and
other revenue as a percentage of services and other revenue increased to 92%
from 74% for the nine months ended September 30, 1997 and 1996, respectively,
primarily due to the decrease in services and other revenue during the period
and underutilization of services personnel and other resources.
12
<PAGE> 13
Sales and Marketing. Sales and marketing expenses increased 11% to $13.2
million for the nine months ended September 30, 1997 from $11.9 million for the
nine months ended September 30, 1996. Sales and marketing expenses as a
percentage of total revenue were 30% and 35% for the nine months ended September
30, 1997 and 1996, respectively. The increase in sales and marketing expenses in
dollars was due primarily to an increase in the number of sales and marketing
professionals and related expenses. The Company anticipates that sales and
marketing expenses will increase in dollars and may fluctuate as a percentage
of total revenue in the future.*
Research and Development. Research and development expenses increased 23% to
$11.8 million for the nine months ended September 30, 1997 from $9.6 million for
the nine months ended September 30, 1996. Research and development expenses as a
percentage of total revenue were 27% and 28% for the nine months ended September
30, 1997 and 1996, respectively. The dollar increase in research and development
expenses was primarily due to an increase in the number of technical
professionals, including support staff, as well as personnel hired in connection
with acquisitions. The Company expects to continue to devote substantial
resources to its research and development efforts to continue to develop and
support the Company's highly complex software products.* Accordingly, the
Company anticipates that research and development expenses will increase in
dollars and may fluctuate as a percentage of total revenue in the future.*
General and Administrative. General and administrative expenses increased
44% to $7.2 million for the nine months ended September 30, 1997 from $5.0
million for the nine months ended September 30, 1996. General and administrative
expenses as a percentage of total revenue were 16% and 15% in the nine months
ended September 30, 1997 and 1996, respectively. The increase in general and
administrative expenses in dollars was primarily due to the costs associated
with being a publicly held company, personnel related costs, costs associated
with the Company's tax planning program, and consulting and legal expenses. The
Company anticipates that its general and administrative expenses will increase
in dollars and may fluctuate as a percentage of total revenue in the future.*
In-process Research and Development and Other Costs. In-process research
and development expense of $16.2 million for the nine months ended September 30,
1997 was due to the allocation of a portion of the purchase price of technology
acquired. The amounts allocated to in-process research and development were
based on management's assumptions. Other costs of $1.3 million was due to the
write off of amounts paid in previous years in connection with certain
technology acquired from Shell Oil Products Company. (See Note 5 of Notes to
Unaudited Consolidated Financial Statements - Acquisitions.)
Interest and Other Income, Net. Interest and other income, net increased
$1.1 million to $1.4 million for the nine months ended September 30, 1997 from
$0.3 million for the nine months ended September 30, 1996. The increase was
primarily attributable to interest income associated with the proceeds received
in the Company's initial public offering in the fourth quarter of 1996 and an
increase in interest income from the effect of the change in contract terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."
Provision for Income Taxes. The Company's effective tax rate on pre-tax
income, excluding the in-process research and development and other costs,
decreased to 40% from 42% for the nine months ended September 30, 1997 and 1996,
respectively, due to the Company's implementation of a tax planning program.
Net Income (loss). Net loss was $11.2 million for the nine months ended
September 30, 1997 compared to net income of $1.6 million for the nine months
ended September 30, 1996. Excluding the $17.5 million in charges for in-process
research and development and other costs, net income for the nine months ended
September 30, 1997 would have been $5.2 million.
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, the Company has satisfied its cash needs
principally through cash generated from operations, if any, existing cash
resources and net proceeds from the Company's initial public offering in October
1996. Cash used in operating activities for the nine months ended September 30,
1997 was $10.6 million, which was primarily attributable to increases in
long-term installments receivable, unbilled accounts receivable and deferred
revenue, partially offset by income (net of the $17.5 million for the charge for
in-process research and development and other costs).
Cash used in investing activities during the nine months ended September 30,
1997 was $8.6 million, which was primarily attributable to the acquisition of
certain assets (see "Notes to Unaudited Consolidated Financial Statements -
Acquisition") and the purchase of property and equipment.
Cash provided by financing activities of $1.4 million for the nine months
ended September 30, 1997 was due to the purchase of shares of the Company's
Common Stock in connection with stock plans.
Available sources of funds at September 30, 1997 consisted of $8.6 million
in cash and cash equivalents and a $2.7 million revolving line of credit, net of
$0.3 million in outstanding letters of credit, with a commercial bank. The
revolving line of credit provides for an unsecured line of credit up to $3.0
million at the bank's prime rate, contains certain financial and other
covenants, and expires March 31, 1999. At September 30, 1997, the Company was
not in compliance with certain financial covenants. However, there are currently
no outstanding borrowings under the agreement as of September 30, 1997. The
Company is currently exploring various alternatives to increase its cash
reserves, which include, but are not limited to, its current discussions with
its bank to increase the existing credit facility and to obtain waivers for the
Company's current noncompliance.
The Company currently does not anticipate that capital expenditures in the
foreseeable future will vary materially from amounts incurred in previous years,
except that the Company may relocate one or more of its offices in 1998.
The Company believes that existing cash resources, the existing line of
credit, cash flow from operations, if any, together with the Company's borrowing
capacity will be sufficient to fund the Company's operations during the next 12
months.*
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Sentences denoted by an asterisk (*) in this Report contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth below and
elsewhere in this document.
Fluctuations in Future Operating Results. The Company's operating results
have fluctuated in the past and may fluctuate significantly from quarter to
quarter or on an annual basis in the future as a result of a number of factors,
including, but not limited to: the size and timing of customer orders; changes
in license renewal rates, timing of renewals or failure of existing customers to
renew their licenses with the Company when their current licenses expire; the
length of the Company's sales cycle; the timing and structure of future
acquisitions, if any; level of services and other activity; timing of new
product announcements and introductions by the Company and its competitors; the
Company's ability to develop, introduce and market new products and product
enhancements or service offerings; market acceptance of the Company's products;
deferrals of customer orders in anticipation of new products or product
enhancements or service offerings; market success of the Company's service
offerings; changes in contract terms (including terms affecting the timing of
recognition of license revenue) and the rate at which such changes are made; the
Company's ability to control costs, including the need for and degree of use of,
third-party contractors and the hiring of new employees; political instability
in, or trade embargoes with respect to, foreign markets; changes in the
Company's management team; and fluctuating economic conditions.*
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
14
<PAGE> 15
The Company's services revenue is typically dependent on a small number of
relatively large projects, and therefore, the number, size and timing of
services projects may have a significant effect on services revenue in any
quarter.* In 1994, the Company experienced delays in the completion of ROM
projects that resulted in a material adverse effect on the Company's operating
results, and no assurance can be given that the Company will not experience
significant fluctuations in the level of services and other activity or delays
with respect to ROM or any of its products or services in the future, or that
any such fluctuation or delay would not have a material adverse effect on the
Company's business, operating results and financial condition.
Product Concentration. The Company derives a substantial portion of its
total revenue from sales of its PRO/II simulation product. The Company currently
expects PRO/II, individually or integrated with other products, to account for a
significant portion of the Company's total revenue in the future.* Accordingly,
factors adversely affecting the pricing of or demand for PRO/II, including
products and pricing terms offered by competitors or the demand for simulation
software in general, could have a material adverse effect on the Company's
business, operating results and financial condition.*
Concentration of Revenue in the Petroleum Industry. The Company derives a
substantial majority of its total revenue from software licenses and services to
companies in the highly cyclical petroleum industry. Accordingly, the Company's
future success is dependent upon the continued demand for process engineering
software by companies in the petroleum industry. In addition, companies in the
petroleum industry are experiencing growing pressures to consolidate in response
to the increasing need to reduce costs to remain competitive. There can be no
assurance that consolidation in the petroleum industry will not result in a loss
of customers or revenue or will not otherwise have a material adverse effect on
the Company's business, operating results or financial condition.
Dependence on Contract Renewals. The Company derives a significant portion
of its total revenue from the renewal of license agreements with existing
customers. Since the Company's planned expense levels are based in part on
management's expectations regarding renewal rates and future revenue, if
renewals and revenue are below expectations in any quarter, the adverse effect
may be magnified by the Company's inability to adjust spending in a timely
manner to compensate for the revenue shortfall, which could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company expects contract renewals to account for an increasing
portion of the Company's total revenue in the future as the Company increases
the number of contracts for renewing customers that result in the recognition of
license revenue upon shipment.* There can be no assurance that the Company will
be able to maintain its historical renewal rates, and any significant or ongoing
decline in renewal rates could have a material adverse effect on the Company's
business, operating results and financial condition.
15
<PAGE> 16
Risks Associated with Past and Future Acquisitions. In recent periods, the
Company completed several acquisitions of assets, licenses or technology and the
related hiring of numerous employees. The integration of the acquired assets,
licenses and technology will involve the assimilation of operations and
products, which could divert the attention of the Company's management team and
may have a material adverse effect on the Company's operating results in future
quarters. The Company's strategy includes consideration of additional
acquisitions in the future, although there can be no assurance that suitable
companies, technologies or products will be available for acquisition.* Such
acquisitions entail numerous risks, including an inability to assimilate
acquired operations and products successfully, diversion of management's
attention, difficulties and uncertainties in transitioning the business
relationships from the acquired entity to the Company, difficulty in integrating
new employees, and loss of key employees of acquired companies. In addition,
future acquisitions by the Company may result in dilutive issuances of equity
securities, the incurrence of debt, large one-time expenses, and the creation of
goodwill or other intangible assets that could result in significant
amortization expense. Any one or more of these factors could have a material
adverse effect on the Company's business, operating results and financial
condition.
Need to Achieve Greater Market Penetration. The success of the Company's
strategy is dependent upon increased market acceptance of commercial simulation
software in general, and of the Company's software products and services in
particular, in the process industries. In recent periods, the Company has
increased sales and marketing expenditures and expects to continue to increase
such expenditures in future periods in an effort to achieve greater market
penetration in the process industries.* In addition to SimSci's traditional
emphasis on petroleum and petrochemical process industries, the Company is
increasing its marketing and product targeting efforts in the industrial
chemical, pharmaceutical and fine chemical industries. If the Company fails to
increase market acceptance of its products, or if the Company's sales and
marketing efforts do not result in a corresponding increase in total revenue
through greater market penetration, the Company's operating margins and
opportunity for future growth would be substantially restricted and therefore
could have a material adverse effect on the Company's business, operating
results and financial condition.
Competition. The market for commercial simulation software used in the
petroleum, chemical and other process industries is intensely competitive and is
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and rapidly changing customer requirements.
There can be no assurance that the Company will be successful in developing and
marketing enhancements that respond to technological change, evolving industry
standards or customer requirements, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of such enhancements or that such enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance.
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
16
<PAGE> 17
The Company experiences its primary competition from potential customers'
decisions to develop their own software internally rather than purchasing
commercial software products such as those offered by the Company. As a result,
the Company must continuously educate existing and prospective customers about
the advantages of purchasing the Company's products and services. There can be
no assurance that these customers or other potential customers will perceive
sufficient value in the Company's products and services to justify purchasing
them. The Company has experienced and expects to continue to experience
competition from current and future competitors, some of which have
significantly greater financial, technical, marketing and other resources than
the Company.* The Company's current direct competitors include, among others,
Aspen Technology, Inc., Hyprotech, Ltd. and Chemstations, Inc., and, with
respect to the Company's technology and consulting services, the Hi-Spec
division of Honeywell, Inc., the Advanced Control and Optimization Division of
Aspen Technology, Inc. and ABB Simcon Inc. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors, and the failure to do so would have a material adverse effect upon
the Company's business, operating results and financial condition.
Risks Associated with International Operations. A significant portion of the
Company's total revenue is derived from customers outside the United States, and
the Company anticipates that international revenue will continue to be
significant in the future. The Company's international operations are subject to
risks inherent in the conduct of international business, including unexpected
changes in regulatory requirements, exchange rates, export license requirements,
tariffs and other barriers, political and economic instability, limited
intellectual property protection, difficulties in collecting payments due from
sales agents or customers, difficulties in managing distributors or
representatives, difficulties in staffing and managing foreign subsidiary
operations, and potentially adverse tax consequences.
Dependence on Strategic Relationships. The Company is dependent in part on a
number of strategic alliances for the joint development or marketing of its
products. For example, the Company has entered into a number of strategic
alliances with respect to its new products and product enhancements, including a
development arrangement with Mobil Oil Corporation with respect to NETOPT; a
joint development arrangement with Shell Oil Products Company, a subsidiary of
Shell Oil Company, with respect to ROMeo; and a development and marketing
agreement with IFP, ELF and TOTAL with respect to PIPEPHASE-TACITE, a general
cooperation agreement with Bayer AG with respect to Simulation Manager, and a
marketing agreement with Japan National Oil Corporation ("JNOC") with respect
to the integration of PIPEPHASE with JNOC's well simulation program. The Company
also has entered into cooperation agreements with Fluor Daniel, IBM and SAP AG.
Failure of one or more of the Company's strategic alliances to achieve
commercial success, or the termination of one or more of such alliances, could
result in delay or termination of product development projects, reduction in
market penetration, decreased ability to win new customers or loss of confidence
by current or potential customers, any of which could have a material adverse
effect on the Company's business, results of operations or financial condition.
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
17
<PAGE> 18
Dependence Upon Product Development; Need to Develop New and Acquired
Technologies. The software market in which the Company competes is subject to
rapid technological change, frequent introductions of new products, changes in
customer demand and evolving industry standards which can render existing
products obsolete and unmarketable. In addition, an important part of the
Company's product development strategy is to acquire or obtain rights to new
technologies from third parties to enhance the Company's existing products or to
develop into new products. In this regard, during the first nine months of 1997,
the Company completed eight acquisitions of assets, licenses and technology,
including technology that will require significant additional development before
release in commercial products. There can be no assurance that the Company will
be successful in acquiring, developing and marketing products or enhancements to
existing products or new products that respond to technological change, evolving
industry standards or customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful acquisition,
development, introduction and sale of such enhancements or new products, or that
such enhancements or new products will adequately meet the requirements of the
marketplace and achieve market acceptance, and the failure to do so would have a
material adverse effect on the Company's business, operating results and
financial condition.
Management of Growth. The Company's business is currently experiencing a
period of growth that has placed and is expected to continue to place a
significant strain on the Company's personnel and resources.* The Company's
recent growth is attributable in part to recent acquisitions of businesses,
products and technologies, and the related hiring of officers and employees of
such acquired businesses. The Company's ability to manage future growth, if any,
will depend on its ability to continue to implement and improve operational,
financial and management information and controls systems on a timely basis,
together with maintaining effective cost controls, and any failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition.*
Limited Protection of Proprietary Rights. The Company relies upon a
combination of copyright, trade secret and trademark laws to protect its
proprietary technology. The Company enters into confidentiality agreements with
its employees, developers, distributors and customers and limits access to and
distribution of the source code to its software and other proprietary
information. However, policing unauthorized use of the Company's products is
difficult. There can be no assurance that the steps taken by the Company in this
regard will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.
Certain technology used in the Company's current products and products under
development is licensed from third parties. These licenses may require the
Company to pay royalties and to fulfill confidentiality obligations. The
termination of any such licenses, or the failure of the third party licensors to
adequately maintain or update their products, could result in a material adverse
effect on the Company's business, operating results and financial condition by
delaying the Company's ability to ship products.*
From time to time third parties may assert patent, trademark, copyright and
other intellectual property rights to technologies that are important to the
Company. In such an event, the Company may be required to incur significant
costs in litigating a resolution to the asserted claims.* There can be no
assurance that such a resolution would not require that the Company pay damages
or obtain a license of a third party's proprietary rights.
Dependence on Contract Developers. The Company currently subcontracts
certain aspects of its research and development to outside contractors. There
can be no assurance that the Company will be able to manage its contract
developers effectively or that these developers will meet the Company's future
requirements for timely delivery of high-quality products.
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than three
years, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. Although the Company
believes that its products and internal systems are Year 2000 compliant, the
Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance.* These expenditures may result in reduced funds available
to purchase software products such as
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
18
<PAGE> 19
those offered by the Company, which could result in a material adverse effect on
the Company's business, operating results and financial condition.
Volatility of Stock Price. The market price for the Company's Common Stock
has in the past been and in the future could be subject to significant
fluctuations as a result of a number of factors, including the announcement of
new products, product enhancements or new services by the Company or its
competitors, quarterly variations in the Company's results of operations or the
results of operations of the Company's competitors, changes in earnings
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies, including SimSci,
have been adversely affected by recent world financial market events, including
significant market volatility in late October 1997. Stock prices for many
companies in the technology and emerging growth sectors have experienced wide
fluctuations that have often been unrelated to the operating performance of such
companies. Such factors and fluctuations may adversely affect the market price
of the Company's Common Stock. See "Price Range of Common Stock."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of existing or future federal, state or local laws or
ordinances or unfavorable judicial decisions. Although the Company has not
experienced any product liability claims to date, the sale and support of its
simulation and optimization software may entail the risk of such claims.* A
successful product liability claim brought against the Company in excess of its
insurance coverage or outside the scope of such coverage could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Potential for Software Defects. Complex software products such as those
offered by the Company may contain undetected errors or failures commonly
referred to as "bugs." There can be no assurance that, despite significant
testing by the Company and by current and potential customers, errors will not
be found in new products or enhancements to existing products after commencement
of commercial shipments.
Dependence on Key Personnel. The Company's future business results depend in
significant part on the Company's Chief Executive Officer and other senior
management and key employees, including certain technical, managerial and
marketing personnel. The loss of the services of any of these individuals or
groups of individuals could have a material adverse effect on the Company's
business, operating results and financial condition.*
Risks Associated With Facilities Moves. The Company has recently
entered into a new lease for an approximately 45,000 square foot facility in
the Houston, Texas area and intends to consolidate its Houston-area operations
by relocating them to this facility in the near future. In addition, the Company
is currently seeking alternate space near its Brea, California headquarters and
could also move its Brea operations in the near future. Each move of Company
facilities involves coordination of complex events in order to avoid or minimize
disruption or delay of the Company's operations, including potential delays in
product development or shipment of products. If any of the anticipated facility
moves were to result in significant delays in product development or other
disruption of operations, the Company's business, operating results and
financial condition could be materially adversely affected.
Anti-takeover Effects of the Company's Charter, Bylaws and Delaware Law. The
Company's Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, without any further vote or action by the
stockholders. The rights of the holders of any Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock could
have the effect of delaying, deferring or preventing a change in control of the
Company. In addition, the Company has a Stockholders Rights Agreement that could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. The Company is also afforded the protections of the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law
("Section 203"). The protections of the Company's Stockholder Rights Agreement
and Section 203 together with certain other provisions of the Company's charter
and bylaws, may have the effect of discouraging, delaying or preventing a
merger, tender offer or proxy contest, which could adversely affect the market
price of the Company's Common Stock.
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
19
<PAGE> 20
competitors. In addition, stock prices for many companies in the technology
and emerging growth sectors have experienced wide fluctuations that have often
been unrelated to the operating performance of such companies. Such factors and
fluctuations may adversely affect the market price of the Company's Common
Stock.*
* Denotes forward looking statement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors That May Affect
Future Results of Operations."
20
<PAGE> 21
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.1 Lease Agreement dated September 2, 1997 between Registrant
and The Prudential Insurance Company of America
(b) A report on Form 8-K was filed on September 30, 1997 in
connection with the acquisition of certain technology from Shell
Oil Products Company.
21
<PAGE> 22
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, thereunto duly authorized.
Simulation Sciences Inc.
(Registrant)
Date: October 29, 1997 /s/ CHARLES R. HARRIS
-------------------------------------
Charles R. Harris
President and Chief Executive Officer
Date: October 29, 1997 /s/ ROBERT E. GRICE
-------------------------------------
Robert E. Grice
Executive Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
22
<PAGE> 23
Exhibit Index
27.1 Financial Data Schedule
99.1 Lease Agreement dated September 2, 1997 between
Registrant and The Prudential Insurance Company
of America
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,581,380
<SECURITIES> 0
<RECEIVABLES> 22,134,689
<ALLOWANCES> 895,980
<INVENTORY> 0
<CURRENT-ASSETS> 33,469,172
<PP&E> 12,202,675
<DEPRECIATION> 7,245,436
<TOTAL-ASSETS> 60,116,357
<CURRENT-LIABILITIES> 26,590,471
<BONDS> 0
0
0
<COMMON> 11,020
<OTHER-SE> 32,914,866
<TOTAL-LIABILITY-AND-EQUITY> 60,116,357
<SALES> 0
<TOTAL-REVENUES> 44,095,412
<CGS> 0
<TOTAL-COSTS> 4,615,638
<OTHER-EXPENSES> 49,581,178
<LOSS-PROVISION> 175,000
<INTEREST-EXPENSE> (1,439,435)
<INCOME-PRETAX> (8,836,969)
<INCOME-TAX> 2,392,984
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,229,953)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
HOUSTON STANDARD OFFICE LEASE AGREEMENT
April 1, 1998
Destec Towers
<PAGE> 2
TABLE OF CONTENTS
FOR
SUPPLEMENTAL LEASE PROVISIONS
Description Page
Article 1 Term and Possession............................... 1
Article 2 Rent.............................................. 2
Article 3 Security Deposit.................................. 4
Article 4 Occupancy and Use................................. 4
Article 5 Utilities and Services............................ 5
Article 6 Maintenance, Repairs, Alterations and Improvements 7
Article 7 Insurance, Fire and Casualty...................... 8
Article 8 Condemnation...................................... 11
Article 9 Liens............................................. 11
Article 10 Taxes on Tenant's Property........................ 11
Article 11 Subletting and Assigning.......................... 12
Article 12 Transfers by Landlord, Subordination and
Tenant's Estoppel Certificate..................... 12
Article 13 Default........................................... 13
Article 14 Notices........................................... 16
Article 15 Miscellaneous Provisions.......................... 16
LIST OF EXHIBITS AND RIDERS
TO
SUPPLEMENTAL LEASE PROVISIONS
Exhibit A Floor Plan
Exhibit B Land Legal Description
Exhibit C Rentable Area Calculations
Exhibit D Work Letter
Exhibit E Acceptance of Premises Memorandum
Exhibit F Parking Agreement
Exhibit G Houston Office Building Rules and Regulations
Exhibit H Arbitration of "Renewal Rental Rate"
Addendum X Check, if applicable
---
Rider 1 Exclusions from Operating Expenses Rider 2 Right To Audit
Rider 3 Electricity Rider 4 Renewal Option
Rider 5 Tenant's Right of Offer Rider 6 Exterior Signage
Rider 7 Communications Equipment Rider 8 Early Occupancy
Rider H-1 Hazardous Materials Rider H-2 X Check, if applicable
---
i
-----------------
Landlord: /s/ RH
------
HOUSTON OFFICE LEASE Tenant: /s/DTN
HOFFLES SRV ------
January 1, 1994 -----------------
<PAGE> 3
OFFICE LEASE AGREEMENT
- --------------------------------------------------------------------------------
This Lease Agreement (this "Lease Agreement") is made this 2nd day of
September, 1997 between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New
Jersey corporation (hereinafter called "Landlord"), and Simulation Sciences
Inc., a Delaware corporation (hereinafter called "Tenant"). This Lease
consists of this paragraph, the Basic Lease Provisions, the Supplemental Lease
Provisions and each exhibit, rider, schedule and addendum attached to the Basic
Lease Provisions and Supplemental Lease Provisions. Each capitalized term
used, but not defined, in the Supplemental Lease Provisions shall have the
meaning assigned to such term in the Basic Lease Provisions.
BASIC LEASE PROVISIONS
1. Building:
a. Name: Destec Tower .
-------------------------------------------------------------------
Address: 2500 CityWest Boulevard .
---------------------------------------------------------------
b. Agreed Rentable Area: 573,456 square feet.
---------------------------------------
2. Premises:
a. Suite #:1100 & 1200; Floors: Eleven(11) and Twelve (12) .
----------- -------------------------------------------
b. Agreed Rentable Area: 45,058 square feet.
