EXHIBIT 10.7
AGREEMENT OF SUBLEASE
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THIS AGREEMENT OF SUBLEASE is made as of the 31st day of July, 1998, by and
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between AMP Incorporated, a Pennsylvania corporation ("Sublandlord"), having an
office at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇, and NetlQ Corporation, a
California corporation ("Subtenant"), having an office at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇.,
#▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
WITNESS
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WHEREAS, by Agreement of Lease dated March 5, 1997, as amended (the
"Lease") by and between ▇.▇. ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustees of the ▇.▇.
▇▇▇▇▇▇ Trust UTA dated January 12, 1988, as amended ("Landlord") and
Sublandlord, Landlord leased to Sublandlord certain real property commonly
referred to as ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, consisting of
approximately 3.5 acres of land together with the building (the "Building") and
other improvements constructed thereon, as more particularly described in the
Lease (the "Premises"). A copy of the Lease is attached hereto as Exhibit A and
made a part hereof; and
WHEREAS, Sublandlord desires to sublease to Subtenant and Subtenant desires
to sublease from Sublandlord a portion of the Premises on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the parties agree as follows:
1. SUBLEASING OF SUBPREMISES. (a) Subject to the written consent of the
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Landlord, Sublandlord hereby subleases to Subtenant and Subtenant hereby
subleases from Sublandlord that portion of the Building containing approximately
19,557 usable square feet, as more particularly shown as the crosshatched area
on the floor plan attached hereto as Exhibit B and made a part hereof (the
"Subpremises"), upon and subject to all of the terms and conditions hereinafter
set forth. Subtenant shall have the right, in common with others, to use: (i)
the parking lot serving the Building for the parking of Subtenant's employees'
cars on a first come, first serve basis, and Common Areas 1, 2, 3 and 5 as
marked on Exhibit B. On January 1, 1999, (the "Additional Subpremises
Commencement Date"), Sublandlord shall sublease to Subtenant that portion of the
Building containing approximately 3,764 rentable square feet, as more
particularly shown on Exhibit B as the "Additional Subpremises." On the
Additional Subpremises Commencement Date, all provisions of this Sublease which
refer to the "Subpremises" shall be deemed to include the Additional
Subpremises.
(b) Sublandlord hereby grants Subtenant a right of first refusal on
the sublease of an additional approximately 4,110 usable square feet as marked
on Exhibit B (the "Right of First Refusal Space"). This right of first refusal
shall run throughout the term of this Sublease. In the event Sublandlord desires
to sublease the Right of First Refusal Space, Sublandlord shall give written
notice thereof to Subtenant. The notice shall include terms of the sublease
which shall represent the fair rental value of the Right of First Refusal Space,
as reasonably determined by Sublandlord. For a period of five (5)
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business days after receipt by Subtenant of Sublandlord's notice, Subtenant
shall have the right to give written notice to Sublandlord of Sublandlord's
exercise of Subtenant's right to sublease the Right of First Refusal Space on
the terms set forth in the notice. In the event that Sublandlord does not
receive written notice of Subtenant's exercise of the right herein granted
within said five (5) day period, there shall be a conclusive presumption that
Subtenant has elected not to exercise its right hereunder, and Sublandlord may
sublease the Right of First Refusal Space to another on the same terms set forth
in Sublandlord's notice.
2. TERM. (a) The term (the "Term") of this Sublease shall commence on the
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completion of the Subtenant Improvement Work (as defined in the Work Letter
Agreement delivered on even date herewith), expected to be on or around August
1, 1998 (the "Commencement Date") and shall continue for a period of sixty (60)
months, unless sooner terminated as hereinafter provided. The Term as it applies
to the Additional Subpremises shall commence on the Additional Subpremises
Commencement Date and shall terminate on the same date as the Term as it applies
to the remaining Subpremises.