---------------------------------------
3. Basic Rent (See Article 2, Supplemental Lease Provisions):
<TABLE>
<CAPTION>
Rate Per Square Basic Basic
Rental Foot of Agreed Annual Monthly
Period Rentable Area Rent Rent
------ --------------- ------ -------
<S> <C> <C> <C>
Years one (1) $ $ $
through five (5) $ 22.00 $ 991,272.00 $ 82,606.00
$ $ $
Years six (6) $ $ $
through eight (8) $ 24.00 $ 1,081,392.00 $ 90,116.00
</TABLE>
4. Tenant's Pro Rata Share Percentage: 7.857% (the Agreed Rentable Area of the
Premises divided by the Agreed Rentable Area of the Building, expressed in a
percentage).
5. Tenant's Operating Expense Stop: Equal to actual Operating Expenses for the
calendar year 1998, grossed up in accordance with subsection 2.202 of the
Supplemental Lease Provisions (see Article 2, Supplemental Lease
Provisions).
6. Tenant's Real Estate Taxes Stop: Equal to actual Real Estate Taxes for the
calendar year 1998 (see Article 2, Supplemental Lease Provisions).
7. Term: Eight (8) years and zero (0) months (see Article 1, Supplemental Lease
Provisions).
8. Commencement Date: April 1, 1998 (see Article 1, Supplemental Lease
Provisions).
9. Expiration Date: March 31, 2006 (see Article 1, Supplemental Lease
Provisions).
10. Security Deposit: $0.00 (see Article 3, Supplement Lease Provisions).
11. Tenant's Broker: CB Commercial Real Estate Group, Inc. (such broker is
represented by Mr. Ryan Morris, Mr. Kim Josephson).
12. Permitted Use: General Office Purposes Only (see Article 4, Supplemental
Lease Provisions).
13. All payments shall be sent to Landlord in care of PREMISYS Real Estate
Services, Inc. ("Property Manager") at 2500 CityWest Blvd., Suite 125,
Houston, Texas 77042 or such other place as Landlord may designate from
time to time. All payments shall be in the form of check until otherwise
designated by Landlord, provided that payment by check shall not be deemed
made if the check is not duly honored with good funds.
14. Parking: See Section 15.17 and Exhibit F, if any, attached to the
Supplemental Lease Provisions.
15. Addresses for notices due under this Lease (see Article 14, Supplemental
Lease Provisions):
<TABLE>
<CAPTION>
Landlord: Tenant:
<S> <C>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA PRIOR TO COMMENCEMENT DATE:
c/o PREMISYS Real Estate Services, Inc.
----------------------------------------
2500 CityWest Blvd., Suite 125 2950 North Loop West, Suite 830
------------------------------------------- --------------------------------------------
Houston, Texas 77042 Houston, Texas 77092
------------------------------------------- --------------------------------------------
Attention: Mr. Rob Nelson
-------------------------------- --------------------------------------------
Fax: 713/780-7395 Fax: 713/683-6613
-------------------------------------- ----------------------------------------
With a copy to: ON AND AFTER COMMENCEMENT DATE:
The Prudential Insurance Company of America The Premises.
One Prudential Plaza Fax:
Suite 1300 ----------------------------------------
Chicago, Illinois 60601-6217 With a copy to:
Attention: Vice President, Prudential Realty Group Simulation Sciences, Inc.
AND IF NOTICE OF DEFAULT, COPY TO 601 Valencia Avenue
Law Department, Prudential Realty Group Brea, California 92621
One Prudential Plaza, Suite 1300 Attn: Mgr. Office Services
Chicago, Illinois 60601-6217
Fax: (312) 861-4303
</TABLE>
Landlord and Tenant are initialing these Basic Lease Provisions in the
appropriate space provided below as an acknowledgement that they are a part
of this Lease.
------------------
Initial:
Landlord: /s/ RH
-------
HOUSTON OFFICE LEASE Tenant: /s/ DTN
HOFFLES SRV -------
January 1, 1994 ------------------
<PAGE> 4
SUPPLEMENTAL LEASE PROVISIONS
ARTICLE 1
TERM AND POSSESSION
SECTION 1.1 LEASE OF PREMISES, COMMENCEMENT AND EXPIRATION.
1.101 Lease of Premises. In consideration of the mutual covenants herein,
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, subject to all the terms and conditions of this Lease, the
portion of the Building (as described in Item 1 of the Basic Lease
Provisions) described as the Premises in Item 2 of the Basic Lease
Provisions and that is more particularly described by the crosshatched
area on Exhibit A attached hereto (hereinafter called the "Premises").
The Building, the land (the "Land") on which the Building is situated
(which Land is more particularly described on Exhibit B attached
hereto), the parking garage, if any, located on the Land and serving
the Building (the "Garage") and all other improvements located on and
appurtenances to the Building, the Garage and the Land are referred to
collectively herein as the "Property".
1.102 Agreed Rentable Area. The agreed rentable area of the Premises is
hereby stipulated to be the "Agreed Rentable Area" of the Premises set
forth in Item 2b of the Basic Lease Provisions, irrespective of whether
the same should be more or less as a result of minor variations
resulting from construction of Tenant's Improvements (as defined in the
Work Letter (herein so called) attached hereto as Exhibit D). The
agreed rentable area of the Building is hereby stipulated to be the
"Agreed Rentable Area" of the Building set forth in Item lb of the
Basic Lease Provisions, irrespective of whether the same should be more
or less as a result of minor variations resulting from actual
construction or repair of the Building.
1.103 Initial Term and Commencement. The initial term of this Lease shall be
the period of time specified in Item 7 of the Basic Lease Provisions.
The initial term shall commence on the Commencement Date (herein so
called) set forth in Item 8 of the Basic Lease Provisions (as such
Commencement Date may be adjusted pursuant to Section 3 of the Work
Letter) and, unless sooner terminated pursuant to the terms of this
Lease, the initial term of this Lease shall expire, without notice to
Tenant, on the Expiration Date (herein so called) set forth in Item 9
of the Basic Lease Provisions (as such Expiration Date may be adjusted
pursuant to Section 3 of the Work Letter).
SECTION 1.2 INSPECTION AND DELIVERY OF PREMISES, CONSTRUCTION OF LEASE SPACE
IMPROVEMENTS AND POSSESSION.
1.201 Delivery. Tenant acknowledges that Tenant has inspected the Premises
and the Common Areas (as hereinafter defined) and, except for latent
defects discovered and reported to Landlord by Tenant within 360 days
from the Commencement Date, hereby (i) accepts the Common Areas in
"as-is" condition for all purposes and (ii) subject to Landlord's
completion of its obligations under the Work Letter, Tenant hereby
accepts the Premises (including the suitability of the Premises for the
Permitted Use) for all purposes.
1.202 Completion. Landlord will perform or cause to be performed the work
and/or construction of Tenant's Improvements (as defined in the Work
Letter) in accordance with the terms of the Work Letter and will use
reasonable efforts to Substantially Complete (as defined in the Work
Letter) Tenant's Improvements by the Commencement Date. If Tenant's
Improvements are not Substantially Complete by the Commencement Date
set forth in Item 8 of the Basic Lease Provisions for any reason
whatsoever, Tenant's sole remedy shall be an adjustment of the
Commencement Date and the Expiration Date to the extent permitted under
Section 3 of the Work Letter.
1.203 Acceptance of Premises Memorandum. Upon Substantial Completion (as
defined in the Work Letter) of Tenant's Improvements, Landlord and
Tenant shall execute the Acceptance of Premises Memorandum (herein so
called) attached hereto as Exhibit E. If Tenant occupies the Premises
without executing an Acceptance of Premises Memorandum, Tenant shall be
deemed to have accepted the Premises for all purposes and Substantial
Completion shall be deemed to have occurred on the earlier to occur of
(i) actual occupancy or (ii) the Commencement Date set forth in Item 8
of the Basic Lease Provisions.
SECTION 1.3 REDELIVERY OF THE PREMISES. Upon the expiration or earlier
termination of this Lease or upon exercise by Landlord of its right to re-enter
the Premises without terminating this Lease, Tenant shall immediately deliver
to Landlord the Premises free of offensive odors and in a safe, clean, neat,
sanitary and operational condition (except normal wear and tear and casualty
damage), together with all keys and parking and access cards. Tenant shall, by
the Expiration Date or, if this Lease is earlier terminated, within seven (7)
days after the termination, at the sole expense of Tenant: (i) remove from the
Premises any equipment, machinery, trade fixtures and personalty installed or
placed in the Premises by or on behalf of Tenant and (ii) if requested by
Landlord, (a) remove from the Premises all or any part of the improvements
(other than Tenant's Improvements and any other improvements approved by
Landlord without the requirement that same be removed upon expiration or
earlier termination of the Lease) made to the Premises by or on behalf of
Tenant and (b) restore the Premises to the condition existing immediately prior
to the installation of such improvements. All removals and work described above
shall be accomplished in a good and workmanlike manner and shall be conducted
in a fashion so as not to damage the Premises or the Building or the plumbing,
electrical lines or other utilities serving the Building. Tenant shall, at its
expense, promptly repair any damage caused by any such removal or work. 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. All property
-----------------
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
-----------------
-1-
<PAGE> 5
required to be removed pursuant to this Section not removed within time period
required hereunder shall following written notice to Tenant and failure to
remove within ten (10) days, be conclusively presumed to have been abandoned by
Tenant and Landlord may, at its option, take over possession of such property
and either (a) declare the same to be the property of Landlord by written notice
to Tenant at the address provided herein or (b) at the sole cost and expense of
Tenant, remove and store and/or dispose of the same or any part thereof in any
manner that Landlord shall choose without incurring liability to Tenant or any
other person.
SECTION 1.4 HOLDING OVER. In the event Tenant or any party under Tenant
claiming rights to this Lease, retains possession of the Premises after the
expiration or earlier termination of this Lease, such possession shall
constitute and be construed as a tenancy at will only, subject, however, to all
of the terms, provisions, covenants and agreements on the part of Tenant
hereunder; such parties shall be subject to immediate eviction and removal and
Tenant or any such party shall pay Landlord as rent for the period of such
holdover an amount equal to one and one-half (1-1/2) times the Basic Annual
Rent except that such holdover amount shall equal one and one-quarter (1 1/4)
times Basic Annual Rent in effect immediately preceeding expiration or
termination for the initial sixty (60) days of such holdover period in effect
immediately preceding expiration or termination, as applicable, prorated on a
daily basis. Tenant shall also pay any and all damages sustained by Landlord as
a result of such holdover. The rent during such holdover period shall be
payable to Landlord from time to time on demand; provided, however, if no
demand is made during a particular month, holdover rent accruing during such
month shall be paid in accordance with the provisions of Article 2. Tenant will
vacate the Premises and deliver same to Landlord immediately upon Tenant's
receipt of notice from Landlord to so vacate. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend the term
of this Lease; no payments of money by Tenant to Landlord after the expiration
or earlier termination of this Lease shall reinstate, continue or extend the
term of this Lease; and no extension of this Lease after the expiration or
earlier termination thereof shall be valid unless and until the same shall be
reduced to writing and signed by both Landlord and Tenant.
ARTICLE 2
RENT
SECTION 2.1 BASIC RENT. Tenant shall pay as annual rent for the Premises the
applicable Basic Annual Rent shown in Item 3 of the Basic Lease Provisions. The
Basic Annual Rent shall be payable in monthly installments equal to the
applicable Basic Monthly Rent shown in Item 3 of the Basic Lease Provisions in
advance, without demand, offset or deduction, which monthly installments shall
commence on the Commencement Date and shall continue on the first (1st) day of
each calendar month thereafter. If the Commencement Date occurs on a day other
than the first day of a calendar month or the Expiration Date occurs on a day
other than the last day of a calendar month, the Basic Monthly Rent for such
partial month shall be prorated
SECTION 2.2 ADDITIONAL RENT.
2.201 Definitions. For purposes of this Lease, the following definitions
shall apply:
(a) "Additional Rent", for a particular calendar year, shall equal the
sum of (i) Tenant's Pro Rata Share Percentage (as set forth in Item 4
of the Basic Lease Provisions) multiplied by the amount by which Real
Estate Taxes (as hereinafter defined) for such year exceeds Tenant's
Real Estate Taxes Stop (as set forth in Item 6 of the Basic Lease
Provisions) plus (ii) Tenant's Pro Rata Share Percentage multiplied by
the amount by which Operating Expenses (as hereinafter defined) for
such calendar year exceed Tenant's Operating Expense Stop (as set forth
in Item 5 of the Basic Lease Provisions) plus (iii) Tenant's Pro Rata
Share Percentage multiplied by Additional Pass Through Costs (as
hereinafter defined) for such calendar year.
(b) "Operating Expenses" shall mean all of the costs and expenses
Landlord incurs, pays or becomes obligated to pay in connection with
operating, maintaining, insuring and managing the Property for a
particular calendar year or portion thereof as determined by Landlord
in accordance with generally accepted accounting principles, including,
but not limited to, the following: (i) insurance premiums ("Insurance
Premiums"); (ii) water, sewer, electrical and other utility charges
("Utility Expenses"); (iii) service, testing and other charges incurred
in the operation and maintenance of the elevators and the plumbing,
fire sprinkler, security, heating, ventilation and air conditioning
system; (iv) cleaning and other janitorial services inclusive of window
cleaning; (v) tools and supplies costs; (vi) repair costs; (vii) costs
of landscaping, repair and maintenance, including landscape maintenance
and sprinkler maintenance costs and rental and supply costs in
connection therewith; (viii) security and alarm services; (ix)
license, permit and inspection fees; (relative to the Building, but
not for Tenant's Improvements); (x) management fees; (xi) wages and
related benefits payable to employees, including taxes and insurance
relating thereto; (xii) accounting services; (xiii) legal services,
unless incurred in connection with tenant defaults or lease
negotiations, (xiv) trash removal; (xv) garage and parking
maintenance, repair, repaving and operating costs; and (xvi) the
charges assessed against the Property pursuant to any contractual
covenants or recorded declaration of covenants or the covenants,
conditions and restrictions of any other similar instrument affecting
the Property. Notwithstanding the foregoing, Operating Expenses shall
not include Real Estate Taxes or Additional Pass Through Costs, See
Rider 1., Exclusions From Operating Expenses.
(c) "Real Estate Taxes" shall mean (i) all real estate taxes and other
taxes or assessments which are levied with respect to the Property or
any portion thereof for each calendar year, (ii) any tax, surcharge or
assessment which shall be levied as a supplement to or in lieu of real
estate taxes, (iii) the costs and expenses of a consultant, if any, or
of contesting the validity or amount of such real estate or other taxes
and (iv) any rental, excise, sales, transaction, privilege or other tax
or levy, however denominated, imposed upon or measured by the rental
reserved hereunder or on Landlord's business of leasing the Premises,
excepting only Landlord's net income taxes.
-----------------
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
-----------------
-2-
<PAGE> 6
(d) "Additional Pass Through Costs" shall mean the following costs and
expenses incurred by Landlord from and after January 1 of the calendar
year in which this Lease*: (i) subject to the limitations of clause
(ii) following, the cost of any improvement made to the Property by
Landlord that is required under any governmental law or regulation
which was not promulgated, or which was promulgated but was not
applicable to the Building, at the time the Building was constructed,
amortized over such period as Landlord shall reasonably determine,**
together with an amount equal to interest at the rate of twelve percent
(12%) per annum (the "Amortization Rate") on the unamortized balance
thereof; (ii) the cost of any improvement made to the Common Areas of
the Property that is required under interpretations or regulations
issued after the Commencement Date under, or amendments made after the
Commencement Date to, the provision of Tex. Rev. Civ. Stat. Ann. art.
9102 and the provisions of the American With Disabilities Act of 1990,
42 U.S.C. Sections 12101-12213 (collectively, the "Disability Acts"),
amortized over such period as Landlord shall reasonably determine***,
together with an amount equal to interest at the Amortization Rare on
the unamortized balance thereof; (iii) the cost of any labor-saving or
energy-saving device or other equipment installed in the Building
(provided Landlord reasonably anticipates that the installation thereof
will reduce Operating Expenses), amortized over such period as is
reasonably determined by Landlord****, together with an amount equal to
interest at the Amortization Rate on the unamortized balance
thereof*****; and (iv) all other capital costs and expenses which would
generally be regarded as ownership, operating, maintenance and,
management costs and expenses which would normally be amortized over a
period not to exceed five (5) years.
2.202 Gross-Up, Operating Expenses shall be grossed up to include all
additional costs and expenses of owning, operating, maintaining and
managing the Building which Landlord determines that it would have
incurred, paid or been obligated to pay during such year if the
Building had been one hundred percent (100%) occupied.
2.203 Payment Obligation. In addition to the Basic Rent specified in this
Lease, Tenant shall pay to Landlord the Additional Rent, in each
calendar year during the term of this lease, payable in monthly
installments as herein provided. On or prior to the Commencement
Date and at least thirty (30) days prior to each calendar year
thereafter (or as soon thereafter as is reasonably possible), Landlord
shall give Tenant written notice of Tenant's estimated Additional Rent
for the applicable calendar year and the amount of the monthly
installment due for each month during such year. Tenant shall pay to
Landlord on the Commencement Date and on the first day of each month
thereafter the amount of the applicable monthly installment, without
demand, offset or deduction, provided, however, if the applicable
installment covers a partial month, then such installment shall be
prorated on a daily basis. Within ninety (90) days after the end of
(i) each calendar year and (ii) the Expiration Date or as soon there-
after as is reasonably possible, Landlord shall prepare and deliver
to Tenant a statement showing Tenant's actual Additional Rent for
the applicable calendar year, provided that with respect to the
calendar year in which the Expiration Date occurs, (x) that calendar
year shall be deemed to have commenced on January 1 of that year and
ended on the Expiration Date (the "Final Calendar Year") and (y) Land-
lord shall have the right to estimate the actual Operating Expenses
allocable to the Final Calendar Year but which are not determinable
within such ninety day period. If Tenant's total monthly payments of
Additional Rent for the applicable year are less than Tenant's actual
Additional Rent, then Tenant shall pay to Landlord the amount of such
underpayment. If Tenant's total monthly payments of additional Rent
for the applicable year are more than Tenant's actual Additional Rent,
then Landlord shall credit against the next Additional Rent payment or
payments due from Tenant the amount of such overpayment, provided,
however, with respect to the Final Calendar Year, Landlord shall pay
to Tenant the amount of such excess payments, less any amounts then
owed to Landlord. Unless Tenant takes written exception to any item
within one hundred eight (180) days after the furnishing of an annual
statement, such statement shall be considered as final and accepted
by Tenant. 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. see Rider 2., Right to Audit.
2.204 Billing Dispute. If there exists any dispute as to (i) the amount of
Additional Rent, (ii) whether a particular expense is properly included
in Additional Rent or (iii) Landlord's calculation of Additional Rent
(each an "Additional Rent Dispute"), the events, errors, acts or
omissions giving rise to such Additional Rent Dispute shall not
constitute a breach or default by Landlord under this Lease and even
if a judgement resolving the Additional Rent Dispute is entered against
Landlord, this Lease shall remain in full force and effect and Landlord
shall not be liable for any consequential damages resulting from
the event, error, act or omission giving rise to such Additional Rent
Dispute. Notwithstanding the existence of an Additional Rent Dispute,
Tenant shall pay timely the amount of Additional Rent which is in
dispute and will continue to make all subsequent payments of Additional
Rent as and when required under this Lease, provided that the payment
of such disputed amount and other amounts shall be without prejudice to
Tenant's position. If an Additional Rent is resolved in favor of
Tenant, Landlord shall forthwith pay to Tenant the amount of Tenant's
overpayment of Additional Rent, together with interest from the time of
such overpayment at the annual rate of ten percent (10%).
2.205 Revisions in Estimated Additional Rent. If Real Estate Taxes, Insurance
Premiums, Utility Expenses or Additional Pass Through Costs increase
during a calendar year or if the number of square feet of rentable
area in the Premises increases******, Landlord may revise the estimated
Additional Rent 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 additional amount equal to the amount
equal to the amount of such increase in the estimated Additional Rent
divided by the number of months remaining in such year.
Section 2.3 RENT DEFINED AND NO OFFSETS. Basic Annual Rent, Additional Rent
and all other sums (whether or not expressly designated as rent) required to be
paid to Landlord by Tenant under this Lease (including, without limitation, any
sums payable to Landlord under any addendum, exhibit, rider or schedule attached
hereto) shall constitute
* see Inserts for Section 2.201 ** see Inserts for Section 2.201
*** see Inserts for Section 2.201 **** see Inserts for Section 2.201
****** see Inserts for Section 2.205 ***** see Inserts for Section 2.201
/s/ RH
---------------
/s/ DTN
---------------
-3-
<PAGE> 7
INSERTS FOR SECTION 2.201
* commences
** and in accordance with generally accepted accounting principles
*** and in accordance with generally accepted accounting principles
**** and in accordance with generally accepted accounting principles
***** but only to the extent of the savings actually realized, as determined
by Landlord using Landlord's prudent business judgment
INSERT FOR SECTION 2.205
****** as a result of Tenant leasing additional rentable area
Initial
Landlord: /s/ RH
----------------
Tenant: /s/ DTN
----------------
-3(A)-
<PAGE> 8
rent and are sometimes collectively referred to as "Rent". Each payment of Rent
shall be paid by Tenant when due, without prior demand therefor and without
deduction or setoff.
SECTION 2.4 LATE CHARGES. If any installment of Basic Annual Rent or
Additional Rent or any other payment of Rent under this Lease shall not be paid
* ,a "Late Charge" of five cents ($0.05) per dollar so overdue may be charged by
Landlord to defray Landlord's administrative expense incident to the handling
of such overdue payments ** Each Late Charge shall be payable on demand.
ARTICLE 3
SECURITY DEPOSIT
ARTICLE 4
OCCUPANCY AND USE
SECTION 4.1 USE OF PREMISES
4.101 General. The Premises shall, subject to the remaining provisions of
this Section, be used solely for the Permitted Use (herein so called)
specified in Item 12 of the Basic Lease Provisions. Without in any way
limiting the foregoing, Tenant will not use, occupy or permit the use or
occupancy of the Premises for any purpose (and the Permitted Use shall not
include any use) which is forbidden by or in violation of any law, ordinance or
governmental or municipal regulation, order, or certificate of occupancy, or
which may be dangerous to life, limb or property; or permit the maintenance of
any public or private nuisance; or do or permit any other thing which may
disturb the quiet enjoyment of any other Tenant of the Property; or keep any
substance or carry on or permit any operation which might emit offensive odors
or conditions from the Premises; or commit or suffer or permit any waste in or
upon the Premises; or sell, purchase or give away, or permit the sale, purchase
or gift of food in any form by or to any of Tenant's agents or employees or
other parties in the Premises except through vending machines in employee lunch
or rest areas within the Premises for use by Tenant's employees only; or use
any apparatus which might make undue noise or set up vibrations in the
building; or knowingly permit anything to be done which would increase the fire
and extended coverage insurance rate on the building or Building contents and,
if there is any increase in such rate by reason of acts of Tenant, then Tenant
agrees to pay such increase upon demand therefor by Landlord. Payment by Tenant
of any such rate increase not be a waiver of Tenant's duty to comply herewith.
Tenant shall keep the Premises neat and clean at all times. *** Tenant shall
comply with, and promptly correct any violation of, a governmental law, rule or
regulation relating to the **** Premises. Tenant shall comply with any
direction of any governmental authority having jurisdiction which imposes any
duty upon Tenant or Landlord with respect to ***** the Premises.
4.102 Hazardous and Toxic Materials:
(a) For purposes of this Lease, hazardous or toxic materials shall
mean asbestos containing materials ("ACM") and all other materials, substances,
wastes and chemicals classified as hazardous or toxic substances, materials,
wastes or chemicals under then-current applicable governmental laws, rules or
regulations that are subject to any right-to-know laws or requirements.