(b) Sublandlord hereby grants to Subtenant two (2) options to extend
the term of this Lease, the first for a two (2) year period and the second for a
twenty-eight (28) month period, commencing when the prior term expires, upon
each and all of the following terms and conditions: (i) Subtenant gives to
Sublandlord, and Sublandlord actually receives, on a date which is prior to the
date that the option period would commence (if exercised) by at least six (6)
months and not more than nine (9) months, a written notice of the exercise of
the option to extend this Sublease for said additional term, time being of the
essence. If said notification of the exercise of said option is not so given and
received, this option shall automatically expire; (ii) Subtenant is not in
default and never has been in default under this Sublease; (iii) all of the
terms and conditions of the Sublease shall apply except where specifically
modified by this option; and (iv) Base Rent and Additional Rent (as defined
below) shall be at fair market value at the time of commencement of the option
period, but in no event less than the month immediately preceding the
commencement of the option period.
(c) Subtenant may terminate this Sublease prior to the end of the
Term, provided that (i) Subtenant provides written notice to Sublandlord and
Landlord of its intent to terminate no less than six (6) months' prior to its
desired date of termination, (ii) Subtenant pays to Sublandlord the Base Rent
and Additional Rent as provided below until such time as Sublandlord finds a
suitable subtenant for the Subpremises and such subtenant begins paying Rent on
the Subpremises, and (iii) Subtenant pays to Sublandlord any commission
obligations, tenant improvement allowance or other external expense incurred by
Sublandlord in re-subletting the Subpremises, or any portion of the Subpremises.
With respect to (ii) in the preceding sentence, if any portion of the
Subpremises is not re-sublet by Sublandlord, Subtenant shall continue to pay
proportionate Rent for such portion which is not re-sublet until such time as
the entire Subpremises is re-sublet by Sublandlord. Sublandlord agrees that,
Subtenant, at its option, may control the marketing of the Subpremises and
present to Sublandlord suitable subtenant candidates. Subject to Landlord's
approval under the Lease, Sublandlord will not unreasonably withhold its consent
to sublet the Subpremises to a subtenant candidate presented by Subtenant. In
the case of the acquisition or merger of Subtenant,
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Sublandlord agrees to accept such successor entity as a subtenant for the
Subpremises, subject to Landlord's approval under the Lease.
3. BASE RENT.
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(a) During the Term, Subtenant shall say to Sublandlord, in lawful
money of the United States which at the time shall be legal tender in payment of
all debts and dues, public and private, an annual fixed rent (the "Base Rent")
calculated by multiplying the usable square footage of the Subtenant (as
computed in (b) below) plus Subtenant's proportionate share of Common Areas 1,
2, 3 and 5 (the "Rental Square Footage") by the following amounts per square
foot per month, payable in equal monthly installments:
MONTHLY BASE RENT RATE MONTHLY BASE RENT RATE
PER RENTAL SQUARE FOOT FOR PER RENTAL SQUARE FOOT FOR
TIME PERIOD SUBPREMISES ADDITIONAL SUBPREMISES
7/1/98-12/31/98 $ 2.15 $ 0.00
1/1/99-6/30/99 $ 2.15 $ 1.73
7/1/99-12/31/99 $2.236 $1.799
1/1/2000-6/30/2000 $2.236 $2.236
7/1/2000-6/30/2001 $2.325 $2.325
7/1/2001-6/30/2002 $2.418 $2.418
7/1/2002-6/30/2003 $2.515 $2.515
All monthly installments shall be paid in advance on the first (1st) day of each
month during the Term at the office of the Sublandlord, or such other place as
Sublandlord may designate, without any setoff or deduction of any kind
whatsoever. The first payment of Base Rent shall be due on the execution date of
this Sublease.
(b) Upon substantial completion of construction of the Subpremises,
and, if reasonably practicable, prior to construction of interior improvements
in the Premises, but in no event later than five (5) days before Subtenant is
tendered occupancy of the Subpremises or actually occupies the Subpremises,
whichever first occurs, an architect or engineer selected by Sublandlord and
Subtenant, in the presence of authorized representatives of Sublandlord and
Subtenant, shall measure the Subpremises and shall agree upon the area
calculations. The usable square footage of the Subpremises shall be computed in
accordance with the currently effective methods of measurement established as
the American National Standard and published by the Building Owners and Managers
Association International, which are hereby adopted and incorporated herein by
reference. The measurements shall be used to determine a revised annual rent,
which shall be approved by authorized representatives of Sublandlord and
Subtenant, signed or initialed, and attached to this Sublease. A copy thereof
shall be delivered to Landlord for its information.