(b) Tenant shall not knowingly incorporate into, or use or otherwise
place or dispose of any hazardous or toxic materials at or on the Premises or
the Property except for use and storage of cleaning and office supplies used in
the ordinary course of Tenant's business and then only if (i) such materials
are in small quantities, properly labeled and contained, (ii) such materials are
handled and disposed of in accordance with the highest accepted industry
standards for safety, storage, use and disposal, (iii) notice of and a copy of
the current material safety data sheet is provided to Landlord for each such
hazardous or toxic material and (iv) such materials are used, transported,
stored, handled and disposed of in accordance with all applicable governmental
laws, rules and regulations. Landlord shall have the right to periodically
inspect, take samples for testing and otherwise investigate the Premises for
the presence of hazardous or toxic materials. Landlord shall not knowingly
dispose of any hazardous or toxic
* see Inserts for Section 2.4 ** see Inserts for Section 2.4
*** see Inserts for Section 4.101 **** see Inserts for Section 4.101
***** see Inserts for Section 4.101
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INSERTS FOR SECTION 2.4
* within five (5) days of due date.
INSERTS FOR SECTION 2.4
** ;however, Landlord shall provide Tenant written notice prior to imposing
the first Late Charge during any twelve (12) month period of the Term
and Tenant shall have five (5) days from the date of receipt of written
notice to pay any such overdue payments prior to Landlord imposing a
Late Charge. No notice shall be required prior to imposing a Late
Charge for any subsequent late payments.
INSERTS FOR SECTION 4.101
*** Subject to Landlord's compliance obligations set forth in SECTION 4.103,
**** Tenant's use of
***** Tenant's use of occupancy of
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materials on the Property and shall otherwise deal with all hazardous
or toxic materials at the Property in a manner that will not
materially and adversely affect Tenant's access, use or occupancy of
the Premises. If Landlord or Tenant ever has knowledge of the
presence of hazardous or toxic materials on the Property that affect
the Premises, the party having knowledge shall notify the other party
thereof in writing promptly after obtaining such knowledge.
(c) Prior to commencement of any tenant finish work to be performed
by Landlord, Tenant shall have the right to make such studies and
investigations and conduct such tests and surveys of the Premises
from an environmental standpoint as permitted under RIDER H-2 attached
hereto. If Tenant requests that Landlord commence construction of
Tenant's Improvements prior to exercising such right, Tenant shall be
deemed to have waived the termination right set forth in RIDER H-2.
(d) If Tenant or its employees, agents or contractors shall ever
violate the provisions of paragraph (b) of this subsection 4.102 or
otherwise contaminate the Premises or the Property with hazardous or
toxic materials, then Tenant shall clean-up, remove and dispose of the
material causing the violation, in compliance with all applicable
governmental standards, laws, rules and regulations and then prevalent
industry practice and standards and shall repair such damage to the
Premises or Building within such period of time as may be reasonable
under the circumstances after written notice by landlord. Tenant
shall notify Landlord of its method, time and procedure for any
clean-up or removal and Landlord shall have the right to require
reasonable changes in such method, time or procedure or to require the
same to be done after normal business hours. Tenant's obligations
under this subsection 4.102(d) shall survive the termination of this
lease. Tenant represents to Landlord that, except as has been
disclosed to Landlord, Tenant has never been cited for or convicted of
any hazardous or toxic materials violations under applicable laws,
rules or regulations.
(e)*
4.103 DISABILITY ACTS. Landlord, at Landlord's expense, shall be obligated
to see that all Common Areas ** comply with the Disability Act
requirements that are in effect on the Commencement Date. From and
after the Commencement Date, Tenant shall be obligated to see that the
Premises comply with all existing requirements of and regulations
issued under the Disability Acts for each of the following: (i)
alterations or improvements to any portion of the Premises performed
after the Commencement Date; (ii) obligations or complaints arising
under or out of title 1 of the Americans with Disabilities Act or
Tenant's employer-employee obligations; (iii) obligations or
complaints arising under or out of the conduct or operations of
Tenant's business, including any obligations or requirements for
barrier removal to customers or invitees as a commercial facility or
as a public accommodation (as defined in the Disability Acts); and
(iv) any change in the nature of Tenant's business, or its employees,
or financial net worth, or Tenant's business operations that triggers
an obligation under the Disability Acts. ***
SECTION 4.2 RULES AND REGULATIONS. Tenant will comply with such rules and
regulations (the "Rules and Regulations") generally applying to the Building as
reasonably may be adopted from time to time by Landlord for the management,
safety, care and cleanliness of, and the preservation of good order and
protection of property in, the Premises and the Building and at the Property.
All such Rules and Regulations are hereby made a part hereof. The Rules and
Regulations in effect on the date hereof are on file with the Property
Manager. All changes and amendments to the Rules and Regulations sent by
Landlord to Tenant in writing and conforming to the foregoing standards shall
be carried out and observed by Tenant. Landlord hereby reserves all rights
necessary to implement and enforce the Rules and Regulations and each and every
provision of this lease.
SECTION 4.3 ACCESS. Without being deemed guilty of an eviction of Tenant and
without abatement of Rent, Landlord and its authorized agents shall have the
right to enter the Premises, upon reasonable notice, to inspect the Premises,
to show the Premises to prospective lenders, purchasers **** or tenants ***** to
fulfill Landlord's obligations or exercise its rights (including without
limitation Landlord's Reserved Right [as hereinafter defined]) under this
Lease. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises and any other loss occasioned thereby. For
each of the aforesaid purposes, Landlord shall at all times have and retain a
key with which to unlock the doors to and within the Premises, excluding
Tenant's vaults and safes. Landlord shall have the right to use any and all
means which Landlord may deem proper to enter the Premises in an emergency
without liability therefor.
SECTION 4.4 QUIET POSSESSION. Provided Tenant timely pays Rent and observes
and performs all of the covenants, conditions and provisions on Tenant's part
to be observed and performed hereunder, Tenant shall have the quiet possession
of the Premises for the entire term hereof, subject to all of the provisions of
this Lease and all laws and restrictive covenants to which the Property is
subject.
ARTICLE 5
UTILITIES AND SERVICES
SECTION 5.1 SERVICES TO BE PROVIDED.
Landlord agrees to furnish or cause to be furnished to the Premises, the
utilities and services described in subsections 5.101 through 5.108 below,
subject to all other provisions of this Lease.
* see Insert for Section 4.102 ** see Inserts for Section 4.103
*** see Inserts for Section 4.103 **** see Inserts for Section 4.3
***** see Inserts for Section 4.3 ***** see Inserts for Section 4.3
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INSERT FOR SECTION 4.102
* Tenant shall not be responsible for, and the Allowance shall not be
used for, any costs pertaining to the testing, clean-up, removal,
remediation or disposal of any hazardous or toxic materials present in
the Premises or the Property prior to Tenant's occupancy of the
Premises on the Commencement Date.
INSERT FOR SECTION 4.103
** and the Garage
*** Landlord shall, as part of Additional Pass Through Costs, be
obligated to see that all Common Areas comply with any amendments or
modifications to the Disability Act requirements which are enacted
after the Commencement Date.
INSERT FOR SECTION 4.3
**** in the case of
***** only, during the last six (6) months of the Term,
****** Except for injury or damage caused by Landlord's gross negligence or
willful misconduct.
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5.101 Elevator Service. Except for holidays generally recognized by
businesses and emergencies, Landlord shall provide automatic elevator
facilities on generally accepted business days from 7:00 a.m. to 6:00
p.m. and on Saturdays form 8:00 a.m. to 1:00 p.m.*
5.102 Heat and Air Conditioning. On generally accepted business days from
7:00 a.m. to 6:00 p.m. and on Saturdays (other than holidays
generally recognized by businesses)** from 8:00 a.m. to 1:00 p.m.,
Landlord shall ventilate the Premises and furnish heat or air
conditioning, at such temperatures and in such amounts as is
customary in buildings of comparable size, quality and in the general
vicinity of the Building, with such adjustments as Landlord
reasonably deems necessary for the comfortable occupancy of the
Premises, subject to events of force majeure and any governmental
requirements, ordinances, rules, regulations, guidelines or standards
relating to, among other things, energy conservation. Upon request,
Landlord shall make available, at Tenant's expense, after hours heat
or air conditioning, The minimum charge and the hourly rate for the
use of after hours heat or air conditioning shall be determined from
time to time by Landlord and confirmed in writing to Tenant.***
5.103 see Rider 3., Electricity.
5.104 Water. Landlord shall furnish water for drinking, cleaning and
lavatory purposes only.
5.105 Janitorial Services. Landlord shall provide janitorial services to
the Premises, **** comparable to that provided in other office
building of similar size, quality and in the general vicinity of the
Building, provided the Premises are used exclusively as offices and
further provided Tenant complies with subsection 6.201 below.
5.106 Common Areas. Landlord shall perform routine maintenance***** in the
Common Areas (hereinafter defined).
5.107 Bulbs and Ballasts. Landlord shall provide Building standard bulbs
and ballasts as necessary in the Premises. Landlord shall also
provide non-building standard bulbs and ballasts provided Tenant
shall pay the cost thereof, together with an administrative fee equal
to ten percent (10%) of such cost. All amounts due under this
subsection for such non-building standard bulbs shall be paid to
Landlord within thirty (30) days after receipt of an invoice therefor.
5.108 ******
SECTION 5.2 ADDITIONAL SERVICES. Landlord may impose a reasonable charge
for any utilities and services, including without limitation, air conditioning,
electrical current, and water, provided by Landlord by reason of any use of the
services at any time other than the hours set forth in subsection 5.102 above
or beyond the levels or quantities that Landlord agrees herein to furnish or
because of special electrical, cooling or ventilating needs created by Tenant's
hybrid telephone equipment, computers or other equipment.
SECTION 5.3 TENANT'S OBLIGATION. Tenant agrees to cooperate fully at
all times with Landlord and to abide by all regulations and requirements which
Landlord reasonably prescribes for the use of the above utilities and services.
SECTION 5.4 SERVICE INTERRUPTION.
5.401 SERVICE INTERRUPTION/WAIVER OF LANDLORD LIABILITY. LANDLORD SHALL NOT
BE LIABLE FOR AND, EXCEPT AS PROVIDED IN SUBSECTION 5.402 BELOW,
TENANT SHALL NOT BE ENTITLED TO ANY ABATEMENT OR REDUCTION OF RENT BY
REASON OF LANDLORD'S FAILURE TO MAINTAIN TEMPERATURE OR ELECTRICAL
CONSTANCY LEVELS OR TO FURNISH ANY OF THE FOREGOING SERVICES when
such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbance or labor dispute of any
character, governmental regulation, moratorium or other governmental
action, inability to obtain electricity, water or fuel, or by any
cause beyond Landlord's reasonable control (collectively,
"Uncontrollable Events"), NOR SHALL ANY SUCH UNCONTROLLABLE EVENT OR
RESULTS OR EFFECTS THEREOF BE CONSTRUED AS AN EVICTION (CONSTRUCTIVE
OR ACTUAL) OF TENANT OR AS A BREACH OF THE IMPLIED WARRANTY OF
SUITABILITY, OR RELIEVE TENANT FROM THE OBLIGATION TO PERFORM ANY
COVENANT OR AGREEMENT HEREIN AND IN NO EVENT SHALL LANDLORD BE LIABLE
FOR DAMAGE TO PERSONS OR PROPERTY (INCLUDING, WITHOUT LIMITATION,
BUSINESS INTERRUPTION) OR BE IN DEFAULT HEREUNDER, AS A RESULT OF ANY
SUCH UNCONTROLLABLE EVENT OR RESULTS OR EFFECTS THEREOF.
* see Insert for Section 5.101 ** see Inserts for Section 5.102
*** see Inserts for Section 5.102 **** see Insert for Section 5.105
***** see Insert for Section 5.106 ****** see Insert for Section 5.108
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INSERT FOR SECTION 5.101
* A minimum of one (1) elevator shall be operational twenty-four (24)
hours per day, seven (7) days per week, during the Term of this Lease.
INSERTS FOR SECTION 5.102
** For the purposes of this Section 5.102., "holidays generally
recognized by businesses" shall mean New Year's Day, Presidents' Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
*** The initial charge for such after hours heat or air conditioning
services is currently $35.00 per hour per floor. Such charge shall
be subject to change from time to time, in accordance with Landlord's
formula used to compute the current charge of $35.00 per hour per
floor, based upon actual increases in Landlord's costs of providing
such services, including without limitation, any increase in the cost
of electricity charged by Houston Lighting & Power Company ("HL&P")
which shall be based on the percentage increase of the kilowatt hour
rate published by HL&P at the time of any such increase, as compared
to such rate at the time of execution of this Lease plus Landlord's
reasonable fees to administrate such above building standard service
which in no event shall exceed ten percent (10%).
INSERT FOR SECTION 5.105
**** five (5) nights per week (other than holidays)
INSERT FOR SECTION 5.106
***** and repairs
INSERT FOR SECTION 5.108
****** GARAGE. Landlord shall perform routine maintenance and repairs in
the Garage.
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5.402 Limited Right to Abatement of Rent. If any portion of the Premises
becomes unfit for occupancy because Landlord fails to deliver any
service as required under Section 5.1 above for any period (other
than a reconstruction period conducted pursuant to Section 7.1 or
Article 8 below) exceeding five (5) consecutive days after written
notice by Tenant to Landlord and provided such failure is not caused
by Tenant, Tenant's Contractors or any of their respective agents or
employees, Tenant shall be entitled to a fair partial abatement of
Basic Annual Rent and Additional Rent for any such portion of the
Premises from the expiration of such five (5) day period until such
portion is again fit for occupancy.
SECTION 5.5 MODIFICATIONS. Notwithstanding anything herein to the
contrary, Landlord reserves the right from time to time to make reasonable
modifications to the above standards for utilities and services.
ARTICLE 6
MAINTENANCE, REPAIRS, ALTERATIONS AND IMPROVEMENTS
SECTION 6.1 LANDLORD'S OBLIGATION TO MAINTAIN AND REPAIR. Landlord
shall (subject to Section 7.1, Section 7.4, Article 8 below and Landlord's
rights under Section 2.2 above and except for ordinary wear and tear) maintain
the exterior walls and roof and load bearing elements* of the Building.
Except for load bearing elements of the Building located within the Premises,**
Landlord shall not be required to maintain or repair any portion of the
Premises.
SECTION 6.2 TENANT'S OBLIGATION TO MAINTAIN AND REPAIR.
6.201 Tenant's Obligation. Subject to Sections 6.1, 7.1 and 7.4 and
Article 8 of this Lease, Tenant shall, at Tenant's sole cost and
expense, (i) maintain and keep the interior of the Premises
(including, but not limited to, all fixtures, walls, ceilings, floors,
doors, windows [except replacement of exterior plate glass],
appliances and equipment which are a part of the Premises) in good
repair and condition, (ii) repair or replace any damage or injury
done to the Building or any other part of the Property caused by
Tenant, Tenant's agents, employees, licensees, invitees or visitors
or resulting from a breach of its obligations under this Section 6.2
and (iii) INDEMNIFY AND HOLD LANDLORD HARMLESS FROM, AND REIMBURSE
LANDLORD FOR AND WITH RESPECT TO, ANY AND ALL COSTS, EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES), CLAIMS AND CAUSES OF ACTION
ARISING FROM OR INCURRED BY AND/OR ASSERTED IN CONNECTION WITH SUCH
MAINTENANCE, REPAIRS, REPLACEMENTS, DAMAGE OR INJURY. All repairs
and replacements performed by or on behalf of Tenant shall be
performed in a good and workmanlike manner and in accordance with the
standards applicable to alterations or improvements performed by
Tenant. Tenant shall continue to pay Rent, without abatement, during
any period that repairs or replacements are performed or required to
be performed by Tenant under this Section 6.2.
6.202 Rights of Landlord. Landlord shall have the same rights with respect
to repairs performed by Tenant as Landlord has with respect to
improvements and alterations performed by Tenant under subsection
6.303 below. In the event Tenant fails, in the reasonable judgment of
Landlord, to maintain the Premises in good order, condition and
repair, or otherwise satisfy its repair and replacement obligations
under subsection 6.201 above,*** Landlord shall have the right to
perform such maintenance, repairs and replacement at Tenant's expense.
Tenant shall pay to Landlord on demand any such cost or expense
reasonably incurred by Landlord, together with interest thereon at the
rate specified in Section 15.10 below from the date of demand until
paid.
SECTION 6.3 IMPROVEMENTS AND ALTERATIONS.
6.301 Landlord's Construction Obligation.**** Landlord's sole construction
obligation under this Lease is as set forth in the Work Letter.
6.302 Alteration of Building. LANDLORD HEREBY RESERVES THE RIGHT AND AT
ALL TIMES SHALL HAVE THE RIGHT TO REPAIR, CHANGE, REDECORATE, ALTER,
IMPROVE, MODIFY, RENOVATE, ENCLOSE OR MAKE ADDITIONS TO ANY PART OF
THE PROPERTY (INCLUDING, WITHOUT LIMITATION, STRUCTURAL ELEMENTS AND
LOAD BEARING ELEMENTS WITHIN THE PREMISES) AND TO ENCLOSE AND/OR
CHANGE THE ARRANGEMENT AND/OR LOCATION OF DRIVEWAYS OR PARKING AREAS
OR LANDSCAPING OR OTHER COMMON AREAS OF THE PROPERTY, ALL WITHOUT
BEING HELD GUILTY OF AN ACTUAL OR CONSTRUCTIVE EVICTION OF TENANT OR
BREACH OF THE IMPLIED WARRANTY OF SUITABILITY AND WITHOUT AN ABATEMENT
OF RENT (THE "RESERVED RIGHT"). WITHOUT IN ANY WAY LIMITING THE
GENERALITY OF THE FOREGOING, LANDLORD'S RESERVED RIGHT SHALL INCLUDE,
BUT NOT BE LIMITED TO THE RIGHT TO DO ANY OF THE FOLLOWING: (i) erect
and construct scaffolding, pipe, conduit and other structures on and
within and outside of the Premises where reasonably required by the
nature of the changes, alterations, improvements, modifications,
renovations and//or additions being performed, (ii) perform within and
outside of the Premises all work and other activities associated with
such changes, alterations, improvements, modifications, renovations
and/or additions being performed, (iii) repair, change, renovate,
remodel, alter, improve, modify or make additions to the arrangement,
appearance, location and/or size of entrances or passageways, doors
and doorways, corridors, elevators, elevator lobbies, stairs, toilets
or other Common Areas or Service Areas, (iv) temporarily close any
Common Area and/or temporarily suspend Building services and
facilities in connection with any repairs, changes, alterations,
modifications, renovations or additions to any part of the Building,
(v) repair, change, alter or improve plumbing, pipes and conduits
located in the Building, including without limitation, those located
within the Premises, the Common Areas, the Service Corridors or the
Service Areas (hereinafter defined) of the Building and (vi) repair,
change, modify, alter, improve, renovate or make additions to the
Building central heating, ventilation, air
* See Inserts for Section 6.1 ** see Inserts for Section 6.1
*** see Insert for Section 6.202 **** see Insert for Section 6.301
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INSERTS FOR SECTION 6.1
* and interior structural columns and mechanical systems and HVAC systems
** and providing Janitorial Services described in Section 5.105
INSERTS FOR SECTION 6.202
*** after written notice to Tenant and failure by Tenant to cure within ten
(10) days following such written notice or within a reasonable period of time
under the circumstances if a cure cannot be reasonably be completed within such
ten (10) day period, provided Tenant is diligently pursuing a cure and using
best efforts to cure in Landlord's reasonable judgement.
INSERT FOR SECTION 6.301
**** Other than Landlord's Obligation to Maintain and Repair.
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conditioning, electrical, mechanical or plumbing systems. When
exercising the Reserved Right, Landlord will interfere with Tenant's use
and occupancy of the Premises * as little as is reasonably practicable.
6.303 Alterations, Additions, Improvements and Installations by Tenant. Tenant
shall not, without the prior written consent of Landlord, make any
changes, modifications, alterations, additions or improvements (other
than Tenant's Improvements under the Work Letter) to, or install any
equipment or machinery (other than office equipment and unattached
personal property) on, the Premises (all such changes, modifications,
alterations, additions, improvements (other than Tenant's Improvements
under the Work Letter) and installations approved by Landlord are herein
collectively referred to as "Installations") if any such Installations
would (i)** affect any structural or load bearing portions of the
Building, (ii) result in a material increase of electrical usage above
the normal type and amount of electrical current to be provided by
Landlord, (iii) result in an increase in Tenant's usage of heating or
air conditioning, (iv) impact mechanical, electrical or plumbing systems
in the Premises or the Building, (v) affect areas of the Premises which
can be viewed from Common Areas, (vi) require greater or more difficult
cleaning work (e.g., kitchens, reproduction rooms and interior glass
partitions), (vii) adversely affect Landlord's ability to deliver
Building services to other tenants of the Building or (viii) violate any
provision in Article 4 above or Rider H-1 or Rider H-2 attached hereto.
As to Installations not covered by the preceding sentence, Tenant will
not perform same without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed. 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 installations and approves such contractor's insurance
coverage to be provided in connection with the work, (b) Landlord
approves final and complete plans and specifications for the work and
(c) the approximate governmental agency, if any, has approved the plans
and specifications 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. Upon completion of the Installations, Tenant shall
deliver to Landlord "as built" plans. If Landlord performs such
Installations, Tenant shall pay Landlord, as additional Rent, the cost
thereof plus fifteen percent (15%) as reimbursement for Landlord's
overhead. Each payment shall be made to Landlord within twenty (20)
days after receipt of an invoice from Landlord. All Installations that
constitute improvements constructed within the Premises shall be
surrendered with the Premises at the expiration or earlier termination
of this Lease, unless Landlord requests that same be removed pursuant to
Section 1.3 above. TENANT SHALL INDEMNIFY AND HOLD LANDLORD HARMLESS
FROM, AND REIMBURSE LANDLORD FOR AND WITH RESPECT TO, ANY AND ALL COSTS,
EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES), DEMANDS, CLAIMS, CAUSES
OF ACTION AND LIENS ARISING FROM OR IN CONNECTION WITH ANY INSTALLATIONS
PERFORMED BY OR ON BEHALF OF TENANT. All Installations performed by or
on behalf of Tenant will be performed diligently and in a first-class
workmanlike manner and in compliance with all applicable laws,
ordinances, regulations and rules of any public authority having
jurisdiction over the Building and/or Tenant's and Landlord's insurance
carriers. Landlord will have the right, but not the obligation, to
inspect periodically the work on the Premises and may require changes in
the method or quality of work.
6.304 Approvals. 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, Tenant's 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.
ARTICLE 7
INSURANCE, FIRE AND CASUALTY
SECTION 7.1 TOTAL OR PARTIAL DESTRUCTION OF THE BUILDING OR THE PREMISES. In
the event that the Building should be totally destroyed by fire or other
casualty or in the event the Building (or any portion thereof) should be so
damaged that rebuilding or repairs cannot be completed, in Landlord's reasonable
opinion, within one hundred eighty (180) days *** after Landlord may, at its
option, terminate this Lease, in which event Basic Annual Rent and Additional
Rent shall be abated during the unexpired portion of this Lease effective with
the date of such damage. Landlord shall exercise the termination right pursuant
to the preceding sentence, if at all, be delivering such written notice of
termination to Tenant within ten (10) days after determining that the repairs
cannot be completed within such one hundred eighty (180) day period. In the
event that the Premises should be so damaged by fire or other casualty that
rebuilding or repairs cannot be completed, in Landlord's reasonable opinion,
within one hundred eighty (180) days after **** Tenant may, at its option
terminate this Lease, in which event Basic Annual Rent and Additional Rent shall
be abated during the unexpired portion of this Lease, effective the date of
termination. Tenant shall exercise the termination right pursuant to the
preceding sentence, if at all, by delivering written notice of termination to
Landlord within ten (10) days after being advised by Landlord that the repairs
cannot be completed within such one hundred eighty (180) day period. In the
event the Building or the Premises should be damaged by fire or other casualty
and in Landlord's reasonable opinion, the rebuilding or repairs can be completed
within one hundred eighty (180) days after *****, as applicable, or if the
damage should be more serious but neither Landlord nor Tenant elect to terminate
this Lease pursuant to this Section, in either such event Landlord shall, within
sixty (60) days after the date of such damage, commence (and thereafter pursue
with reasonable diligence) repairing the Building and the Premises (including
Tenant's Improvements), but only to the extent of insurance proceeds actually
received by Landlord for such repairs, to substantially the same condition which
existed immediately prior to the happening of the casualty. In no event shall
Landlord be required to rebuild, repair or replace any part of the furniture,
equipment,
* See Insert for Section 6.302
** See Inserts for Section 6.303
*** See Inserts for Section 7.1
**** See Inserts for Section 7.1
***** See Inserts for Section 7.1
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INSERT FOR SECTION 6.302
* access to the Premises, and access to parking spaces in the Garage
INSERT FOR SECTION 6.303
** adversely
INSERTS FOR SECTION 7.1
*** the date of the casualty
**** the date of the casualty
***** the date of the casualty
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fixtures, inventory, supplies or any other personalty or any other
improvements (except Tenant's Improvement to the extent set forth in the
preceding sentence), which may have been placed by Tenant within the Building or
at the Premises. Landlord shall allow Tenants a fair diminution of Basic Annual
Rent and Additional Rent during the time the Premises are unfit for occupancy;
provided, that if such casualty was caused by Tenant, its agents, employees,
licensees or invitees, Basic Annual Rent and Additional Rent shall be abated
only to the extent Landlord is compensated for such Basic Annual Rent and
Additional Rent by loss of rents insurance, if any. Notwithstanding Landlord's
restoration obligation, in the event any mortgagee under a deed of trust,
security agreement or mortgage on the Building should require that the
insurance proceeds be used to retire or reduce the mortgage debt or if the
insurance company issuing Landlord's fire and casualty insurance policy fails
or refuses to pay Landlord the proceeds under such policy, Landlord shall have
no obligation to rebuild and this Lease shall terminate upon notice by Landlord
to Tenant. Any insurance which may be carried by Landlord or Tenant against
loss or damage to the Building or to the Premises shall be for the sole benefit
of the party carrying such insurance under its sole control.
SECTION 7.2 TENANT'S INSURANCE.
7.201 Types of Coverage. 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), (b) and (c) of this subsection.
(a) Commercial General Liability Insurance. Commercial General Liability
Insurance covering the Premises and Tenant's use thereof 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, as
additional named insureds, Landlord and the Property Manager, and to
afford protection to the limit of not less than $1,000,000.00, 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
deductible acceptable to Landlord. If the Agreed Rentable Area of the
Premises is more than 30,000 square feet, then, in addition to and not
in lieu of the above stated coverage, Tenant shall carry umbrella or so
called excess coverage in an amount not less than $1,000,000.00 over
Tenant's base coverage amount. This insurance coverage shall extend to
any liability of Tenant arising out of the indemnities provided for in
this Lease.
(b) Fire and Extended Coverage Insurance. Property insurance on an
all-risk extended coverage basis (including coverage against fire, wind,
tornado, vandalism, malicious mischief, water damage and sprinkler
leakage) covering all fixtures, equipment and personalty located in the
Premises and endorsed to provide one hundred percent (100%) replacement
cost coverage. Such policy will be written in the names of Tenant,
Landlord and any other parties reasonably designated by Landlord from
time to time, as their respective interests may appear. The property
insurance may, with the consent of the Landlord, provide for a
reasonable deductible.
(c) Workers Compensation and Employer's Liability Insurance. Worker's
compensation insurance insuring against and satisfying Tenant's
obligations and liabilities under the worker's compensation laws of the
State of Texas, together with employer's liability insurance in an
amount not less than $1,000,000.00
7.202 Other Requirements of Insurance. All such insurance will be issued and
underwritten by companies reasonably acceptable to Landlord and will
contain endorsements that (a) such insurance may not lapse with respect
to Landlord or Property Manager or be canceled or amended with respect
to Landlord or Property Manager without the insurance company giving
Landlord and Property Manager at least thirty (30) days prior written
notice of such cancellation or amendment, (b) Tenant will be solely
responsible for payment of premiums, (c) in the event of payment of any
loss covered by such policy, Landlord or Landlord's designees will be
paid first by the insurance company for Landlord's loss and (d)
Tenant's insurance is primary in the event of overlapping coverage
which may be carried by Landlord.
7.203 Proof of Insurance. Tenant shall deliver to Landlord duplicate originals
of all policies of insurance required by this Section 7.2 or duly
executed originals of the certificates of such insurance evidencing
in-force coverage, within ten (10) days prior to the commencement of
construction of Tenant's Improvements. Further, Tenant shall deliver to
Landlord renewals thereof at least thirty (30) days prior to the
expiration of the respective policy terms.
SECTION 7.3 LANDLORD'S INSURANCE.
7.301 Types of Coverage. Landlord covenants and agrees that from and after the
date of the execution of this Lease , Landlord will carry and maintain,
at its sole cost and expense, the insurance set forth in paragraphs (a)
and (b) of this subsection.
(a) Commercial General Liability Insurance. Commercial General
Liability Insurance covering the Building and all Common Areas, but
excluding the Premises, insuring against claims for personal or bodily
injury or death or property damage occurring upon, in or about the
Building or Common Areas to afford protection to the limit of not less
than $2,000,000.00 combined single limit in respect to injury or death
to any number of persons and property damage arising out of any one (1)
occurrence. This insurance coverage shall extend to any liability of
Landlord arising out of the indemnities provided for in this Lease.
(b) Fire and Extended Coverage Insurance. Landlord shall at all times
during the term hereof maintain in effect a policy or policies of all
risk extended coverage insurance covering the Building (excluding
property required to
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be insured by Tenant) endorsed to provide full replacement cost coverage
and providing protection against perils included within the standard
Texas form of fire and extended coverage insurance policy, together with
insurance against sprinkler damage, vandalism, malicious mischief and
such other risks as Landlord may from time to time determine and with
any such deductibles as Landlord may from time to time determine.
Notwithstanding anything stated to the contrary, the amounts and types
of coverage to be maintained by Landlord shall be determined by
Landlord, using Landlord's prudent business judgment, and Landlord shall
use reasonable efforts to obtain such coverage at commercially
reasonable costs.
7.302 Self Insurance. Any insurance provided for in subsection 7.301 above may
be effected by self-insurance or by a policy or policies of blanker
insurance covering additional items or locations or assureds, provided
that the requirements of this Section 7.3 are otherwise satisfied.
Tenant shall have no rights in any policy or policies maintained by
Landlord. Landlord shall only have the right to self insure if Landlord
has a net worth under generally accepted accounting principles of one
hundred million dollars ($100,000,000.00) or more and ten million
dollars ($10,000,000.00) or more in reserves.
SECTION 7.4 WAIVER OF SUBROGATION, LANDLORD AND TENANT EACH HEREBY WAIVES ANY
RIGHTS IT MAY HAVE AGAINST THE OTHER (INCLUDING, BUT NOT LIMITED TO, A DIRECT
ACTION FOR DAMAGES) ON ACCOUNT OF ANY LOSS OR DAMAGE TO THEIR RESPECTIVE
PROPERTY, THE PREMISES, ITS CONTENTS OR ANY OTHER PORTION OF THE BUILDING OR THE
PROPERTY OCCASIONED TO LANDLORD OR TENANT, AS THE CASE MAY BE (EVEN IF SUCH LOSS
OR DAMAGE IS CAUSED BY THE FAULT, NEGLIGENCE OR OTHER TORTIOUS CONDUCT, ACTS OR
OMISSIONS OF THE RELEASED PARTY OR THE RELEASED PARTY'S DIRECTORS, EMPLOYEES,
AGENTS OR INVITEES), TO THEIR RESPECTIVE PROPERTY, THE PREMISES, ITS CONTENTS OR
TO ANY OTHER PORTION OF THE BUILDING OR THE PROPERTY ARISING FROM ANY RISK
(WITHOUT REGARD TO THE AMOUNT OF COVERAGE OR THE AMOUNT OF DEDUCTIBLE) COVERED
BY THE ALL RISK FULL REPLACEMENT COST PROPERTY INSURANCE REQUIRED TO BE CARRIED
BY TENANT AND LANDLORD, RESPECTIVELY, UNDER SUBSECTIONS 7.201(b) AND 7.301(b)
ABOVE. The foregoing waiver shall be effective even if either or both parties
fail to carry the insurance required by sections 7.201(b) and 7.301(b) above. If
a party waiving rights under this Section is carrying an all risk full
replacement cost insurance policy in the promulgated form used in the State of
Texas and an amendment to such promulgated form is passed, such amendment shall
be deemed not a part of such promulgated form until it applies to the policy
being carried by the waiving party. Without in any way limiting the foregoing
waivers and to the extent permitted by applicable law, the parties hereto each,
on behalf of their respective insurance companies insuring the property of
either Landlord or Tenant against any such loss, waive any right of subrogation
that Landlord or Tenant or their respective insurers may have against the other
party or their respective officers, directors, employees, agents or invitees and
all rights of their respective insurance companies based upon an assignment from
its insured. Each party to this Lease agrees immediately to give to each such
insurance company written notification of the terms of the mutual waivers
contained in this Section and to have said insurance coverage by reason of said
waivers. The foregoing waiver shall be effective whether or not the parties
maintain the required insurance.
SECTION 7.5 INDEMNITY.
7.501 Tenant's Indemnity. SUBJECT TO THE LIMITATION AND EXCLUSIONS SET FORTH
BELOW IN THIS SUBSECTION, TENANT WILL INDEMNITY AND HOLD HARMLESS
LANDLORD, PROPERTY MANAGER, THEIR RESPECTIVE OFFICERS, DIRECTORS, AND
EMPLOYEES AND ANY OTHER PARTIES FOR WHOM LANDLORD AND/OR PROPERTY
MANAGER ARE RESPONSIBLE (EACH A "LANDLORD INDEMNIFIED PARTY") FROM, AND
SHALL REIMBURSE EACH LANDLORD INDEMNIFIED PARTY FOR AND WITH RESPECT TO,
ANY AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS FEES), CLAIMS, DEMANDS, ACTIONS, PROCEEDINGS, JUDGMENTS,
HEARINGS, DAMAGES, LOSSES AND LIABILITIES BROUGHT OR ASSERTED BY OR
PAYABLE TO ANY THIRD PARTY ON ACCOUNT OF PERSONAL INJURY, DEATH,
PROPERTY DAMAGE OR ANY OTHER FORM OF INJURY OR DAMAGE (EACH A "CLAIM"
AND COLLECTIVELY THE "CLAIMS") ARISING OUT OF OR RELATING TO (A) AN
INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON THE PREMISES, (B) THE USE
OR OCCUPANCY OF THE PREMISES OR (C) ANY BREACH OF THIS LEASE BY TENANT
AND WHICH RESULTED IN A CLAIM, EVEN IF THE CLAIM IS THE RESULT OF OR
CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF ANY LANDLORD INDEMNIFIED
PARTY. The indemnification and reimbursement obligations of Tenant under
this subsection (i) shall be limited to the greater of the amount of
Commercial General Liability Insurance required to be carried by such
party under this Lease or $5,000,000 and (ii) shall not apply to a Claim
(a) waived by Landlord under Section 7.4 above or any other provision of
this Lease, (b) related to hazardous or toxic materials and caused by an
act or omission that does not constitute a breach by Tenant of the
provisions of subsection 4.102 above or Rider H-1 or Rider H-2 attached
hereto, (c) arising out of the gross negligence or intentional
misconduct of the Landlord Indemnified Party or (d) resulting from host
liquor liability. If a third party files a lawsuit or brings any other
legal action asserting a Claim against a Landlord Indemnified Party and
that is covered by Tenant's indemnity, then Tenant, upon notice from the
Landlord Indemnified Party, shall resist and defend such Claim through
counsel reasonably satisfactory to the Landlord Indemnified Party.
Tenant's obligations under this subsection shall survive the termination
of this Lease.
7.502 Landlord's Indemnity. SUBJECT TO THE LIMITATION AND EXCLUSIONS SET FORTH
BELOW IN THIS SUBSECTION, LANDLORD WILL INDEMNIFY AND HOLD HARMLESS
TENANT AND ITS OFFICERS, DIRECTORS, AND EMPLOYEES AND ANY OTHER PARTIES
FOR WHOM TENANT IS RESPONSIBLE (EACH A "TENANT INDEMNIFIED PARTY")
FROM, AND SHALL REIMBURSE EACH TENANT INDEMNIFIED PARTY FOR AND WITH
RESPECT TO, ANY AND ALL CLAIMS (AS DEFINED IN SUBSECTION 7.501
PRECEDING) ARISING OUT OF OR RELATING TO (A) AN INCIDENT OR EVENT WHICH
OCCURRED WITHIN OR ON THE COMMON AREAS, (B) THE USE OR OCCUPANCY OF THE
COMMON AREAS OR (C) ANY BREACH OF THIS LEASE BY LANDLORD AND WHICH
RESULTED IN A CLAIM, EVEN IF THE CLAIM IS THE RESULT OF OR CAUSED BY THE
NEGLIGENT ACTS OR OMISSIONS OF ANY TENANT INDEMNIFIED PARTY. The
indemnification and reimbursement obligations of Landlord under this
subsection (i) shall be limited to the greater of the amount of
Commercial
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General Liability Insurance required to be carried by such party under
this Lease or $5,000,000 and (ii) shall not apply to a Claim (a) waived
by Tenant under Section 7.4 above or any other provision of this Lease,
(b) related to hazardous or toxic materials and caused by an act or
omission that does not constitute a breach by Landlord of the
provisions of subsection 4.102 above or Rider H-1 or Rider H-2 attached
hereto, (c) arising out of the gross negligence or intentional
misconduct of the Tenant Indemnified Party or (d) resulting from host
liquor liability . If a third party files a lawsuit or brings any other
legal action asserting a Claim against a Tenant Indemnified Party and
that is covered by Landlord's indemnity, then Landlord, upon notice
from the Tenant Indemnified Party, shall resist and defend such Claim
through counsel reasonably satisfactory to the Tenant Indemnified
Party. Landlord's obligations under this subsection shall survive the
termination of this Lease.
ARTICLE 8
CONDEMNATION
SECTION 8.1 CONDEMNATION RESULTING IN CONTINUED USE NOT FEASIBLE. If the
Property or any portion thereof that, in Landlord's reasonable opinion, is
necessary to the continued efficient and/or economically feasible use of the
Property shall be taken or condemned in whole or in part for public purposes, or
sold to a condemning authority in lieu of taking, then the term of this Lease
shall, at the option of Landlord, forthwith cease and terminate.
SECTION 8.2 TOTAL CONDEMNATION OF PREMISES. In the event that all or
substantially all of the Premises is taken or condemned or sold in lieu thereof
or Tenant will be unable to use a substantial portion of the Premises for a
period of one hundred eighty (180) consecutive days by reason of a temporary
taking, of if a substantial portion of the Property is taken such that Tenant
cannot reasonably continue to operate and conduct business from the Premises,
either Landlord or Tenant may terminate this Lease by delivering written notice
thereof to the other within ten (10) business days after the taking,
condemnation or sale in lieu thereof.
SECTION 8.3 CONDEMNATION WITHOUT TERMINATION. If upon a taking or
condemnation or sale in lieu of the taking of all or less than all of the
Property which gives either Landlord or Tenant the right to terminate this
Lease pursuant to Section 8.1 or 8.2 above and neither Landlord nor Tenant
elect to exercise such termination right, then this Lease shall continue in
full force and effect, provided that, if the taking, condemnation or sale
includes any portion of the Premises, the Basic Annual Rent and Additional Rent
shall be redetermined on the basis of the remaining square feet of Agreed
Rentable Area of the Premises. Landlord, at Landlord's sole option and expense,
shall restore and reconstruct the Building to substantially its former
condition to the extent that the same may be reasonably feasible, but such work
shall not be required to exceed the scope of the work done by Landlord in
originally constructing the Building, nor shall Landlord in any event be
required to spend for such work an amount in excess of the amount received by
Landlord as compensation or damages (over and above amounts going to the
mortgagee of the property taken) for the part of the Building or the Premises
so taken.
SECTION 8.4 CONDEMNATION PROCEEDS. Landlord shall receive the entire award
(which shall include sales proceeds) payable as a result of a condemnation,
taking or sale in lieu thereof. Tenant hereby expressly assigns to Landlord any
and all right, title and interest of Tenant now or hereafter arising in and to
any such award. Tenant shall, however, have the right to recover from such
authority through a separate award which does not reduce Landlord's award, any
compensation as may be awarded to Tenant on account of moving and relocation
expenses and depreciation to and removal of Tenant's physical property.
ARTICLE 9
LIENS
Tenant shall keep the Premises and the Property free from all liens arising out
of any work performed, materials furnished or obligations incurred by or for
Tenant (except for Landlord contracted work) AND TENANT SHALL INDEMNIFY AND
HOLD HARMLESS LANDLORD FROM AND AGAINST, AND REIMBURSE LANDLORD FOR AND WITH
RESPECT TO, ANY AND ALL CLAIMS, CAUSES OF ACTION, DAMAGES, EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES), ARISING FROM OR IN CONNECTION WITH ANY SUCH LIENS.
In the event that Tenant shall not, within twenty (20) days following
notification to Tenant of the imposition of any such lien, cause the same to
be released of record by payment or the posting of a bond in amount, form and
substance acceptable to Landlord, Landlord shall have, in addition to all other
remedies provided herein any by law, the right but not the obligation, to cause
the same to be released by such means as it shall deem proper, including
payment of or defense against the claim giving rise to such lien. All amounts
paid or incurred by Landlord in connection therewith shall be paid by Tenant to
Landlord on demand and shall bear interest from the date of demand until paid
at the rate set forth in Section 15.10 below. Nothing in this Lease shall be
deemed or construed in any way as constituting the consent or request of
Landlord, express or implied, by inference or otherwise, to any contractor,
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration or repair
of or to the Building or the Premises or any part thereof, nor as giving Tenant
any right, power or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to the filing
of any mechanic's or other liens against the interest of Landlord in the
Property or the Premises.
ARTICLE 10
TAXES ON TENANT PROPERTY
Tenant shall be liable for and shall pay, prior to their becoming delinquent,
any and all taxes and assessments levied against, and any increases in Real
Estate Taxes as a result of, any personal property or trade or other fixtures
placed by Tenant in or about the Premises and any improvements (other than
Tenant's Improvements) constructed in the Premises by or on behalf
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of Tenant. In the event Landlord pays any such additional taxes or increases,
Tenant will, within ten (10) days after demand, reimburse Landlord for the
amount thereof.
ARTICLE 11
SUBLETTING AND ASSIGNING
SECTION 11.1 SUBLEASE AND ASSIGNMENT. Tenant shall not assign this Lease, or
allow it to be assigned, in whole or in part, by operation of law otherwise
(it being agreed that for purposes of this Lease, assignment shall include,
without limitation, the transfer of a majority interest of stock, partnership
or other forms of ownership interests, merger or dissolution) or mortgage or
pledge the same, or sublet the Premises or any part thereof or permit the
Premises to be occupied by any firm, person, partnership or corporation or any
combination thereof, other than Tenant, without the prior written consent of
Landlord. In no event shall any assignment or sublease ever release Tenant from
any obligation or liability hereunder, which consent shall not be unreasonably
withheld, except however, consent will be withheld in such instance where any
subtenant or assignee would be adverse to the image or value of the Building in
Landlord's opinion. Notwithstanding the foregoing, Landlord and Tenant agree
that Tenant's rights under this Lease may be assigned to a corporate's
affiliate without such written consent, provided, however, that notice of any
such assignment shall be promptly provided to Landlord. For these purposes, the
word ""affiliate'' shall mean (i) a corporation controlled by or under common
control with Tenant; control being more than fifty percent (50%) of the
beneficial, voting, tax, profit and loss interest of the affiliate entity, or
(ii) any successor in interest by merger, consolidation, stock or asset
purchase or reorganization or other restructuring of Tenant. Landlord shall
respond to any request for consent to an assignment or subletting within
fifteen (15) days of request.
SECTION 11.2 TENANTS CONTINUING OBLIGATIONS. Without limiting Landlord's
consent rights and as a condition to obtaining Landlord's consent, (i) each
assignee must assume all obligations under this Lease and (ii) each sublessee
must confirm that its sublease is subject and subordinate to this Lease.
In addition, each assignee and sublessee shall agree to cause the Premises
to comply at all times with all requirements of the Disability Acts
(as amended), including, but not limited to, obligations arising out of or
associated with such assignee's or subtenant's use of or activities or business
operations conducted within the Premises. No assignee or sublessee of the
premises or any portion thereof may assign or sublet the Premises or any
portion thereof. Consent by Landlord to one or more assignments or sublettings
shall not operate as a waiver of Landlord's rights as to any subsequent
assignments and/or sublettings. All reasonable legal fees and expenses incurred
by Landlord in connection with any assignment or sublease proposed by Tenant
(not to exceed $1,500.00) will be the responsibility of Tenant and will be paid
by Tenant within twenty (20) days of receipt of an invoice form Landlord. In
addition, Tenant will pay to Landlord an administrative overhead fee of $500.00
in consideration for Landlord's review of any requested assignment or sublease.
SECTION 11.3 LANDLORD'S RIGHTS RELATING TO ASSIGNEE OR SUBTENANT. To the
extent the rentals or income derived from any sublease or assignment exceed the
rentals due hereunder, such excess rentals (the "Excess Sublease Rentals")
shall be the property of and paid over to Landlord in consideration for
Landlord's consent to the applicable assignment or sublease. In the event of
default by Tenant, Landlord may at its option collect directly from such
assignee or sublessee all rents becoming due to Tenant under such assignment or
sublease. Tenant hereby authorizes and directs any such assignee or sublessee
to make such payments of rent direct to Landlord upon receipt of notice from
Landlord and Tenant agrees that any such payments made by an assignee or
sublessee to Landlord shall, to the extent of the payments so made, be a full
and complete release and discharge of rent owed to Tenant by such assignee or
sublessee. No direct collection by Landlord from any such assignee or sublessee
shall be construed to constitute a novation or a release of Tenant or any
guarantor of Tenant from the further performance of its obligations hereunder.
Receipt by Landlord or rent from any assignee, sublessee or occupant of the
Premises or any part thereof shall not be deemed a waiver of the above covenant
in this Lease against assignment and subletting or a release of Tenant under
this Lease. In the event that, following an assignment or subletting, this
Lease or Tenant's rights to possession of the Premises is terminated for any
reason, including without limitation in connection with default by or
bankruptcy of Tenant (which, for the purposes of this Section 11.3, shall
include all persons or entities claiming by or through Tenant), Landlord may,
at its sole option, consider this Lease to be thereafter a direct lease to the
assignee or subtenant of Tenant upon the terms and conditions contained in this
Lease, in which event all rentals payable under such lease after the
termination of this Lease or Tenant's right to possession of the Premises shall
be deemed the property of Landlord.
ARTICLE 12
TRANSFERS BY LANDLORD, SUBORDINATION AND
TENANTS ESTOPPEL CERTIFICATE
SECTION 12.1 SALE OF THE PROPERTY. In the event of any transfer of title to
the Building, the transferor shall automatically be relieved and freed of all
obligations of Landlord under this Lease accruing after such transfer, provided
that if a Security Deposit has been made by Tenant, Landlord shall transfer the
Security Deposit to the transferee and shall not be released from liability
with respect thereto unless Landlord transfers the Security Deposit to the
transferee.