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3A. RENT ADJUSTMENT
(a) The following terms shall have the following meanings with respect to
the provisions of this Section 3A.:
(i) "Subtenant's Pro Rata Share" shall mean that proportion of the
Operating Expenses for any calendar year that equals the Rental Square Footage
divided by the total number of rentable square feet in the Building.
(ii) "Operating Expenses" shall:
(A) Mean all operating expenses actually incurred of any kind or
nature with respect to the Building as determined in accordance with generally
accepted accounting principles and shall include, but not be limited to, all
general and special real estate or ad valorem taxes or special assessments
levied against the Building by any governmental or quasi-governmental authority
or any taxes or assessments which shall be levied on the Building in lieu of or
in addition to all or any portion of any such real estate taxes or assessments,
or which shall be levied on the rentals of the Building (other than net income
taxes), or which shall be levied on Sublandlord as a result of the use,
ownership or operation of the Building; the cost of Building supplies; costs
incurred in connection with all energy sources for the common areas of the
Building such as propane, butane, natural gas steam, electricity, solar energy
and fuel oil; the costs of water and sewer services; janitorial services;
general maintenance and normal repair of the Building, including the heating and
air conditioning systems of the Building; landscaping maintenance; maintenance,
repair, striping and replacement of all parking areas furnished by Sublandlord
for use by tenants of the Building; the cost of rubbish removal, service
contracts for the elevator, HVAC and alarm systems of the Building; the cost of
such security guard and protection services as may be deemed reasonably
necessary by Sublandlord; insurance in amounts and coverages determined by
Sublandlord, including fire and extended coverage, rental interruption,
sprinkler leakage, plate glass and public liability insurance (but Subtenant
shall have no interest in such insurance or the proceeds thereof); labor costs
incurred in the operation and maintenance of the Building, including wages and
other payments, costs to Sublandlord of Workers' Compensation and disability
insurance, payroll taxes and fringe benefits; professional building management
fees; legal, accounting, inspection and consultation fees incurred in connection
with the Building to the extent required by any governmental authority or any
other inspection or consultation fees required for the normal prudent operation
of the Building and not normally the responsibility of the managing agent; the
cost of any capital improvements to the Building or of any machinery or
equipment installed in the Building which is made or becomes operational, as the
case may be, after the Commencement Date; all other common area costs and
expenses relating to the Building and all other charges properly allocable to
the repair, operation and maintenance of the Building in accordance with
generally accepted accounting principles. If the Building is not fully occupied
during any calendar year, the Operating Expenses for such year shall be adjusted
to reflect the greater of: (a) actual occupancy; or (b) a ninety-five percent
(95%) occupancy of the Building. If Sublandlord selects an accrual accounting
basis for calculating Operating Expenses, Operating Expenses shall be deemed to
have been paid when such expenses have accrued in accordance with generally
accepted accounting principles.
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(B) Expressly exclude Sublandlord's income taxes; leasing
commissions; interest on debt or amortization payments on any mortgages or deeds
of trust and rental under any ground or underlying leases or lease; advertising
and promotional expenditures; and any other expense which under generally
accepted accounting principles would not be considered a normal maintenance or
operating expense, except as otherwise specifically provided herein.
(b) It is hereby agreed that during each calendar year of the term hereof,
Subtenant shall pay to Sublandlord Subtenant's Pro Rata Share of the amount of
any Operating Expenses. Beginning with the first calendar year in which this
Sublease commences, the monthly rent to be paid by Subtenant to Sublandlord
shall be increased by an amount equal to 1/12th of Subtenant's Pro Rata Share of
the Operating Expenses for each calendar year, with an adjustment to be made
between the parties at a later date as hereinafter provided. However, in
computing the monthly rental for Subtenant's Pro Rata Share of the Operating
Expenses for any calendar year, there shall be taken into account any prior
increases in the monthly rent attributable to Subtenant's Pro Rata Share of the
estimated increases in such Operating Expenses. As soon as practicable following
the end of each calendar year during the term of this Sublease, Landlord shall
submit to Subtenant a statement setting forth the exact amount of the increase,
if any, in Subtenant's Pro Rata Share of the Operating Expenses for the calendar
year just completed over Subtenant's Pro Rata Share of the Base Operating
Expenses, and the difference, if any, between Subtenant's actual Pro Rata Share
of the Operating Expenses for the calendar year just completed and the estimated
amount of Subtenant's Pro Rata Share of the Operating Expenses (on which its
rent was based) for such year. Prior to the end of each calendar year during the
term hereof, Sublandlord shall submit to Subtenant a statement setting forth the
amount reasonably estimated by Sublandlord as the increase, if any, in the Base
Operating Expenses for the subsequent year and the amount of the increased
monthly rent to be paid by Subtenant for such subsequent year computed in
accordance with the foregoing provisions. It is to be understood and agreed that
all estimating provisions as referenced above shall be computed on the basis of
the Operating Expenses being adjusted as if the Building were not less than
ninety-five percent (95%) occupied. To the extent that Subtenant's Pro Rata
Share of the actual Operating Expenses for the period covered by such statement
is different from the estimated increases upon which Subtenant paid rent during
the calendar year just completed, Sublandlord shall pay to Subtenant, or
Subtenant shall pay to Sublandlord, as the case may be, the difference within
thirty (30) days following receipt of said statement from Sublandlord. In
addition, with respect to the monthly rent, until Subtenant receives such
statement, Subtenant's monthly rent for the new calendar year shall continue to
be paid at the then current rate, but Subtenant shall commence payment to
Sublandlord of the monthly installments of rent on the basis of the statement
beginning on the first day of the month following the month in which Subtenant
receives such statement. Moreover, Subtenant shall pay to Sublandlord, or shall
receive a credit against the next installment due hereunder, as the case may be,
on the date required for the first payment of rent as adjusted, the difference,
if any, between the monthly installments of rent so adjusted and the monthly
installments of rent actually paid during the new calendar year. In no event
shall any adjustment hereunder result in a decrease in the Base Rent or
additional rent payable pursuant to any other provision of this Lease (except
escalation pursuant to this Section 3A), it being agreed that the payments under
this Section 3A are an obligation supplemental to Subtenant's obligation to pay
the Base Rent.
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(c) If Subtenant occupies the Subpremises for less than a full calendar
year during the first or last calendar years of the term hereof, Subtenant's Pro
Rata Share for such partial year shall be calculated by proportionately reducing
the Base Operating Expenses to reflect the number of months in such year during
which Subtenant occupied the Premises (the "Adjusted Base Operating Expenses").
The Adjusted Base Operating Expenses shall then be compared with the actual
Operating Expenses for said partial year to determine the amount, if any, of any
increases in the actual Operating Expenses for such partial year over the
Adjusted Base Operating Expenses. Subtenant shall pay its Pro Rata Share of any
such increases within thirty (30) days following receipt of notice thereof.
(d) Sublandlord's failure during the Lease term to prepare and deliver any
statement or bills, or Sublandlord's failure to make a demand under this Section
or under any other provision of this Sublease shall not in any way be deemed to
be a waiver of, or cause Sublandlord to forfeit or surrender, its rights to
collect any items of additional rent which may have become due pursuant to this
Section during the term of this Sublease, except as otherwise specifically set
forth in this Sublease. Subtenant's liability for all additional rent due under
this Section 3A shall survive the expiration or earlier termination of this
Sublease.
(e) Subtenant shall have the right to be exercised within ninety (90) days
following receipt of Sublandlord's statement, to review Sublandlord's actual
operating expenses during regular business hours upon ten (10) days written
notice.
4. ADDITIONAL RENT.
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(a) All amounts payable by Subtenant to Sublandlord pursuant to this
Sublease, including, without limitation, Base Rent and any additional rent
required by the terms hereof, shall be deemed to constitute rent and, in the
event of any non-payment thereof, Sublandlord shall have all of the rights and
remedies provided herein, in the Lease, at law or in equity for non-payment of
rent.