SECTION 12.2 SUBORDINATION, ATTORNMENT AND NOTICE. This lease is subject and
subordinate to (i) any lease wherein Landlord is the tenant and to the liens of
any and all mortgages and deeds of trust, regardless of whether such lease,
mortgage or deed of trust now exists or may hereafter be created with regard to
all or any part of the Property, (ii) any and all advances (including interest
thereon) to be made under any such lease, mortgage or deed of trust and (iii)
all modifications, consolidations, renewals replacements and extensions of any
such lease, mortgage or deed of trust; provided that the foregoing subordination
in respect of any mortgage or deed of trust placed on the Property after the
date hereof shall not become effective until and unless the holder of such
mortgage or dead of trust delivers to Tenant a non-disturbance agreement (which
may include Tenant's agreement to attorn as set forth below) permitting Tenant,
if Tenant is not then in default under, or in breach of any provision of, this
Lease, to remain in occupancy or the premises in the event of a foreclosure of
any such mortgage or deed of trust. Tenant also agrees that any lessor,
mortgagee or trustee may elect (which election shall be revocable) to have this
Lease superior to any lease or lien of its mortgage or deed of trust and, in the
event of such election and upon notification by such lessor , mortgagee or
trustee to Tenant to that effect, this Lease shall be deemed superior to the
said lease, mortgage or deed of trust, whether this Lease is dated prior to or
subsequent to the
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date of said lease, mortgage or deed of trust. Tenant shall, in the event of the
sale or assignment Landlord's interest in the Premises (except in a
sale-leaseback financing transaction), or in the event of the termination of any
lease in a sale-leaseback financing transaction wherein Landlord is the lessee,
attorn to an recognize such purchaser, assignee or mortgagee as Landlord under
this Lease. Tenant shall, in the event of any proceedings brought for the
foreclosure of, or in the event of the exercise of the power of sale under any
mortgage or deed of trust referring the Premises, attorn to an recognize
purchaser at such sale, assignee or mortgagee, as the case may be, as Landlord
under this Lease. The above subordination and attornment clauses shall be
self-operative and no further instruments of subordination or attornment need be
required by any mortgagee, trustee, lessor, purchaser or assignee. In
confirmation thereof, Tenant agrees that, upon the request of Landlord, or any
such lessor, mortgage, trustee, purchaser or assignee, Tenant shall execute and
deliver whatever instruments may be required for such purposes and to carry out
the intent of this Section 12.2. Landlord represents and warrants to Tenant that
as of the date hereof there is no mortgage or deed of trust which is superior to
this Lease.
SECTION 12.3 TENANT'S ESTOPPEL CERTIFICATE. Tenant shall, within ten (10) days
following the request of Landlord or any mortgagee of Landlord, without
additional consideration, deliver an estoppel certificate, consisting of
reasonable statements required by Landlord, any mortgagee or purchaser of any
interest in the Property, which statements may include but shall not be limited
to the following: this Lease is in full force and effect, with rental paid
through ________________; this Lease has not been modified or amended; Landlord
is not in default and Landlord has fully performed all of Landlord's obligations
hereunder; and such other statements as may reasonably be required by the
requesting party. If Tenant is unable to make any of the statements contained in
the estoppel certificate because the same is untrue, Tenant shall with
specificity state the reason why such statement is untrue. Tenant shall, if
requested by Landlord or any such mortgagee, deliver to Landlord a fully
executed instrument in form reasonably satisfactory to Landlord evidencing the
agreement of Tenant to the mortgage or other hypothecation by Landlord of the
interest of Landlord hereunder.
ARTICLE 13
DEFAULT
SECTION 13.1 DEFAULTS BY TENANT. The occurrence of any of the events described
in subsections 13.101 through 13.108 shall constitute a default by Tenant under
this Lease.
13.101 Failure to Pay Rent. Any failure by Tenant to pay Rent or to make any
other payment required to be made by Tenant hereunder when due, where
such failure continues for five (5) days after written notice to Tenant
provided that only two (2) such notices shall be required in any twelve
(12) month period during the Term.
13.102 Failure to Perform. Except for a failure covered by subsection 13.101
above or 13.103 below, any failure by Tenant to observe and perform any
provision of this Lease to be observed or performed by Tenant where
such failure continues for thirty (30) days after written notice to
Tenant, provided that if such failure cannot be cured within said
thirty (30) day period, Tenant shall not be in default hereunder so
long as Tenant commences curative action within such thirty (30) day
period, diligently and continuously pursues the curative action and
fully and completely cures the failure within sixty (60) days after
such written notice to Tenant.
13.103 Continual Failure to Perform. The third failure by Tenant in any twelve
(12) month period to perform and observe a particular provision of this
Lease to be observed or performed by Tenant (other than the failure to
pay Rent, which in all instances will be covered by subsection 13.101
above), no notice being required for any such third failure.
13.104 Bankruptcy, Insolvency, etc. Tenant or any guarantor of Tenant's
obligations hereunder (hereinafter called "Guarantor", whether one [1]
or more), (i) cannot meet its obligations as they become due, (ii)
becomes or is declared insolvent according to any law, (iii) makes a
transfer in fraud of creditors according to any applicable law, (iv)
assigns or conveys all or a substantial portion of its property for the
benefit of creditors or (v) Tenant or Guarantor files a petition for
relief under the Federal Bankruptcy Code or any other present or
future federal or state insolvency, bankruptcy or similar law
(collectively, "applicable bankruptcy law"); a receiver or trustee is
appointed for Tenant or Guarantor or its property; the interest of
Tenant or Guarantor under this Lease is levied on under execution or
under other legal process; any involuntary petition is filed against
Tenant or Guarantor under applicable bankruptcy law; or any action is
taken to reorganize or modify Tenant's or Guarantor's capital structure
if either Tenant or Guarantor be a corporation or other entity
(provided that no such levy, execution, legal process or petition filed
against Tenant or Guarantor shall constitute a breach of this Lease if
Tenant or Guarantor shall vigorously contest the same by appropriate
proceedings and shall remove or vacate the same within ninety (90) days
from the date of its creation, service or filing).
13.105 Abandonment. The abandonment of the Premises by Tenant while in default
in the payment of Rent.
13.107 Loss of Right to do Business. If Tenant is a corporation or limited
partnership, Tenant fails to maintain its right to do business in the
State of Texas or fails to pay any applicable annual franchise taxes as
and when same become finally due and payable.
13.108 Dissolution or Liquidation. If Tenant is a corporation or partnership,
Tenant dissolves or liquidates or otherwise fails to maintain its
corporation or partnership structure, as applicable.
Initial:
Landlord: /s/ RH
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Tenant: /s/ DTN
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<PAGE> 23
With respect to the default described in subsection 13.101 and the
defaults described in subsections 13.103 through 13.108, Landlord shall
not be obligated to give Tenant notices of default and Tenant shall have
no right to cure such defaults.
SECTION 13.2 REMEDIES OF LANDLORD.
13.201 Termination of the Lease. Upon the occurrence of a default by Tenant
hereunder, Landlord may, without judicial process, terminate this Lease
by giving written notice thereof to Tenant (whereupon all obligations
and liabilities of Landlord hereunder shall terminate) and, without
further notice and without liability, repossess the Premises. Landlord
shall be entitled to recover all loss and damage Landlord may suffer by
reason of such termination, whether through inability to relet the
Premises on satisfactory terms or otherwise, including without
limitation, the following (without duplication of any element of
damages):
(a) accrued Rent to the date of termination and Late Charges, plus
interest thereon at the rate established under Section 15.10 below from
the date due through the date paid or date of any judgment or award by
any court of competent jurisdiction, the unamortized cost of Tenant's
Improvements, brokers' fees and commissions, attorneys' fees, moving
allowances and any other costs incurred by Landlord in connection with
making or executing this Lease, the cost of recovering the Premises and
the costs of reletting the Premises (including, without limitation,
advertising costs, brokerage fees, leasing commissions, reasonable
attorneys' fees and refurbishing costs and other costs in readying the
Premises for a new tenant);
(b) the present value of the Rend (discounted at a rate of interest
equal to eight percent [8%] per annum [the "Discount Rate"]) that
would have accrued under this Lease for the balance of the Lease term
but for such termination, reduced by the reasonable fair market rental
value of the Premises for such balance of the Lease term (determined
from the present value of the actual base rents, discounted at the
Discount Rate, received and to be received from Landlord's reletting of
the Premises or, if the Premises are not relet, the base rents,
discounted at the Discount Rate, that would be received from a
comparable lease and comparable tenant for a comparable term and taking
into account among other things, the condition of the Premises, market
conditions and the period of time the Premises may reasonably remain
vacant before Landlord is able to re-lease the same to a suitable
replacement tenant, it being agreed that Landlord shall have no
obligation to relet or attempt to relet the Premises);
(c) plus any other costs or amounts necessary to compensate Landlord
for its damages.
13.202 Repossession and Re-Entry. Upon the occurrence of a default by Tenant
hereunder, Landlord may, without judicial process, immediately terminate
Tenant's right of possession of the Premises (whereupon all obligations
and liability of Landlord hereunder shall terminate), but not terminate
this Lease, and, without notice, demand or liability, enter upon the
Premises or any part thereof, take absolute possession of the same,
expel or remove Tenant and any other person or entity who may be
occupying the Premises and change the locks. If Landlord terminates
Tenant's possession of the Premises under this subsection 13.202, (i)
Landlord shall have no obligation whatsoever to tender to Tenant a key
for new locks installed in the Premises, (ii) Tenant shall have no
further right to possession of the Premises and (iii) Landlord shall
have no obligation whatsoever to relet or attempt to relet the Premises.
Landlord may, however, at its sole option relet the premises or any part
thereof for such terms and such rents as Landlord may in its sole
discretion elect. If Landlord elects to relet the Premises, rend
received by Landlord from such reletting shall be applied first, to the
payment of any indebtedness other than Rent due hereunder from Tenant to
Landlord (in such order as Landlord shall designate), second, to the
payment of any cost of such reletting, including, without limitation,
refurbishing costs, reasonable attorney's fees, advertising costs,
brokerage fees and leasing commissions and third, to the payment of Rent
due and unpaid hereunder (in such order as Landlord shall designate),
and Tenant shall satisfy and pay to Landlord any deficiency upon demand
therefor from time to time. Landlord shall not be responsible or liable
for any failure to relet the Premises or any part thereof or for any
failure to collect any rent due upon any such reletting. No such
re-entry or taking of possession of the Premises by Landlord shall be
construed as an election on landlord's part to terminate this Lease
unless a written notice of such termination is given to Tenant pursuant
to subsection 13.201 above. If Landlord relets the Premises, either
before or after the termination of this Lease, all such rentals received
from such lease shall be and remain the exclusive property of Landlord
and Tenant shall not be, at any time, entitled to recover any such
rental. Landlord may at any time after a reletting elect to terminate
this Lease.
13.203 Cure of Default. Upon the occurrence of a default hereunder by Tenant,
Landlord may, without judicial process and without having any liability
therefor, enter upon the Premises 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 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, WHETHER CAUSED BY THE NEGLIGENCE
OF LANDLORD OR OTHERWISE.
13.204 Continuing Obligations. No repossession of or re-entering upon the
Premises or any part thereof pursuant to subsection 13.202 or 13.203
above or otherwise and no reletting of the Premises or any part thereof
pursuant to subsection 13.202 above shall relieve Tenant or any
Guarantor of its liabilities and obligations hereunder, all of which
shall survive such repossession or re-entering. In the event of any such
repossession of or re-entering upon the Premises or any part thereof by
reason of the occurrence of a default, Tenant will continue to pay to
Landlord Rent required to be paid by Tenant.
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<PAGE> 24
13.205 Cumulative Remedies. No right or remedy herein conferred upon or
reserved to Landlord is intended to be exclusive of any other right or
remedy set forth herein or otherwise available to Landlord at law or in
equity and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or
hereafter existing as law or in equity or by statute. In addition to the
other remedies provided in this Lease and without limiting the preceding
sentence, Landlord shall be entitled, to the extent permitted by
applicable law, to injunctive relief in case of the violation or
attempted or threatened violation, of any of the covenants, agreements,
conditions or provisions of this Lease, or to a decree compelling
performance of any of the covenants agreements, conditions or provisions
of this Lease, or to any other remedy allowed to Landlord at law or in
equity.
SECTION 13.3 DEFAULTS BY LANDLORD. Landlord shall be in default under this
Lease if Landlord fails to perform any of its obligations hereunder and said
failure continues for a period of thirty (30) days after Tenant delivers written
notice thereof to Landlord (to each of the addresses required by this Section)
and each mortgagee who has a lien against any portion of the Property and whose
name and address has been provided to Tenant, provided that if such failure
cannot reasonably be cured within said thirty (30) day period, Landlord shall
not be in default hereunder if the curative action is commenced within said
thirty (30) day period and is thereafter diligently pursued until cured. In no
event shall (i) Tenant claim a constructive or actual eviction or that the
Premises have become unsuitable hereunder or (ii) a constructive or actual
eviction or breach of the implied warranty of suitability be deemed to have
occurred under this Lease, prior to the expiration of the notice and cure
periods provided under this Section 13.3. Any notice of a failure to perform by
Landlord shall be sent to Landlord at the addresses and to the attention of the
parties set forth in the Basic Lease Provisions. Any notice of a failure to
perform by Landlord not sent to Landlord at all addresses and/or to the
attention of all parties required under this Section and to each mortgagee who
is entitled to notice or not sent in compliance with Article 14 below shall be
of no force or effect.
SECTION 13.4 LANDLORD'S LIABILITY.
13.401 Tenant's Rights in Respect of Landlord Default. Tenant is granted no
contractual right of termination by this Lease, except to the extent and
only to the extent set forth in Sections 7.1 and 8.2 above and Rider H-2
attached hereto. 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 Property as the same may then be
encumbered and Landlord shall not be liable for any and deficiency. If
Landlord is found to be in default hereunder by reason of its failure to
give a consent that it is required to give hereunder, Tenant's sole
remedy will be an action for specific performance or injunction. The
foregoing sentence shall in no event be construed as mandatorily
requiring Landlord to give consents under this Lease. In no event shall
Landlord be liable to Tenant for consequential or special damages by
reason of a failure to perform (or a default) by Landlord hereunder or
otherwise. In no event shall Tenant have the right to levy execution
against any property of Landlord other than its interest in the Property
as hereinbefore expressly provided.
13.402 Certain Limitations on Landlord's Liability. UNLESS COVERED BY
SUBSECTION 7.502 ABOVE OR CAUSED BY LANDLORD'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT AND WITHOUT LIMITING THE PROVISIONS OF SECTION 7.4,
LANDLORD SHALL NOT BE LIABLE TO TENANT FOR ANY CLAIMS, ACTIONS, DEMANDS,
COSTS, EXPENSES, DAMAGE OR LIABILITY OF ANY KIND (i) arising out of the
use, occupancy or enjoyment of the Premises by Tenant or any person
therein or holding under Tenant or by or through the acts or omissions
of any of their respective employees, officers, agents, invitees or
contractors, (ii) caused by or arising out of fire, explosion, falling
sheetrock, gas, electricity, water, rain, snow or dampness, or leaks in
any part of the Premises, (iii) caused by or arising out of damage to
the roof, pipes, appliances or plumbing works or any damage to or
malfunction of heating, ventilation or air conditioning equipment, (iv)
caused by tenants or any persons either in the Premises or elsewhere in
the Building (other than Common Areas) or by occupants of property
adjacent to the Building or Common Areas or by the public or by the
construction of any private, public or quasi-public work or (v) caused
by any act, neglect or negligence of Tenant. In no event shall Landlord
be liable to Tenant for any loss of or damage to property of Tenant or
of others located in the Premises, the Building or any other part of the
property by reason of theft or burglary.
SECTION 13.5 WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. IT IS THE INTENT
OF LANDLORD AND TENANT TO WAIVE ALL OF THE PROVISIONS (OTHER THAN SECTION
17.555) OF THE TEXAS DECEPTIVE TRADE PRACTICES -- CONSUMER PROTECTION ACT,
SUBCHAPTER E OF CHAPTER 17 OF THE TEXAS BUSINESS AND COMMERCE CODE (THE
"DTPA") AS SUCH PROVISIONS ARE OR MAY BE APPLICABLE TO THIS LEASE AND THE
TRANSACTION EVIDENCED HEREBY. Accordingly, Landlord and Tenant hereby represent
and agree as follows:
(a) Tenant represents to Landlord that Tenant is not in a significantly
disparate bargaining position with respect to this Lease and the
transaction evidenced hereby.
(b) Tenant represents to Landlord that Tenant is represented by legal
counsel in connection with this Lease.
(c) Tenant represents to Landlord that this Lease does not involve a
purchase or lease of a family residence occupied or to be occupied as
Tenant's residence and that, with respect to this Lease, Tenant is a
business consumer as that term is used in the DTPA (i.e. Tenant is an
individual, partnership or corporation who seeks or acquires by purchase
or lease, any goods or services for commercial or business use).
(d) Landlord and Tenant agree that the total consideration paid or to
be paid by Tenant over the term of this Lease exceeds $500,000,000,
failing which this part (d) shall be deemed deleted.
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<PAGE> 25
(e) Tenant represents to Landlord that Tenant has assets of $5
million or more according to the most recent financial statement of
Tenant prepared in accordance with generally accepted accounting
principles, failing which Landlord and Tenant shall have their
respective legal counsel sign this Lease in the space provided on the
signature page hereof. Tenant further represents that it has
knowledge and experience in financial and business matters that enable
it to evaluate the merits and risks of this transaction.
(f) LANDLORD AND TENANT HEREBY AGREE, FOR THEMSELVES, THEIR AGENTS,
PROPERTY MANAGERS, BROKERS AND CONTRACTORS AND THEIR RESPECTIVE HEIRS,
PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS, THAT ALL OF THE
PROVISIONS OF THE DTPA (EXCEPT FOR SECTION 17.555 THEREOF) WHICH ARE
OR MAY BE APPLICABLE TO THIS LEASE AND THE TRANSACTION EVIDENCED
HEREBY ARE HEREBY WAIVED, INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
ALL RIGHTS AND REMEDIES RESULTING FROM OR ARISING OUT OF ANY AND ALL
ACTS OR PRACTICES OF THE OTHER PARTY OR THEIR AGENTS, PROPERTY
MANAGERS OR BROKERS OR THEIR RESPECTIVE HEIRS, PERSONAL
REPRESENTATIVES OR ASSIGNS IN CONNECTION WITH THIS LEASE AND/OR THE
TRANSACTION EVIDENCED HEREBY, REGARDLESS OF WHETHER SUCH ACTS OR
PRACTICES OCCURRED BEFORE OR AFTER THE EXECUTION OF THIS LEASE. THE
PROVISIONS OF THIS SECTION SHALL SURVIVE THE EXECUTION AND ANY
TERMINATION OF THIS LEASE. IF PART (d) ABOVE IS DEEMED DELETED, THIS
SECTION 13.5 SHALL NOT BE APPLICABLE AND SHALL BE WITHOUT FORCE OR
EFFECT.
ARTICLE 14
NOTICES
Any notice or communication required or permitted in this Lease shall be given
in writing, sent by (a) personal delivery, with proof of delivery, (b)
expedited delivery service, with proof of delivery, (c) United States mail,
postage prepaid, registered or certified mail, return receipt requested or (d)
prepaid telegram (provided that such telegram is confirmed by expedited
delivery service or by mail in the manner previously described), addressed as
provided in Item 15 of the Basic Lease Provisions and Section 13.3 above or to
such other address or to the attention of such other persons as shall be
designated from time to time in writing by the applicable party and sent in
accordance herewith. Notice also may be given by telex or fax, provided each
such transmission is confirmed (and such confirmation is supported by
documented evidence) as received and further provided a telex or fax number, as
the case may be, is set forth in Item 15 of the Basic Lease Provisions. Any
such notice or communication shall be deemed to have been given either at the
time of personal delivery or, in the case of delivery service or mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telegram or telex of fax, upon receipt.
ARTICLE 15
MISCELLANEOUS PROVISIONS
SECTION 15.1 BUILDING NAME AND ADDRESS. Tenant shall not, without the written
consent of Landlord, use the name of the Building for any purpose other than as
the address of the business to be conducted by Tenant in the Premises and in no
event shall Tenant acquire any rights in or to such names. Landlord shall have
the right at any time to change the name, number or designation by which the
Building is known.
SECTION 15.2 SIGNAGE. Tenant shall not inscribe, paint, affix or display any
signs, advertisements or notices on or in the Building, except for such tenant
identification information as Landlord permits to be included or shown on the
directory in the main lobby and adjacent to the access door or doors to the
Premises. see Rider 6., Exterior Signage.
SECTION 15.3 NO WAIVER. No waiver by Landlord or by Tenant of any provision
of this Lease shall be deemed to be a waiver by either party of any other
provision of this Lease. No waiver by Landlord of any breach by Tenant shall
be deemed a waiver of any subsequent breach by Tenant of the same or any other
provision. No waiver by Tenant of any breach by Landlord shall be deemed a
waiver of any subsequent breach by Landlord of the same or any other
provision. The failure
Initial:
Landlord: /s/ RH
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Tenant: /s/ DTN
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<PAGE> 26
of Landlord or Tenant to insist at any time upon the strict performance of any
covenant or agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. Landlord's consent to or approval of any act by Tenant
requiring Landlord's consent or approval shall not be deemed to render
unnecessary the obtaining of Landlord's consent to or approval of any
subsequent act of Tenant. Tenant's consent to or approval of any act by
Landlord requiring Tenant's consent or approval shall not be deemed to render
unnecessary the obtaining of Tenant's consent to or approval of any subsequent
act of Landlord. No act or thing done by Landlord or Landlord's agents during
the term of this Lease shall be deemed an acceptance of a surrender of the
Premises, unless done in writing signed by Landlord. The delivery of the keys
to any employee or agent of Landlord shall not operate as a termination of
this Lease or a surrender of the Premises. The acceptance of any Rent by
Landlord following a breach of this Lease by Tenant shall not constitute a
waiver by Landlord of such breach or any other breach. The payment of Rent by
Tenant following a breach of this Lease by Landlord shall not constitute a
waiver by Tenant of any such breach or any other breach. No waiver by Landlord
or Tenant of any provision of this Lease shall be deemed to have been made
unless such waiver is expressly stated in writing signed by the waiving party.
No payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installment of Rent due under this Lease shall be deemed to be other than on
account of the earliest Rent due hereunder, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Rent
be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy which may be available to Landlord.
SECTION 15.4 APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the laws of the State of Texas.
SECTION 15.5 COMMON AREAS. "Common Areas" will mean all areas, spaces,
facilities and equipment (whether or not located within the Building) made
available by Landlord for the common and joint use of Landlord, Tenant and
others designated by Landlord using or occupying space in the Building,
including but not limited to, tunnels, walkways, sidewalks and driveways
necessary for access to the Building, Building lobbies, landscaped areas,
public corridors, public rest rooms,* Building stairs, elevators open to the
public, service elevators (provided that such service elevators shall be
available only for tenants of the Building and others designated by Landlord),
drinking fountains and any such other areas and facilities, if any, as are
designated by Landlord from time to time as Common Areas. Common Areas shall
not include the Garage. "Service Corridors" shall mean all loading docks,
loading areas and all corridors that are not open to the public but which are
available for use by Tenant and others designated by Landlord. "Service Areas"
will refer to areas, spaces, facilities and equipment serving the Building
(whether or not located within the Building) but to which Tenant and other
occupants of the Building will not have access, including, but not limited to,
mechanical, telephone, electrical and similar rooms and air and water
refrigeration equipment. Tenant is hereby granted a nonexclusive right to use
the Common Areas and Service Corridors during the term of this Lease for their
intended purposes, in common with others designated by Landlord, subject to the
terms and conditions of this Lease, including, without limitation, the Rules
and Regulations. The Building, Common Areas, Service Corridors and Service
Areas will be at all times under the exclusive control, management and
operation of the Landlord. Tenant agrees and acknowledges that the Premises
(whether consisting of less than one floor or consisting of one or more full
floors within the Building) do not include, and Landlord hereby expressly
reserves for its sole and exclusive use, any and all mechanical, electrical,
telephone and similar rooms, janitor closets, elevator, pipe and other vertical
shafts and ducts, flues, stairwells, any area above the acoustical ceiling and
any other areas not specifically shown on Exhibit A as being part of the
Premises.
SECTION 15.6 SUCCESSORS AND ASSIGNS. Subject to Article 11 hereof, all of the
covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
SECTION 15.7 BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker named in Item 11 of the Basic Lease Provisions and
that it knows of no other real estate brokers or agents who are or might be
entitled to a commission in connection with this Lease. Tenant agrees to
indemnify and hold harmless Landlord from and against any liability or claim,
whether meritorious or not, arising in respect to brokers and/or agents not so
named. Landlord has agreed to pay the fees of the broker (but only the broker)
named in Item 11 of the Basic Lease Provisions to the extent that Landlord has
agreed to do so pursuant to a written agreement with such broker.
SECTION 15.8 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the application of such provisions to other persons or circumstances and
the remainder of this Lease shall not be affected thereby and shall be enforced
to the greatest extent permitted by law.
SECTION 15.9 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.
SECTION 15.10 INTEREST ON TENANT'S OBLIGATIONS. Any amount due from Tenant to
Landlord which is not paid within thirty (30) days after the date due shall
bear interest at the lower of (i) twelve percent (12%) per annum or (ii) the
highest rate from time to time allowed by applicable law, from the date such
payment is due until paid, but the payment of such interest shall not excuse or
cure the default.
* see inserts for Section 15.5 ** see inserts for Section 15.5
Initial:
Landlord: /s/ RH
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Tenant: /s/ DTN
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<PAGE> 27
* (which shall not include restrooms on floors of the Building that are
leased by a single tenant)
** Notwithstanding anything stated to the contrary, Tenant, at Tenant's
cost, shall have the right to install conduit and wiring and
cabling between Tenant's Premises on floor eleven (11) and floor twelve
(12) of the Building in areas designated by Landlord and in accordance
with rules and regulations for the Building, established as standard by
Landlord, for such installation.
Initial:
Landlord: /s/ RH
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Tenant: /s/ DTN
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<PAGE> 28
SECTION 15.11 TIME. Time is of the essence in this Lease and in each and all
of the provisions hereof. Whenever a period of days is specified in this
Lease, such period shall refer to calendar days unless otherwise expressly
stated in this Lease.
SECTION 15.12 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.
SECTION 15.13 AUTHORITY OF TENANT. Tenant and each person signing this Lease on
behalf of Tenant represents to Landlord as follows: Tenant, if a corporation,
is duly incorporated and legally existing under the laws of the state of its
incorporation and is duly qualified to do business in the State of Texas.
Tenant, if a partnership or joint venture, is duly organized under the Texas
Uniform Partnership Act. Tenant, if a limited partnership, is duly organized
under the applicable limited partnership act of the State of Texas or, if
organized under the laws of a state other than Texas, is qualified under said
Texas limited partnership act. Tenant has all requisite power and all
governmental certificates of authority, licenses, permits, qualifications and
other documentation to lease the Premises and to carry on its business as now
conducted and as contemplated to be conducted. Each person signing on behalf of
Tenant is authorized to do so. The foregoing representations in this Section
15.13 shall also apply to any corporation, partnership, joint venture or limited
partnership which is a general partner or joint venturer of Tenant.
SECTION 15.14 FORCE MAJEURE. Whenever a period of time is herein prescribed
for action to be taken by Landlord or Tenant, the party taking the action
shall not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, and delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond the
reasonable control of such party; provided, however, in no event shall the
foregoing apply to the financial obligations of either Landlord or Tenant to
the other under this Lease, including Tenant's obligation to pay Basic Annual
Rent, Additional Rent or any other amount payable to Landlord hereunder.
SECTION 15.15 RECORDING. This Lease shall not be recorded. However, Landlord*
shall have the right to record a short form or memorandum hereof, at ** expense,
at any time during the term hereof and, if requested,*** agrees (without charge)
to join in the execution thereof.
SECTION 15.16 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.
SECTION 15.17 PARKING. If the Property includes a Garage, there shall be an
Exhibit F attached hereto, which shall set forth the agreements between
Landlord and Tenant relating to parking. If there is no Garage included in the
Property, then the remaining provisions of this Section shall be applicable
with respect to parking. The parking areas shall be designated form automobile
parking **** on a non-exclusive basis for all Property tenants (including
Tenant) and their respective employees, customers, invitees and visitors.
Parking and delivery areas for all vehicles shall be in accordance with parking
regulations established from time to time by Landlord, with which Tenant agrees
to conform. Tenant shall only permit parking by its employees, customers and
agents of automobiles in appropriate designated parking areas.
SECTION 15.18 ATTORNEYS' 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.
SECTION 15.19 NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on the Property or
lands adjacent to the Property shall in no way affect this Lease or impose any
liability on Landlord (even if Landlord is the adjacent land owner).
* see inserts for Section 15.15 ** see inserts for Section 15.15
*** See inserts for Section 15.15 **** see insert for Section 15.17
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
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<PAGE> 29
INSERTS FOR SECTION 15.15
* or Tenant
* the requesting party's
*** the other party
INSERT FOR SECTION 15.17
**** and bicycle and motorcycle parking (if applicable)
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
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<PAGE> 30
SECTION 15.21 SURVIVAL OF INDEMNITIES. Each indemnity agreement and hold
harmless agreement contained herein shall survive the expiration or termination
of this Lease.
SECTION 15.22 ENTIRE AGREEMENT. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease and no prior agreement, understanding or representation pertaining to any
such matter shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Lease, as of the date first written in this Lease.
For purposes of Section 13.5(e) LANDLORD
only, Landlord's attorney and
Tenant's attorney have executed THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
this Lease: a New Jersey corporation
- ------------------------------- BY: PREMISYS Real Estate Services, Inc.
Attorney for Landlord ----------------------------------------
its duly authorized agent
By: /s/ Ray Hein
-------------------------------------
Name: Ray Hein
------------------------------------
Title: Regional Vice President
-----------------------------------
TENANT
Simulation Sciences Inc., a Delaware
corporation
By: /s/ Daniel T. Nichols
- ------------------------------- -----------------------------------------
Attorney for Tenant Name: Daniel T. Nichols
---------------------------------------
Title: VP HR & ADMIN
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-19-
<PAGE> 31
OFFICE LEASE, EXHIBITS AND RIDERS
<PAGE> 32
EXHIBIT A
FLOOR PLAN FOR THE PREMISES
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation, and Simulation Sciences Inc., a
Delaware corporation.
[FLOOR PLAN]
Level 11 June 1997
- --------------------------------------------------------------------------------
Leased by:
PREMISYS Real Estate Services, Inc.
713/780-1110
Managed by:
PREMISYS Real Estate Services, Inc.
713/743-6973
- -------------------------------------------------------------------------------
DESTEC TOWER Existing Conditions
2500 CityWest Boulevard, Houston, Texas 77042
Landlord: /s/ RH
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Tenant: /s/ DTN
A-1 of 2 ---------
<PAGE> 33
EXHIBIT A (cont.)
FLOOR PLAN FOR THE PREMISES
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation, and Simulation Sciences Inc., a
Delaware corporation.
[FLOOR PLAN]
Level 12 June 1997
- --------------------------------------------------------------------------------
Leased by:
PREMISYS Real Estate Services, Inc.
713/780-1110
Managed by:
PREMISYS Real Estate Services, Inc.
713/743-6973
- --------------------------------------------------------------------------------
DESTEC TOWER Existing Conditions
2500 CityWest Boulevard, Houston, Texas 77042
Landlord:/s/ RH
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Tenant:/s/ DTN
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Initials
A-2 of 2
<PAGE> 34
EXHIBIT B
LAND LEGAL DESCRIPTION
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
BEING a parcel of land containing 5.303 acres in the George Bellows Survey,
Abstract 3, Harris County, Texas. Said parcel being more particularly described
in metes and bounds as follows, with all bearings and coordinates referenced to
the Texas Coordinate Systems, South Central Zone:
BEGINNING, at the 5/8-inch iron rod (X = 3,090,807.09, Y = 708,591.66) set in
the west line of that certain 82.735 acre tract conveyed from Southwest, Inc.
to CityWest Joint Venture, dated February 20, 1981, and recorded in File Number
G873305, Film Code 178-93-1779 of the Harris County Official Public Records of
Real Property (H.C.O.P.R.R.P.), same being the east line of Walnut Bend
Subdivision, Section Four, as recorded in Volume 84, Page 54 of the Map Records
of Harris County. Said point bears North 02 degrees 13'39" West, 468.17 feet
from the southwest corner of the aforementioned 82.735 acre tract;
THENCE, North 02 degrees 13'39" West, continuing along said west line, same
being the west line of a 15-foot wide drainage easement as recorded in File
Number D668768, Film Code 149-23-2244 of the H.C.O.P.R.R.P., a distance of
458.00 feet to a 5/8-inch iron rod set for the northwest corner of the herein
described parcel;
THENCE, North 87 degrees 46'21" East, departing said west line, a distance of
299.05 feet to a 5/8-inch iron rod set for the northeast corner of the herein
described parcel;
THENCE, South 40 degrees 00'00" East, a distance of 99.56 feet to a 5/8-inch
iron rod set for the point of curvature for a curve to the right;
THENCE, an arc distance of 303.26 feet along said curve to the right, having a
radius of 460.00 feet, a central angle of 37 degrees 46'21", and a chord
bearing and distance South 21 degrees 06'50" East, 297.79 feet to a 5/8-inch
iron rod set for the point of tangency;
THENCE, South 02 degrees 13'39" East, a distance of 251.37 feet to a 5/8-inch
iron rod set for the southeast corner of the herein described parcel;
THENCE, South 87 degrees 46'21" West, a distance of 263.73 feet to a 5/8-inch
iron rod set for the most southerly southwest corner of the herein described
parcel;
THENCE, North 02 degrees 13'39" West, a distance of 153.83 feet to a 5/8-inch
iron rod set for an interior corner of the herein described parcel;
THENCE, South 87 degrees 46'21" West, a distance of 192.70 feet to the POINT OF
BEGINNING, containing 5.303 acres of land.
Landlord:/s/ RH
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Tenant:/s/ DTN
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Initials
B-1
<PAGE> 35
EXHIBIT C
RENTABLE AREA CALCULATIONS
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation, and Simulation Sciences Inc. a
Delaware corporation.
The rentable area of the Building is the Agreed Rentable Area of the
Building set forth in Item 1b of the Basic Lease Provisions and the rentable
area of the Premises is the Agreed Rentable Area of the Premises set forth in
Item 2b of the Basic Lease Provisions. Both the rentable area of the Building
and the rentable area of the Premises have been calculated by Landlord's
architect, in accordance with BOMA MEASUREMENT STANDARD, ANS Z65.1-1990.
Rentable areas shown in the Basic Lease Provisions and the Riders which are a
part of this Lease are agreed to be as shown regardless of minor variations
resulting from actual construction. All other rentable area calculations shall
be calculated in accordance with the remaining provisions of this Exhibit C.
THE BUILDING'S CALCULATION METHOD IS THE BOMA MEASUREMENT STANDARD, ANS
Z65.I-1990.
Initial
Landlord: /s/ RH
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Tenant: /s/ DTN
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C-1
<PAGE> 36
EXHIBIT D
WORK LETTER
PLANS TO BE AGREED UPON/FINISH ALLOWANCE
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant"). Any capitalized term used
but not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
1. Plans.
1.1 Space Plan. On or before October 1, 1997, designated space planner, at
Tenant's expense, shall prepare and deliver to Tenant a space plan for the
Premises showing, regardless of the quantities of such items, the location of
all partitions and doors and the lay-out of the Premises. Tenant will at all
times cooperate with Landlord's space planner, furnishing all reasonable
information and material concerning Tenant's organization, staffing, growth
expectations, physical facility needs (including, without limitation, needs
arising by reason of the Disability Acts), equipment, inventory, etc., necessary
for the space planner to efficiently and expeditiously arrive at an acceptable
lay-out of the Premises. Tenant will approve or disapprove in writing the space
plan within three (3) business days after receipt from Landlord and if
disapproved, Tenant shall provide Landlord and space planner with specific
reasons for disapproval. If Tenant fails to approve or disapprove the space
plan on or before the end of such three (3) business day period, Tenant shall be
deemed to have approved the last submitted space plan. The foregoing process
shall be repeated until Tenant has approved (which shall include deemed
approval) the space plan (such space plan, when approved by Landlord and Tenant,
is herein referred to as the "Space Plan"). If the space plan is not approved
in writing by both Landlord and Tenant by October 1, 1997, Landlord may, at its
sole option, terminate the Lease and this Exhibit, whereupon Landlord shall have
no further liability or obligation thereunder or hereunder.* If Landlord does
not elect to so terminate, then each day after October 1, 1997 that the space
plan is not approved by Tenant shall constitute one (1) day of Tenant Delay
(hereinafter defined).
1.2 Compliance With Disability Acts. Tenant shall promptly provide Landlord and
space planner and/or architect as applicable, with all information needed to
cause the construction of Tenant's Improvements to be completed such that
Tenant, the Premises ** and Tenant's Improvements (as constructed) will be in
compliance with the Disability Acts. TENANT SHALL BE RESPONSIBLE FOR AND SHALL
INDEMNIFY AND HOLD HARMLESS LANDLORD FROM AND AGAINST ANY AND ALL CLAIMS,
LIABILITIES AND EXPENSES (INCLUDING, WITHOUT LIMITATION REASONABLE ATTORNEYS'
FEES AND EXPENSES) INCURRED BY OR ASSERTED AGAINST LANDLORD BY REASON OF OR IN
CONNECTION WITH ANY VIOLATION OF THE DISABILITY ACTS ARISING FROM OR OUT OF (x)
information or design and space plans furnished to Landlord by Tenant (or the
lack of complete and accurate information so furnished) concerning Tenant's
Improvements, (y) Tenant's employer-employee obligations, or (z) after the
Commencement Date, violations by Tenant and/or Tenant's Improvements or the
Premises not being in compliance with the Disability Acts as the result of
changes in regulations or law or interpretations thereof not in effect on the
Commencement Date. The foregoing indemnity shall not include any claims,
liabilities or expenses (including reasonable attorneys' fees and expenses)
arising out of the negligence or gross negligence of Landlord or Landlord's
employees, agents or contractors. Without limiting the foregoing, if Landlord
constructs Tenant's Improvements based on any special requirements or
improvements required by Tenant, or upon information furnished by Tenant that
later proves to be inaccurate or incomplete resulting in any violation of the
Disability Acts, Tenant shall be solely liable to correct such violations and to
bring the improvements into compliance with the Disability Acts as promptly as
is practicable.
1.3 Construction Plans. On or before fifteen (15) days after approval of the
Space Plan, the Design and Color Scheme and the Above Standard Product
Specification List by Landlord and Tenant, Landlord's space planner and
engineer, at Tenant's expense, will prepare construction plans (such
construction plans, when approved, and all changes and amendments thereto agree
to by Landlord and Tenant in writing, are herein called the "Construction
Plans") for all of Tenant's improvements requested pursuant to the Space Plan,
the Design and Color Scheme and the Above Standard Product Specification List
(all improvements required by the Construction Plans are herein called
"Tenant's Improvements"), including complete detail and finish drawings for
partitions, doors, reflected ceiling, telephone outlets, electrical switches
and outlets and Building standard heating, ventilation and air conditioning
equipment and controls. Within five (5) business days after construction plans
are delivered to Tenant, Tenant shall approve (which approval shall not be
unreasonably withheld) or disapprove same in writing and if disapproved,
Tenant shall provide Landlord and Landlord's space planner and engineer
specific reasons for disapproval. The foregoing process shall continue until
the construction plans are approved by Tenant; provided that if Tenant fails to
respond in any five (5) business day period, Tenant shall be deemed to have
approved the last submitted construction plans. If the construction plans are
not approved in writing by both Tenant and Landlord on or before November 1,
1997 for any reason whatsoever, Landlord may, at its sole option, terminate the
Lease and this Exhibit, whereupon Landlord shall have no further liability or
obligation thereunder or hereunder.*** If Landlord does not elect to so
terminate, then each day after November 1, 1997 that the construction plans are
not approved by Tenant shall constitute one (1) day of Tenant Delay.
1.4 Changes to Approved Plans. If any re-drawing or re-drafting of either the
Space Plan or the Construction Plans is necessitated by Tenant's requested
changes (all of which shall be subject to approval by Landlord and, if
applicable, the Texas Department of Licensing & Regulation and any other
governmental agency or authority to which the plans and specifications
* see Insert for Exhibit D., Item 1.1 ** see Insert for Exhibit D.,Item 1.2
*** see Insert for Exhibit D., Item 1.3
/s/ RH
-----------------------------------
/s/ DTN
-----------------------------------
D-1
<PAGE> 37
INSERT FOR EXHIBIT D., ITEM 1.1
* Prior to terminating this Lease, Landlord shall notify Tenant, in writing,
of all issues pertaining to the Plans which need to be resolved by the
parties, and the parties shall have ten (10) days to attempt in good faith
and with due diligence to resolve such issues to the mutual satisfaction of
both parties.
INSERT FOR EXHIBIT D., ITEM 1.2
** (which includes the restrooms on floors in which Tenant is a single
tenant.)
INSERT FOR EXHIBIT D., ITEM 1.3
*** Prior to terminating this Lease, Landlord shall notify Tenant, in writing,
of all issues pertaining to the Plans which need to be resolved by the
parties, and the parties shall have ten (10) days to attempt in good faith
and with due diligence to resolve such issues to the mutual satisfaction of
both parties.
Initial
Landlord: /s/ RH
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Tenant: /s/ DTN
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D-1(A)
<PAGE> 38
are required to be submitted), the expense of any such re-drawing or
re-drafting required in connection therewith and the expense of any work and
improvements necessitated by such re-drawing or re-drafting will be charged to
Tenant.
1.5 Coordination of Planners and Designers. If Tenant shall arrange for
interior design services, whether with Landlord's space planner or any other
planner or designer, it shall be Tenant's responsibility to cause necessary
coordination of its agents' efforts with Landlord's agents to ensure that no
delays are caused to either the planning or construction of the Tenant's
Improvements.*
2. Construction and Costs of Tenant's Improvements.
2.1 Construction Obligation and Finish Allowance. Landlord agrees to construct
Tenant's Improvements, at Tenant's cost and expense; provided, however, Landlord
shall provide Tenant with an allowance up to $450,580.00 (the "Finish
Allowance"), which allowance shall be disbursed by Landlord, from time to time,
for payment of (in the following priority) (i) the contract sum required to be
paid to the general contractor engaged to construct Tenant's Improvements (the
"Contract Sum"), and (ii) the fees of the preparer of the Construction Plans
(the foregoing costs are collectively referred to as the "Permitted Costs").**
2.2 Excess Costs. If the sum of the Permitted Costs exceeds the Finish
Allowance, then Tenant shall pay all such excess costs ("Excess Costs"),
provided, however, Landlord will, prior to the commencement of construction of
Tenant's Improvements, advise Tenant of the Excess Costs, if any, and the
Contract Sum. Tenant shall have two (2) business days from and after the receipt
of such advice within which to approve or disapprove the Contract Sum and Excess
Costs. If Tenant fails to approve same by the expiration of the second such
business day, then Tenant shall be deemed to have approved the Proposed Contract
Sum and Excess Costs. If Tenant disapproves the Contract Sum and Excess Costs
within such two (2) business day period, then Tenant shall either reduce the
scope of Tenant's Improvements such that there shall be no Excess Costs or, at
Tenant's option, Landlord shall obtain two (2) additional bids, provided that
each day beyond such two (2) business day period and until the rebid is accepted
by Tenant shall constitute a Tenant Delay hereunder. Subject to the last
sentence of this subsection, the foregoing process shall continue until a
Contract Sum and resulting Excess Costs, if any, are accepted or deemed accepted
by Tenant. Landlord and Tenant must approve (or be deemed to have approved) the
Contract Sum for the construction of Tenant's Improvements in writing prior to
the commencement of construction. If Tenant fails to accept a Contract Sum by
December 31, 1997, Landlord shall have the right to terminate this Lease.
2.3 Liens Arising from Excess Costs. Tenant agrees to keep the Premises free
from any liens arising out of nonpayment of Excess Costs. In the event that any
such lien is filed and Tenant, within ten (10) days following such filing fails
to cause same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by such
means as it in its sole discretion deems proper, including payment of or defense
against the claim giving rise to such lien. All sums paid by Landlord in
connection therewith shall constitute Rent under the Lease and a demand
obligation of Tenant to Landlord and such obligation shall bear interest at the
rate provided for in Section 15.10 of the Supplemental Lease Provisions from the
date of payment by Landlord until the date paid by Tenant.
2.4 Construction Deposit. Tenant shall remit to Landlord an amount (the
"Prepayment") equal to one-half (1/2) of the projected Excess Costs, if any,
prior to the commencement of construction by Landlord. On or prior to the
Commencement Date, Tenant shall deliver to Landlord the accrual Excess Costs,
minus the Prepayment previously paid. Failure by Tenant to timely tender to
Landlord the full Prepayment shall permit Landlord to stop all work until the
Prepayment is received. All sums due Landlord under this Section 2.4 shall be
considered Rent under the terms of the Lease and nonpayment shall constitute a
default under the Lease and entitle Landlord to any and all remedies specified
in the Lease.
3. Delays. Delays in the completion of construction of Tenant's Improvements
or in obtaining a certificate of occupancy, if required by the applicable
governmental authority, caused by Tenant, Tenant's Contractors (hereinafter
defined) or any person, firm or corporation employed by Tenant or Tenant's
Contractors shall constitute "Tenant Delays". In the event that Tenant's
Improvements are not Substantially Complete by the Commencement Date referenced
in Item 8 of the Basic Lease Provisions, then the Commencement Date referenced
in Item 8 shall be amended to be the Adjusted Substantial Completion Date
(hereinafter defined) and the Expiration Date referenced in Item 9 of the Basic
Lease Provisions shall be adjusted forward by the same number of days as is the
Commencement Date, so that the term of the Lease will be the term set forth in
Item 7 of the Basic Lease Provisions. The Adjusted Substantial Completion Date
shall be the date Tenant's Improvements are Substantially Complete, adjusted
backward, however, by one day for each day of Tenant Delays, if any.*** The
foregoing adjustments in the Commencement Date and the Expiration Date shall be
Tenant's sole and exclusive remedy in the event Tenant's Improvements are not
Substantially Complete by the initial Commencement Date set forth in Item 8 of
the Basic Lease Provisions.
4. Substantial Completion and Punch List. The terms "Substantial Completion"
and "Substantially Complete," as applicable, shall mean when: (i) Tenant's
Improvements are sufficiently completed in accordance with the Construction
Plans so that Tenant can reasonably use the Premises for the Permitted use (as
described in Item 12 of the Basic Lease Provisions)**** When Landlord considers
Tenant's Improvements to be Substantially Complete, Landlord will notify Tenant
and within two (2) business days thereafter, Landlord's representative and
Tenant's representative shall conduct a walk-through of the Premises and
identify any necessary touch-up work, repairs and minor completion items as are
necessary for final completion
* see Insert for Exhibit D., Item 1.5
** see Insert for Exhibit D., Item 2.1
*** see Insert for Exhibit D., Item 3.
**** see Insert for Exhibit D., Item 4
Landlord:/s/ RH
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Tenant:/s/ DTN
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INITIALS
D-2
<PAGE> 39
INSERT FOR EXHIBIT D., ITEM 1.5
* In addition, should Tenant elect to use a space planner other than
Landlord's space planner, Tenant, at Tenant's cost, shall provide
Landlord one (1) full set of blueline Construction Plans and one (1)
diskette of the Construction Plans compatible with Landlord's software,
plus one (1) separate diskette compatible with Landlord's software of
the final Space Plan only.
INSERT FOR EXHIBIT D., ITEM 2.2
** In addition, Landlord shall provide Tenant an additional allowance of
$65,000.00 ("Additional Allowance") which Additional Allowance shall be
disbursed by Landlord, from time to time, for payment of (in the
following priority) (i) construction necessary to comply with the
Disability Acts in the restrooms, (ii) Excess Costs and (iii) Basic Rent
if not exhausted for preceding Items (i) and (ii). In no event, however,
shall Tenant be responsible for the cost of the removal of any asbestos
containing materials on Floor 11 and/or 12 of the Building that have
been identified in the Asbestos-Containing Materials Survey conducted by
BCM Engineers, Inc. for Destec Tower in December 1992 previously
submitted to Tenant's attention for review via overnight courier with a
cover letter dated July 15, 1997, and provided the removal of any such
asbestos containing materials is completed prior to the Commencement
Date.
INSERT FOR EXHIBIT D., ITEM 3
*** In no event, however, shall the Commencement Date be greater than
fifty-three (53) days after Landlord has delivered vacant possession
of the Premises to Tenant.
INSERT FOR EXHIBIT D., ITEM 4
**** , (ii) only minor "punch-list" items which will not interfere with
Tenant's occupancy and use of the Premises and which can be completed
within thirty (30) days after the "punch-list" is created, and (iii) a
certificate of occupancy has been issued. If Tenant's Improvements are
not Substantially Complete, for reasons other than Tenant Delays within
one-hundred eighty (180) days after the Commencement Date set forth in
Item 8, of the Basic Lease Provisions, Tenant has the option, but not
the obligation, to terminate this Lease by providing Landlord written
notice.
----------------
Initial
Landlord: /s/ RH
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Tenant: /s/ DTN
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D-2(A)
<PAGE> 40
of Tenant's Improvements. Neither Landlord's representative nor Tenant's
representative shall unreasonably withhold his agreement on punch list items.
Landlord will use reasonable efforts to cause the contractor to complete all
punch list items within thirty (30) days after agreement thereon.
5. Tenant's Contractors.* to enter the Premises or authorize its agent to do
so prior to the Commencement Date of the Lease, to perform approved work not
requested of the Landlord, Landlord shall permit such entry if:
(a) Tenant shall use only such contractors which Landlord shall approve
in its reasonable discretion and Landlord shall have approved the
plans to be utilized by Tenant, which approval will not be
unreasonably withheld; and
(b) Tenant, its contractors, workmen, mechanics, engineers, space
planners or such others as may enter the Premises (collectively,
"Tenant's Contractors"), work in harmony with and do not in any way
disturb or interfere with Landlord's space planners, architects,
engineers, contractors, workmen, mechanics or other agents or
independent contractors in the performance of their work
(collectively, "Landlord's Contractors"), it being understood and
agreed that if entry of Tenant or Tenant's Contractors would cause,
has caused or is causing a material disturbance to Landlord or
Landlord's Contractors, then Landlord may, with notice, refuse
admittance to Tenant or Tenant's Contractors causing such
disturbance; and
(c) Tenant (notwithstanding the first sentence of subsection 7.201 of the
Supplemental Lease Provisions), Tenant's Contractors and other agents
shall provide Landlord sufficient evidence that each is covered under
such Worker's Compensation, public liability and property damage
insurance as Landlord may reasonably request for its protection.
Landlord shall not be liable for any injury, loss or damage to any of Tenant's
installations or decorations made prior to the Commencement Date and not
installed by Landlord. Tenant shall indemnify and hold harmless Landlord and
Landlord's Contractors from and against any and all costs, expenses, claims,
liabilities and causes of action arising out of or in connection with work
performed in the Premises by or on behalf of Tenant (but excluding work
performed by Landlord or Landlord's Contractors). Landlord is not responsible
for the function and maintenance of Tenant's Improvements which are different
than Landlord's standard improvements at the Property or improvements,
equipment, cabinets or fixtures not installed by Landlord. Such entry by Tenant
and Tenant's Contractors pursuant to this Section 5 shall be deemed to be under
all of the terms, convents, provisions and conditions of the Lease except the
covenant to pay Rent.
6. Construction Representatives. Landlord's and Tenant's representatives for
coordination of construction and approval of change orders will be as follows,
provided that either party may change its representative upon written notice to
the other:
LANDLORD'S REPRESENTATIVE:
NAME Mr. Rob Nelson
-----------------------------------
ADDRESS 2500 CityWest Blvd., Suite 125
-----------------------------------
Houston, Texas 77042
-----------------------------------
PHONE 713/783-6973
-----------------------------------
TENANT'S REPRESENTATIVE:
NAME
-----------------------------------
ADDRESS
-----------------------------------
-----------------------------------
PHONE
-----------------------------------
* see insert for Exhibit D., Item 5
-----------------
Initial
Landlord: /s/ RH
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Tenant: /s/ DTN
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D-3
<PAGE> 41
INSERT FOR EXHIBIT D, ITEM 5
* Tenant shall have the right
-----------------
Initial:
Landlord: /s/ RH
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Tenant: /s/ DTN
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D-3(A)
<PAGE> 42
EXHIBIT E
ACCEPTANCE OF PREMISES MEMORANDUM
This Acceptance of Premises Memorandum is being executed pursuant to
that certain Lease Agreement (the "Lease") dated the 2nd day of September, 1997,
between The Prudential Insurance Company of America, a New Jersey corporation
("Landlord"), and Simulation Sciences Inc., a Delaware corporation ("Tenant"),
pursuant to which Landlord leased to Tenant and Tenant leased from Landlord
certain space in the office building located at 2500 CityWest Boulevard, in
Houston, Texas (the "Building"). Landlord and Tenant hereby agree that:
1. Except for the Punch List Items (as shown on the attached Punch List),
Landlord has fully completed the construction work required under the
terms of the Lease and the Work Letter attached thereto.
2. The Premises are tenantable, Landlord has no further obligation for
construction (except with respect to Punch List Items) and Tenant
acknowledges that the Building, the Premises and Tenant's Improvements
are satisfactory in all respects, except for the Punch List Items and
are suitable for the Permitted Use.
3. The Commencement Date of the Lease is __________________, ________. If
the date set forth in Item 8 of the Basic Lease Provisions is different
than the date set forth in the preceding sentence, then Item 8 of the
Basic Lease Provisions is hereby amended to be the Commencement Date
set forth in the preceding sentence.
4. The Expiration Date of the Lease is ___________________, _________. If
the date set forth in Item 9 of the Basic Lease Provisions is different
than the date set forth in the preceding sentence, then Item 9 of the
Basic Lease Provisions is hereby amended to be the Expiration Date set
forth in the preceding sentence.
5. Tenant acknowledges receipt of the current Rules and Regulations for the
Building.
6. All capitalized terms not defined herein shall have the meaning
assigned to them in the Lease.
Agreed and Executed this ____ day of __________________, _________.
LANDLORD
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
a New Jersey corporation
BY: PREMISYS Real Estate Services, Inc.
--------------------------------------------
its duly authorized agent
By: /s/ RAY HEIN
----------------------------------------
Name: Ray Hein
--------------------------------------
Title: Regional Vice President
-------------------------------------
TENANT
Simulation Sciences Inc., a Delaware corporation
------------------------------------------------
By: [SIGNATURE] /s/ DANIEL T. NICHOLS
--------------------------------------------
Name: Daniel T. Nichols
------------------------------------------
Title: Vice President
-----------------------------------------
E-1
<PAGE> 43
EXHIBIT F
GARAGE PARKING AGREEMENT
NON-RESERVED PARKING SPACES
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant"). Any capitalized term used but
not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
1. Parking Spaces. So long as the Lease remains in effect, Tenant or persons
designated by Tenant shall have the right (but not the obligation) to rent
in the Garage on an unreserved and non-exclusive basis up to one-hundred
thirty-five (135) parking spaces in the garage during the term of this
Lease. Each capitalized term not defined herein shall have the meaning
assigned to it in the Supplemental Lease Provisions.
2. Parking Rental. The * rent for such parking spaces shall be the rate
$35.00 for each unreserved parking space **. All payments of rent for
parking spaces shall be made (i) at the same time as Basic Monthly Rent is
due under the Lease and (ii) to Landlord or to such persons (for example
but without limitation, the manager of the Garage) as Landlord may direct
from time to time.
3. Lost Parking Cards. There will be a replacement charge payable by Tenant
equal to the amount posted from time to time by Landlord for loss of any
magnetic parking card or parking sticker issued by Landlord.
4. Validation. Tenant may validate visitor parking, by such method or methods
as Landlord or the Garage operator may approve, at the validation rate from
time to time generally applicable to visitor parking. Landlord expressly
reserves the right to redesignate parking areas and to modify the parking
structure for other uses or to any extent.
5. Parking Stickers and Cards. Parking stickers or any other device or form of
identification supplied by Landlord shall remain the property of Landlord
and shall not be transferable.
6. Damage to or Condemnation of Garage. If Landlord fails or is unable to
provide any parking space to Tenant in the Garage because of damage or
condemnation, such failure or inability shall never be deemed to be a
default by Landlord as to permit Tenant to terminate the Lease, either in
whole or in part, but Tenant's obligation to pay rent for any such parking
space which is not provided by Landlord shall be abated for so long as
Tenant does not have the use of such parking space and such abatement shall
constitute full settlement of all claims that Tenant might otherwise have
against Landlord by reason of such failure or inability to provide Tenant
with such parking space.
7. Rules and Regulations. A condition of any parking shall be compliance by
the parker with Garage rules and regulations, including any sticker or
other identification system established by Landlord. Garage managers or
attendants are not authorized to make or allow any exceptions to these
Rules and Regulations. The following rules and regulations are in effect
until notice is given to Tenant of any change. Landlord reserves the right
to modify and/or adopt such other reasonable and generally applicable rules
and regulations for the Garage as it deems necessary for the operation of
the Garage.
(a) Cars must be parked entirely within the stall lines painted on the
floor.
(b) All directional signs and arrows must be observed.
(c) The speed limit shall be five (5) miles per hour.
(d) Parking is prohibited in areas not striped for parking, aisles, areas
where "no parking" signs are posted, in cross hatched areas and in
such other areas as may be designated by Landlord or Landlord's
agent(s) including, but not limited to areas designated as "Visitor
Parking" or reserved spaces not rented under this Agreement.
(e) Every parker is required to park and lock his own car. All
responsibility for damages to cars or persons or loss of personal
possessions is assumed by the parker.
(f) Spaces which are designated for small, intermediate or full-sized cars
shall be so used. No intermediate or full-size cars shall be parked in
parking spaces limited to compact cars.
8. Default. Failure to promptly pay the rent required hereunder shall
constitute a default under the Lease and Landlord, may, at its option and
in addition to all other remedies provided for in the Lease, terminate
Tenant's rights to use the Garage. Landlord may refuse to permit any person
who violates the rules to park in the Garage and any violation of the
rules shall subject the car to removal at the car owner's expense. No such
refusal or removal shall create any liability on Landlord or be deemed to
interfere with Tenant's right to quiet possession of the Premises.
Initial
Landlord: RH
--
Tenant: DTN
--
F-1
<PAGE> 44
EXHIBIT G
HOUSTON OFFICE BUILDING
RULES AND REGULATIONS
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Subject to the Lease, the following rules and regulations and standards shall
be observed by Tenant:
1. Except as expressly permitted in the Lease, Tenant shall not use the
Premises, the Building or any other part of the Property to sell any
items or services at retail price or cost to the general public without
prior written approval of the Landlord. The sale of services for
stenography, typewriting, blueprinting, duplicating and similar busi-
nesses shall not be conducted from or within the Premises, the Building
or any other part of the Property for the service or accommodation of
occupants of the Building or users of any other part of the Property
without prior written consent of the Landlord. Tenant shall not con-
duct any auction on the Premises or any other part of the Property nor
store goods, wares or merchandise on the Premises (except for Tenant's
own personal use) or any other part of the Property.
2. Sidewalks, halls, doorways, vestibules, passageways, stairwells and
other similar areas shall not be obstructed or used by Tenant for a
purpose other than normal ingress and egress to and from the Premises
and Building.
3. Fire arms, weapons, flammable, explosive or other hazardous liquids and
materials shall not be brought on the Premises or into the Building or
on the Property without the prior written consent of the Landlord.
4. Except as expressly permitted in the Lease, Tenant shall not make any
alterations or improvements to the Premises without the prior written
consent of Landlord. All improvements and the methods of installing and
constructing such improvements must be approved in writing by Landlord
prior to commencement of installation and/or construction. Should Tenant
require telegraphic, telephonic, annunciator or other communication
service, Landlord will direct the electrician as to where and how wires
are to be introduced and placed, and none shall be introduced or placed
except as Landlord shall direct. All contractors and technicians
performing work for Tenant within the Building shall be referred to
Landlord for approval before performing such work.
5. Movement into or out of the Building of freight, furniture, office
equipment or other material for dispatch or receipt by or on behalf of
Tenant that requires movement through public corridors or lobbies or
entrances to the Building shall be limited to the use of service
elevators only and shall be done at hours and in a manner approved in
writing by Landlord for such purposes from time to time. Only licensed
commercial movers shall be used for the purpose of moving freight,
furniture or office equipment to and from the Premises and Building.
All band trucks shall be equipped with rubber tires and rubber tire
guards. Tenant shall be responsible for all damage to the Building
inflicted by Tenant's agents and employees in moving equipment or
furniture into or out of the Building.
6. Requests by Tenant for building services, maintenance or repair shall be
made in writing to the office of the Building manager.
7. Tenant shall not change locks or install additional locks on doors
without the prior written consent of the Landlord. Tenant shall not make
or cause to be made duplicates of keys procured from Landlord without
the prior written approval of Landlord. All keys to the Premises and
combinations to vaults shall be surrendered to Landlord upon
termination of tenancy.
8. Tenant shall give prompt notice to the office of the Building manager of
any damage to or defects in plumbing, electrical fixtures or heating and
cooling equipment. Liquids, or other materials or substances which may
cause injury to the plumbing, shall not be put into the lavatories,
water closets or other plumbing fixtures by Tenant, its agents,
employees or invitees, and damages resulting to such fixture or
appliances from misuse by Tenant or Tenant's agents, employees or
invitees shall be paid by Tenant, and Landlord shall not in any case be
liable therefor. The water closets and other water fixtures shall not be
used for any purpose other than those for which they were constructed
and any damage resulting to them from misuse shall be borne by Tenant.
Tenant shall not waste water by interfering with faucets or otherwise.
9. Except as expressly permitted in the Lease and except for the
preparation of food in microwave ovens for Tenant's employees, no food
shall be prepared in or distributed from the Premises without the prior
written approval of the Building manager. Except for no more than two
(2) vending machines per floor for Tenant's employees use, vending
machines or dispensing machines of any kind wild not be placed in the
Premises by Tenant unless prior written approval has been obtained from
Landlord.
10. Landlord shall have the power to prescribe the weight and position of
safes, filing cabinets or other heavy equipment which may overstress any
portion of the floor. Any damage done to the Building by the improper
placement of heavy items which overstress the floor will be repaired at
the sole expense of the Tenant. Tenant shall notify the Building manager
when safes or other heavy equipment are taken in or out of the Building,
and the moving shall be done under the supervision of the Building
manager, after prior written permission from Landlord. Persons employed
to move such property must be pre-approved by Landlord.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
G-1 of 2
<PAGE> 45
11. Tenant shall cooperate with Building employees in keeping the Premises neat
and clean. Nothing shall be swept or thrown into the corridors, halls,
elevator shafts or stairways. Trash shall only be disposed of in
appropriate receptacles approved by Landlord.
12. Tenant, its employees, or agents, or anyone else who desires to enter the
Building after normal working hours, will be required to identify
themselves and to sign in upon entry and sign out upon leaving, giving
their location during their stay and their time of arrival and departure.
The Building will normally be open for business from 7:00 a.m. until 6:00
p.m., Monday through Friday and 8:00 a.m. until 1:00 p.m. on Saturdays,
the following holidays excepted: January 1st (New Year's Day); Last Monday
in May (Memorial Day); July 4th (Independence Day); First Monday in
September (Labor Day); Fourth Thursday in November (Thanksgiving Day);
December 25th (Christmas Day) and any other day on which tenants in
other buildings comparable to the Building are generally closed.
13. Tenant shall not install any solar screen material, window shades,
blinds, drapes, awnings, window ventilators, or other similar equipment
and any window treatment of any kind whatsoever, without Landlord's prior
written consent. Landlord will control all internal lighting, signage and
furnishings that may be visible from the exterior of the Building or
Common areas and shall have the right to change any unapproved item,
without notice to Tenant, at Tenant's expense.
14. No sign, advertisement, notice or handbill shall be exhibited,
distributed, painted or affixed by Tenant, its employees or agents, on,
about or from any part of the Premises or the any other part of the
Property without the prior written consent of Landlord. Landlord will
provide and maintain a directory in the Building and no other directory
shall be permitted.
15. Tenant shall not permit any improper, objectionable, or unpleasant noises
or odors in (or to be emitted from) the Premises or the Building, nor
shall Tenant permit the operation of any machinery or equipment in the
Premises that could in any way annoy any other tenant in the Building, nor
shall Tenant otherwise interfere in any way with other tenants in the
Building or adjoining landowners or persons having business with such
other tenants or adjoining landowners.
16. Tenant shall keep all corridor doors, when not in use, closed.
17. Tenant shall at no time use, or permit the use of, the Premises or any
portion thereof as sleeping or lodging quarters.
18. Tenant agrees to cooperate and assist Landlord in the prevention of
canvassing, soliciting and peddling within the Building and on the
Property.
19. Tenant shall not sell lottery tickets or conduct any other form of
gambling from or within the Premises or any other part of the Property.
20. Except for seeing eye dogs assisting the disabled, Tenant shall not keep
any animals or birds in or about the Premises or the Building.
21. Tenant shall comply with parking rules and regulations as may be posted
and distributed from time to time.
22. Landlord will not be responsible for personal property, equipment, money
or jewelry lost or stolen from the Premises.
Landlord reserves the right to rescind any of these rules and regulations and to
make such other further rules and regulations as in its reasonable judgment
shall from time to time be needed for the safety, protection, care and
cleanliness of the Building or any other portion of the Property, the operation
of the Building, the preservation of good order in the building and on the
Property, the orderly management of the Building and/or the protection and
comfort of the tenants and their agents, employees and invitees, which rules and
regulations need not be uniform for each tenant and, when made and written
notice thereof is given to a tenant, shall be binding upon it in like manner as
if originally herein prescribed. These Rules and Regulations and no amendments
hereto shall ever be construed to create any obligations on Landlord. In the
event of any conflict between these Rules and Regulations and the Lease of which
they are a part, the Lease shall control.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
G-2 of 2
<PAGE> 46
EXHIBIT H
ARBITRATION OF "RENEWAL RENTAL RATE"
This Exhibit is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
A. If Tenant timely and properly exercises its Renewal Option as set forth in
Rider 4. and fulfills the terms and conditions set forth in Item 3. of
Rider 4., but Landlord and Tenant are unable to agree upon the Renewal
Rental Rate, the amount of Renewal Rental Rate for purposes thereof shall
thereafter be determined by arbitration pursuant to this Exhibit. Each
arbitrator appointed pursuant to the terms and provisions hereof shall
select which of the Renewal Rental Rate designated by Landlord or the
Renewal Rental Rate designated by Tenant more closely approximates the
actual, in the option of such arbitrator, Renewal Rental rate. Such closer
approximation shall be deemed to constitute the "decision" of such
arbitrator.
B. If Landlord and Tenant are unable to agree upon the Renewal Rental Rate to
be applicable to the Renewal Option exercised by Tenant hereunder, then
either party may submit the dispute with respect thereto to arbitration by
the giving of written notice to the other party, which notice shall state
the name and address of an arbitrator appointed by the first party. Within
ten (10) days after the giving of such notice, the other party shall
appoint a second arbitrator and notify the first party of the name and
address of the second arbitrator. Coincident with the appointment of each
arbitrator, the arbitrator shall be given a written statement of the issues
submitted to it and the text of the definition of Renewal Rental Rate as
set forth in this Lease. If the party entitled to do so fails to timely
appoint the second arbitrator, the first arbitrator shall proceed to
resolve the issue. If the second arbitrator is appointed, the two
arbitrators shall meet within ten (10) days after the appointment of the
second arbitrator and attempt to resolve the issue. If, within thirty (30)
days thereafter, they have not agreed upon the resolution of the issue,
they shall appoint a third arbitrator. If the two (2) arbitrators are
unable to agree upon a third arbitrator within ten (10) days after the
expiration of the aforesaid thirty (30) day time period, the third
arbitrator shall be selected by Landlord and Tenant jointly, or, if within
a period of fifteen (15) days after first attempting to do so, Landlord and
Tenant are unable to agree upon the identity of the third arbitrator, then
either Landlord or Tenant on behalf of both may request that the United
States District Judge for the Southern District of Texas, Houston Division
(in his individual, but not judicial, capacity), who is then senior in
service, appoint the third arbitrator. The third arbitrator, regardless of
whether appointed by the two (2) arbitrators or by Landlord and Tenant
jointly, or by the act of said District Judge, shall be fully empowered to
act hereunder as if originally appointed as one of the first two
arbitrators by Landlord and Tenant. The arbitrator or arbitrators, as the
case may be, shall then resolve the issue submitted. The decision of the
arbitrator shall be given within a period of thirty (30) days after the
appointment of the first arbitrator (if no other arbitrator is appointed),
the second arbitrator (if only two [2] arbitrators are appointed and they
agree on the resolution issue), or by the third arbitrator (if three [3]
arbitrators are appointed). The decision of the single arbitrator, or the
decision in which any two arbitrators shall have concurred, or if there are
three arbitrators, then the decision of a majority of three arbitrators
shall constitute the decision and shall be final, binding, and conclusive
on Landlord and Tenant. Any final, binding and conclusive decision of the
arbitrator(s) shall be non-appealable and enforceable in any court having
jurisdiction. If any arbitrator shall fail, refuse or become unable to act,
a new arbitrator shall be appointed in its place by the party which
appointed it or, if the arbitrator was the third arbitrator so appointed,
by following the same methods as was originally followed with respect to
the appointment of the third arbitrator. All hearings and proceedings held
by the arbitrators shall take place in Houston, Texas.
C. The losing party shall pay all arbitration costs including the fees and
expenses of all arbitrators.
D. No person shall be appointed, or if appointed, qualified to act as an
arbitrator under this Exhibit unless that person is (i) qualified to
evaluate, and shall have been actively engaged for not less than five (5)
years immediately preceding the arbitrator's appointment in the evaluation
of high rise office buildings in Houston, Texas, (ii) a member of the
American Institute of Real Estate Appraisers, or any successor association
or body of comparable standing if such Institute is not then in existence
and (iii) not associated with, by business relationship or otherwise,
either party hereto or any affiliate of either party hereto and is likely
to render an impartial decision on the issue to be resolved.
E. Pending the result of any matter submitted to arbitration, the Renewal
Rental Rate designated by Landlord shall govern. In the event of final
determination in Tenant's favor, Landlord shall refund to Tenant, with
interest at ten percent (10%) per annum, the amount of any overpayment.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
H-1
<PAGE> 47
RIDER 1
EXCLUSIONS FROM OPERATING EXPENSES
This Rider is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant shall mutually agree as follows:
Notwithstanding any contrary provision in subsection 2.201 of the
Supplemental Lease Provisions. "Operating Expenses" shall not include any of
the following:
(i) Costs for which Landlord actually receives reimbursement by insurance,
condemnation awards, warranties or otherwise.
(ii) Expenses incurred in leasing or procuring new tenants, including
advertising expenses or leasing commissions paid to agents of Landlord
or other brokers.
(iii) Costs of renovating or constructing space for Tenant or other tenants
or renovating space vacated by Tenant or other tenants.
(iv) Income, capital stock, estate, inheritance, franchise or other taxes
payable by Landlord unless the same shall have been levied as a
substitute for or supplement of real property taxes.
(v) Depreciation of the Building or Landlord's personal property at the
Building.
(vi) Interest on debt or amortization payments on any mortgage or deed of
trust, rental under any prime lease or similar rental under any other
superior lease or sublease.
(vii) Any property management office rental and any wages, salaries or other
compensation paid to any employee not employed for or on behalf of the
Building. To the extent wages, salaries or other compensation are billed
to the Building for any employee not employed by Landlord full time on
behalf of the Building, Landlord shall reasonably prorate such employees
time and bill to the Building only such time as the employee reasonably
devotes to the Building or Building operations.
(viii) Dividends paid by Landlord.
(ix) Costs of alterations and capital improvements which could not be
expenses under generally accepted accounting principles.
(x) Management fees that are in excess of three percent (3%) of gross Rent.
(xi) That portion of any payment made to an affiliate of Landlord that is in
excess of the amount which would have been paid in the absence of such
relationship.
(xii) The costs for repairs or maintenance that are reimbursed by others,
including, without limitation, reimbursement made on warranty claims.
(xiii) Additional Pass Through Costs.
(xiv) Real Estate Taxes.
(xv) Attorney's fees and other expenses incurred in connection with disputes
with other tenants.
(xvi) Costs of electricity and other services sold to tenants which are not
standard for the Building and for which Landlord is reimbursed by
tenants as an additional charge.
(xvii) Costs incurred by Landlord due to the violation of Landlord or any
tenant or occupant of the Building of the terms and/or conditions of
any lease of space in the Building.
-----------------
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
-----------------
<PAGE> 48
(xviii) Landlord's general corporate overhead and general and administrative
expenses which are not expressly chargeable to operating expenses of
the Building in accordance with generally accepted accounting
principles, including salaries of Landlord's executive officers or any
employee or agent above the grade of building manager.
(xix) Penalties incurred as a result of Landlord's or other tenant's (other
than Tenant) negligence, inability or unwillingness to make payments
and/or to file any income tax, real estate tax or information
returns when due.
(xx) Costs arising from Landlord's charitable or political contributions.
(xxi) Costs for sculptures, paintings or other objects of art.
(xxii) Costs of correcting defects (including latent defects) in the
construction of the Building, parking areas or other improvements, or
in the equipment used therein, except that, for the purposes of this
subparagraph, conditions resulting from ordinary wear and tear and
use, vandalism and other matters not occasioned by construction
defects shall not be deemed defects.
(xxiii) The portion of Tenant's Pro Rata Share Percentage for costs of
compliance with the Disabilities Act in men's and women's restrooms in
the Building which are attributable to the portion of the total
Premises, which is leased by Tenant as entire floors. Tenant shall pay
the portion of Tenant's Pro Rata Share Percentage for costs of
compliance with the Disabilities Act in men's and women's restrooms
which are attributable to the portion of the total Premises, which is
leased by Tenant as a portion of an entire floor(s).
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 49
RIDER 2
RIGHT TO AUDIT
This Rider is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant"). Any capitalized term used but
not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
If a statement reflecting annual Operating Expenses is delivered to
Tenant pursuant to subsection 2.203 of the Supplemental Lease Provisions,
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 actual Additional Rent for the prior calendar year, provided
that such audit shall be conducted by 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 actual Additional Rent from Landlord, (ii) during Landlord's
normal business hours, (iii) at the place where Landlord maintains its records
in Houston, Texas and (iv) only after Landlord has received thirty (30) days
prior written notice. If the audit report reflects that estimated Additional
Rent was overcharged or undercharged in the audited calendar year and provided
Landlord agrees with such audit, Tenant shall within twenty (20) days after
receipt of such report pay to Landlord the amount of any underpayment or, if
applicable, Landlord shall allow Tenant a credit against the next accruing
installment of Additional Rent in the amount of any overpayment.
Notwithstanding anything stated to the contrary, all expenses of such audit
shall be borne by Tenant unless such audit shall disclose an actual
overstatement of Operating Expenses by four percent (4%) or more, in which case
all expenses of such audit shall be borne by Landlord.
Initial
Landlord: /s/ RH
-----------
Tenant: /s/ DTN
-----------
<PAGE> 50
RIDER 3
ELECTRICITY
This Rider is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant"). Any capitalized term used but
not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
Subsection 5.103 of the Supplemental Lease Provisions is hereby deleted
in its entirety and the following is substituted in lieu thereof:
5.103 Electricity. Landlord shall furnish to the Premises electric current
not in excess of that required by the office lighting and receptacles
included in Tenant's Improvements, provided, however, Tenant shall be
solely responsible for (without duplication) the costs of (i) electrical
consumption within the Premises which is in excess of five (5) watts per
square foot of the Agreed Usable Area of the Premises, (ii) electrical
consumption by equipment which requires a voltage other than 120 volts
single phase (except for up to five (5) photocopy machines which require
a voltage of 220 volts, single phase) and (iii) electrical consumption
by any single piece of equipment in excess of 0.75 kilowatts at rated
capacity (such consumption is herein referred to as "Excess Consumption"
and the costs of Excess Consumption are herein referred to as "Excess
Consumption Costs"). Without in any way limiting Tenant's responsibility
for Excess Consumption Costs, Tenant shall not (i) without the express
prior written consent of Landlord, install or use or permit the
installation or use of any computer or electronic data processing
equipment or any other electrical equipment which (singly) consumes more
than 0.75 kilowatts at rated capacity or requires a voltage other than
120 volts single phase (except for up to five (5) photocopy machines
which require a voltage of 220 volts, single phase) or (ii) use electric
current in excess of the capacity of the feeders or lines to the
Building or the risers or wiring installation of the Building or the
Premises. Landlord may determine Excess Consumption by a survey
performed by a reputable consultant or by an additional separate meter
in the Premises. Tenant shall be responsible for (i) the cost of any
such survey performed by Landlord and (ii) if Landlord installs a meter
to measure Excess Consumption, all costs associated with such separate
metering, including, but not limited to, the cost of installing,
maintaining, repairing and reading the separate metering devices and
subpanels.
Initial:
Landlord: /s/ RH
-----------
Tenant: /s/ DTN
-----------
<PAGE> 51
RIDER 4
RENEWAL OPTIONS
This Rider is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware Corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant mutually agree as follows:
1. If, and only if, on the Expiration Date and the date Tenant notifies
Landlord of its intention to renew the term of this Lease (as provided below),
(i) Tenant is not in monetary or material non-monetary default under this
Lease, (ii) Tenant then occupies a minimum of seventy-five percent (75%) of the
Premises and the Premises then consist of at least all the original Premises
and (iii) this Lease is in full force and effect, then Tenant, but not any
assignee or subtenant of Tenant (other than an "affiliate" described in Section
11.1), shall have and may exercise an option to renew this Lease for one (1)
additional term of five (5) years (the "Renewal Term") upon the same terms and
conditions contained in this Lease with the exceptions that (x) this Lease
shall not be further available for renewal, and (y) the rental for the Renewal
Term shall be the "Renewal Rental Rate." The Renewal Rental Rate is hereby
defined to mean the then prevailing rents (including, without limitation, those
similar to the Basic Annual Rent, Additional Rent and Parking Rental) payable
by renewal tenants within the last six (6) months prior to date Tenant
exercises this Renewal Option and having a credit standing substantially
similar to that of Tenant, leasing approximately the same amount of space as
Tenant in the following buildings: (i) the Building and (ii) the office
buildings located in Westlake Park office complex if Landlord and Tenant
reasonably determine that such buildings represent competitive alternatives at
the time Tenant notifies Landlord, in writing, of its intention to renew. The
Renewal Rental Rate will take into consideration the tenant inducements then
being offered in the renewal transactions considered by Landlord and the
landlords of the office buildings located in the Westlake Park office complex
(if applicable).
2. If Tenant desires to renew this Lease, Tenant must notify Landlord in
writing of its intention to renew on or before the date which is at least nine
(9) months but no more than twelve (12) months prior to the Expiration Date.
Landlord shall, within the next thirty (30) days, notify Tenant in writing of
Landlord's good faith, prudent business judgment determination of the Renewal
Rental Rate and Tenant shall, within the next thirty (30) days following
receipt of Landlord's determination of the Renewal Rental Rate, notify Landlord
in writing of Tenant's acceptance or rejection of Landlord's determination of
the Renewal Rental Rate. If Tenant timely notifies Landlord of Tenant's
acceptance of Landlord's determination of the Renewal Rental Rate, this Lease
shall be extended as provided herein and Landlord and Tenant shall enter into
an amendment to this Lease to reflect the extension of the term and changes in
Rent in accordance with this Rider. If (x) Tenant timely notifies Landlord in
writing of Tenant's rejection of Landlord's determination of the Renewal Rental
Rate or (y) Tenant does not notify Landlord in writing of Tenant's acceptance
or rejection of Landlord's determination of the Renewal Rental Rate within
such thirty (30) day period, this Lease shall end on the Expiration Date and
Landlord shall have no further obligations or liability hereunder.
3. Provided Tenant leases a minimum of three (3) full floors in the
Building or at least the aggregate sum total of 67,500 square feet of Agreed
Rental Area at the time the Renewal Option is exercised, Tenant shall have the
right of Arbitration of Renewal Rental Rate per terms and conditions set forth
in Exhibit H.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 52
RIDER 5
TENANT'S RIGHT OF OFFER
(BASIC RENT EQUAL TO FAIR MARKET RENT)
This Rider is attached to and a part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant mutually agree as follows:
A. Effective after the twelfth (12th) month anniversary of the Term and
continuing through the seventy-second (72nd) month anniversary of the
Term, Tenant shall have the right to offer to lease up to an aggregate
sum total of 22,500 square feet of Agreed Rentable Area of Available
Space (hereinafter defined) on floors two (2) through ten (10) and floor
thirteen (13) of the building. Tenant shall exercise such right, if at
all, by delivering to Landlord a written notice specifying the amount of
expansion area (not in excess of the Maximum Available Space, as
hereinafter defined but not less than 5,000 square feet of Agreed
Rentable Area) that Tenant then requires (each such written notice is
herein referred to as an "Offer Notice"). Within ten (10) days after
receiving an Offer Notice, Landlord will advise Tenant in writing of (i)
the then existing Available Space that would satisfy Tenant's expansion
need (which shall include space which is then leased by an existing
tenant of the Building whose lease expires within a nine (9) month
period from the date of the Offer Notice and whose lease contains a
renewal option which has either expired or does not contain a renewal
option, and a proposal to renew has not been submitted by Landlord to
any such existing tenant prior to the date of the Offer Notice), (ii)
any rights of refusal, rights of opportunity, rights of offer and other
similar non-firm expansion rights held by other parties, prior to the
execution of this Lease by Tenant, with respect to such space as
outlined above (any Available Space subject to any such non-firm
expansion rights, or any Available Space which is leased to an existing
tenant with no active renewal rights, except for existing tenants that
have been submitted a proposal to renew and such proposal has not
expired, as described herein, is herein referred to as "Encumbered
Available Space") and (iii) Landlord's determination of the Fair Market
Rent for each segment of then existing Available Space. Within ten (10)
days after receiving Landlord's designation of then existing Available
Space, Tenant shall, in writing, notify Landlord either (i) that it is
exercising its right to lease a portion of the then existing Available
Space (but not in excess of the Maximum Available Space), in which event
Tenant shall specify the Available Space that it elects to lease or (ii)
that Tenant is not exercising its right to lease then existing Available
Space. If any of the Available Space is Encumbered Available Space, then
Tenant's rights to lease such Encumbered Available Space shall be
subject and inferior to the rights of the party(s) holding non-firm
expansion rights or a proposal to renew which has not expired with
respect to such space. If Tenant elects to lease the applicable
Available Space within such ten (10) day period, then Tenant's election
shall be irrevocable and Tenant shall be deemed to have accepted
Landlord's determination of the Fair Market Rent. Failure by Tenant to
notify Landlord within such ten (10) day period shall be deemed an
election by Tenant not to lease one (1), all or any number of entire
suites of the then Existing Available Space. Should Tenant notify
Landlord in writing within such ten (10) day period advising Landlord of
its rejection of any available space due specifically to the Fair market
Rent being too high, Landlord shall not lease any such Available Space
to a third party upon economic terms and conditions that are less than
the economic terms and conditions offered to Tenant, when all pertinent
factors are considered in the sole and reasonable opinion of Landlord
using Landlord's prudent business judgment, without first offering such
Available Space to Tenant in writing at such lesser economic terms and
conditions and Tenant shall notify Landlord within ten (10) days of
receipt of written notice from Landlord that it is either exercising or
not exercising its right to lease such Available Space. "Available
Space" is further defined to mean entire suites of vacant rentable area
located on floors two (2) through ten (10) and floor thirteen (13) of
the building that, at the time Landlord receives the applicable Offer
Notice, is not a vacant full floor adjacent to another vacant full
floor, is not subject to any lease or other occupancy agreement or a
firm expansion option under a then existing lease or occupancy agreement
and is not the subject of good faith negotiations between Landlord and a
prospective tenant. "Maximum Available Space" shall mean an aggregate
sum total of 22,500 square feet of rentable area of Available Space.
B. Available Space shall be leased to Tenant upon the same terms and
conditions of this Lease (including the Term which shall be coterminous
with the existing Term) with the following exceptions: (i) all Available
Space shall be delivered to Tenant in "as is" condition; (ii) the Basic
Annual Rent for the applicable Available Space shall be equal to the
greater of: (a) the Fair Market Rent (as defined hereafter) or (b) the
Rate Per Square Foot of Agreed Rentable Area schedule for the remaining
Term as set forth in Item 3. of the Basic Lease Provisions, (iii) the
Basic Monthly Rent for the agreed rentable area of the applicable
Available Space will be equal to one-twelfth (1/12th) of the Basic
Annual Rent for such Available Space; (iv) the applicable Available
Space will be improved by Landlord in accordance with paragraph D
following;
<PAGE> 53
(v) except as provided in paragraph D following, Tenant shall not be
entitled to any allowances or inducements with respect to the applicable
Available Space; and (vi) Basic Annual Rent and Additional Rent with
respect to the applicable Available Space shall commence on the earlier to
occur of (x) the date that Tenant commences use of the applicable Available
Space for any purpose, (y) the date on which the improvements in the
applicable Available Space are substantially completed or (z) thirty (30)
days after Landlord and Tenant have entered into an amendment to Lease as
set forth in Item G. (below), and Landlord has delivered vacant possession
of the applicable Available Space to Tenant. Upon such rent commencement
date, (1) the Agreed Rentable Area of the Premises shall be deemed
increased by the agreed rentable area of the applicable Available Space,
(2) Basic Annual Rent for the Premises shall be deemed increased by an
amount equal to the Basic Annual Rent for the applicable Available Space,
(3) Basic Monthly Rent for the Premises shall be deemed increased to an
amount equal to one twelfth (1/12th) of the Basic Annual Rent for the
Premises (as increased) and (4) Additional Rent for the Premises shall be
recalculated on the basis of the increased Agreed Rentable Area of the
Premises.
C. The Fair Market Rent is hereby defined to mean the then prevailing rents
similar to the Basic Annual Rent payable by tenants for premises of
equivalent quality, size, and utility as the applicable Available Space
which is leased for a term approximately equal to the then remaining term
of the Lease.
D. Tenant shall be entitled to no allowances or inducements except for a
finish allowance equal to the product of (i) $10.00 multiplied by (ii) the
number of rentable square feet in the applicable Available Space,
multiplied by (iii) a fraction, the numerator of which is the number of
full calendar months which remain in the initial Lease Term from and after
the date Basic Annual Rent commences with respect to the applicable
Available Space and the denominator of which is equal to ninety-six (96).
E. Upon substantial completion of the applicable Available Space improvements,
Landlord and Tenant shall execute an Acceptance of Premises Memorandum in
substantially the form of Exhibit E attached to the Lease. If Tenant
occupies any Available Space without executing the Acceptance of Premises
Memorandum, Tenant shall be deemed to have accepted such Available Space
for all purposes.
F. Within thirty (30) days after Landlord's receipt of an election by Tenant
to lease Available Space, Landlord and Tenant will enter into an amendment
to Lease reflecting (i) the addition of the applicable Available Space to
the Premises, (ii) the increase in Basic Annual Rent and Additional Rent
payable under this Lease, (iii) the increase in Tenant's Building Expense
Percentage, (iv) the work letter substantially similar in the form set
forth in the Lease which shall set forth appropriate dates and the finish
allowance amount as calculated in accordance with the provisions of
paragraph D (above) and (v) such other amendments as are necessary.
G. Notwithstanding any other provision or inference herein to the contrary,
Tenant's rights and Landlord's obligations set forth herein shall expire
and be of no further force or effect on the earliest of (a) the expiration
or earlier termination of the initial Term of this Lease, (b) an assignment
or sublease of greater than fifty percent (50%) of the Premises, with
respect to this Lease,by Tenant other than to an "affiliate" as described
in Section 11.1.(c) the last day of the seventy-second (72nd) month
anniversary of the Term or (d) the date upon which Tenant has leased an
aggregate sum total of Available Space equal to or exceeding the Maximum
Available Space. Tenant shall have no right to exercise its right of offer
if Tenant is in monetary or material non-monetary default under this Lease
at the time Tenant delivers the Offer Notice to Landlord.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 54
RIDER 6
EXTERIOR SIGNAGE
This Rider is attached to and a part of that certain Lease Agreement dated
as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey Corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant mutually agree as follows:
Notwithstanding any provision in Section 15.2. Signage, to the contrary, Tenant,
but no subtenant or assignee of Tenant, shall have the right to install Tenant's
company name on the existing multi-tenant monument located in front of the
Building on the southeast corner in a manner that is consistent with the
standards of existing tenant names currently installed on the existing
multi-tenant monument, and for the purpose of including Tenant's company name on
a non-exclusive basis on the one line of the existing multi-tenant monument that
currently displays the name "SYNERCOM TECHNOLOGY" as of the date of this Lease,
provided Tenant leases and continues to lease on an ongoing basis, a minimum of
two(2) full floors in the Building. Tenant shall have the right to submit the
name of an assignee of Tenant for the purpose of obtaining Landlord's approval
of the replacing of Tenant's name with the assignee's name on the existing
multi-tenant monument, at Tenant's cost, and Landlord shall use its prudent
business judgment and either approve or disapprove, in writing, Tenant's request
to replace Tenant's name with the assignee's name on the existing multi-tenant
monument. The cost of installing Tenant's company name on the existing
multi-tenant monument shall be at Tenant's sole cost and expense, however, such
cost and expense may be debited from the Finish Allowance set forth in attached
Exhibit D of this Lease, at Tenant's option. The cost to remove the existing
signage from the monument and prepare the monument for installation of Tenant's
signage shall be at Landlord's cost.
Initial
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 55
RIDER 7
COMMUNICATIONS EQUIPMENT
This Rider is attached to and a part of that certain Lease Agreement dated
as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey Corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant mutually agree as follows:
Landlord hereby grants Tenant the right, subject to execution and delivery of
separate agreements satisfactory to Landlord and Tenant, exercisable at any time
during the Term, to construct, install, operate, repair, replace, maintain and
remove one (1) satellite antenna dish no greater than 3 feet (3') in diameter;
provided, however, that (i) the construction and installation of the aforesaid
equipment will comply with all applicable legal requirements, (ii) is within
allowable structural loading for the Building, (iii) does not interfere with the
use, reception, transmission, operation or maintenance of other communications
equipment and, (iv) in Landlord's good faith judgment reasonably exercised, does
not materially adversely affect the appearance of the Building. Landlord shall
have the right to approve (i) any of said equipment to be installed on the roof,
(ii) the plans for the installation thereof and (iii) the contractor which will
install the said equipment and the roof access thereto, none of which approvals
shall be unreasonably withheld or delayed. If Tenant does install any of the
aforesaid equipment, tenant shall have the additional right to install such
conduits, sleeving and other connecting appurtenances from the roof of the
Building to the point of connection in the Premises as Tenant deems appropriate.
All such installation and construction (including structural reinforcing)
together with all repairs, replacements and maintenance of the equipment shall
be at Tenant's sole cost and expense. Tenant shall be permitted to select a
contractor of its choice to undertake the construction and installation of all
items which Tenant elects to construct and install hereunder. if Tenant does
construct and install any equipment permitted hereunder, Tenant shall pay to
Landlord a monthly rental amount, commencing on the date the satellite antenna
dish is installed, equal to prevailing market rate for roof space on the
Building for installation of communications equipment, as established by
Landlord from time-to-time, which in no event shall exceed $300.00 per month
during the initial Term of this Lease.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 56
RIDER 8
EARLY OCCUPANCY
This Rider is attached to and a part of that certain Lease Agreement dated
as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey Corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation ("Tenant").
Any capitalized term used but not defined herein shall have the meaning
assigned to it in the provisions designated in the Lease as the Supplemental
Lease Provisions. Landlord and Tenant mutually agree as follows:
Landlord hereby grants Tenant the right to enter into the Premises at least
fifteen (15) days prior to the Commencement Date for the purpose of installing
Tenant's furniture and fixtures, modular furniture, computers and computer
networking, telephone equipment, and facsimile ("Early Occupancy"). Tenant shall
not be required to pay Rent during such period of Early Occupancy.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 57
RIDER H-1
(HAZARDOUS MATERIALS SURVEYS)
NO KNOWN HAZARDOUS MATERIALS
This Rider is attached to and part of that certain Lease Agreement
dated as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and Simulation
Sciences Inc., a Delaware corporation ("Tenant"). Any capitalized term used but
not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
Landlord has heretofore engaged one or more independent contractors to
perform limited surveys at the Property to determine if hazardous materials
exist on or at the Property (whether one or more, the "Survey"). The scope of
visual inspection, testing and sampling performed in connection with the Survey
is set forth in the written report (whether one or more, the "Written Report")
submitted to Landlord by independent contractor(s) performing the Survey.
However, the Tenant is advised that neither extensive testing nor sampling of
any portion of the Property was performed in connection with the Survey of the
Property. A copy of each Written Report is on file in the Property Manager's
office and Tenant shall have the right to inspect each such report. Except as
expressly stated in the next following sentence, Landlord makes no
representations or warranties whatsoever (express or implied) to Tenant
regarding (x) the Survey (including, without limitation, the contents, accuracy
and/or scope thereof) or the Written Report or (y) the presence or absence of
hazardous or toxic materials or wastes in, at, or under the Premises or the
Property. Landlord is not aware of (i) any written reports or surveys
concerning the Building other than the Written Report and the Survey on file
with the Property Manager and (ii) any fact that makes the Written Report or
Survey inaccurate in any material respect. Tenant (a) shall not rely on and has
not relied on the Survey or Written Report, the same having been provided for
informational purposes only and (b) acknowledges that Tenant has taken such
actions as Tenant deems appropriate to fairly evaluate the Premises and has
otherwise satisfied itself that the Premises are acceptable and suitable from
an environmental perspective. Tenant shall furnish Landlord with a complete and
legible copy of any study, report, test, survey or investigation performed by
or on behalf of Tenant at any time involving the Premises and shall fully
restore all areas and improvements where samples were taken or work was
performed and repair all damages resulting from any of the same. TENANT SHALL
INDEMNIFY AND HOLD HARMLESS LANDLORD FROM, AND SHALL REIMBURSE LANDLORD FOR AND
WITH RESPECT TO, ANY AND ALL CLAIMS, ACTIONS, LIABILITIES, DAMAGES, LOSSES,
INJURIES OR DEATHS IN CONNECTION WITH OR ARISING OUT OF OR FROM ANY INSPECTION,
TESTING SAMPLING OR SIMILAR OR DISSIMILAR ACTIVITY CONDUCTED BY TENANT,
TENANT'S AGENTS OR CONTRACTORS AT THE PREMISES OR THE BUILDING FOR HAZARDOUS
OR TOXIC MATERIAL, WHETHER UNDER THIS RIDER OTHERWISE UNDER OR IN CONNECTION
WITH THIS LEASE.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
<PAGE> 58
RIDER H-2
TENANT'S STUDY, TESTING AND INSPECTION RIGHTS
This Rider is attached to and a part of that certain Lease Agreement dated
as of September 2, 1997, executed by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation ("Landlord"), and Simulation
Sciences Inc., a Delaware corporation (Tenant). Any capitalized term used but
not defined herein shall have the meaning assigned to it in the provisions
designated in the Lease as the Supplemental Lease Provisions. Landlord and
Tenant mutually agree as follows:
Prior to commencement of any tenant finish work to be performed by
Landlord, Tenant shall have the right to make such studies and investigations
and conduct such tests and surveys of the Premises from an environmental
standpoint as Tenant deems necessary or appropriate, subject to the condition
that all such studies and investigations shall be completed prior to the
commencement of any tenant finish work to be performed by Landlord. TENANT SHALL
INDEMNIFY AND HOLD HARMLESS LANDLORD FROM, AND REIMBURSE LANDLORD FOR AND WITH
RESPECT TO, ANY AND ALL LOSS, DAMAGES, AND CLAIMS RESULTING FROM OR RELATING TO
TENANT'S STUDIES, TESTS AND INVESTIGATIONS. If such study, test, investigation
or survey evidences hazardous or toxic materials which affect the Premises,
Tenant shall have the right to terminate this Lease provided such right shall be
exercised, if at all, prior to the commencement of any tenant finish work to be
performed by Landlord and, in any event, within five (5) days after Tenant
receives the evidence of hazardous or toxic materials. If Tenant does not
exercise such right prior to commencement of any such tenant finish work and
within such five (5) day period, Tenant's right to terminate this Lease shall be
null and void and of no further force or effect.
Initial:
Landlord: /s/ RH
-------
Tenant: /s/ DTN
-------