(b) Subtenant's obligation to pay additional rent hereunder shall be
on account of the period from and after the Rent Commencement Date and shall
survive the Expiration Date or sooner termination of the Term.
(c) The items of additional rent as provided in this Agreement of
Sublease shall be billed to Subtenant by Sublandlord (whether or not such items
have been incurred by the time of billing) within thirty (30) days of incursion
by Landlord. Subtenant shall have thirty (30) days after receipt of such
statement to reimburse Sublandlord for these costs.
5. SUBORDINATION TO AND INCORPORATION OF TERMS OF LEASE
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(a) This Sublease is in all respects subject and subordinate to the
terms and conditions of the Lease and to the matters to which the Lease is or
shall be subordinate. Except as otherwise expressly provided in this Sublease,
all terms and conditions of the Lease are incorporated in this Sublease by
reference and made a part
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hereof as if herein set forth at length, and shall, as between Sublandlord and
Subtenant (as if they were the Landlord and Tenant, respectively, under the
Lease and as if the Subpremises being sublet hereby were the Lease Premises
demised under the Lease), constitute the terms of this Sublease, except to the
extent that they do not relate to the Subpremises or are inapplicable to,
inconsistent with, or modified or eliminated by, the terms of this Sublease. The
parties agree that the following terms of the Lease do not apply to this
Sublease: Sections 1, 2a, 2b, 2d, 3, 4, 6a, 11, 12c, 15, 23, 25, 31, 34 and the
Exhibits to the Lease. Sublandlord and Subtenant acknowledge and agree that
Subtenant has reviewed and is familiar with the Lease and Sublandlord hereby
represents that the copy delivered to Subtenant for such purpose and attached
hereto as Exhibit A is a true, correct and complete copy of such Lease and that
the Lease represents the entire agreement between Sublandlord and Landlord with
respect to the lease of the Premises. Sublandlord also represents that (i) there
is no default, or any condition which with the passage of time or the giving of
notice, or both, would constitute a default, on the part of either party to the
Lease, (ii) Sublandlord has not assigned, encumbered or otherwise transferred
any interest of Tenant under the Lease, and (ii) the Commencement Date of the
Lease was September 1, 1997 and the scheduled expiration date of the Lease is
August 31, 2007.
(b) In the event of a default by Sublandlord, as Tenant under the
Lease, resulting in the termination, reentry or dispossession thereunder,
Landlord may, at its option, and Sublandlord shall use reasonable efforts to
cause Landlord to, take over all of the right, title and interest of Sublandlord
under this Sublease and Subtenant hereunder shall, at the option of the
Landlord, attorn to and recognize Landlord as Sublandlord hereunder except that
Landlord shall not (i) be liable for any previous act or omission of Sublandlord
under this Sublease, (ii) be subject to any offset, not expressly provided for
in this Sublease, which theretofore accrued to Subtenant against Sublandlord, or
(iii) be bound by any previous modification of this Sublease or by any previous
prepayment of more than one month's rent, and shall, promptly upon Landlord's
request, execute and deliver all instruments necessary or appropriate to confirm
such attornment and recognition. Subtenant hereby waives all rights under any
present or future law to elect, by reason of the termination of such Lease, to
terminate this Sublease or surrender possession of the Subpremises.
6. CARE, SURRENDER AND RESTORATION OF THE SUBPREMISES.
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(a) Without limiting any other provision of this Sublease or the
Lease, Subtenant shall take good care of the Subpremises, suffer no waste or
injury thereto and shall comply with all those laws, orders and regulations
applicable to the Subpremises, the Building and Subtenant's use or manner of use
thereof, which are imposed on Sublandlord, as Tenant under the Lease, in
connection with the Subpremises and the Building.
(b) Sublandlord shall be responsible to maintain common areas,
building-wide systems and the roof membrane of the Building. In the event one of
the foregoing require repair, Sublandlord shall be responsible for such repair,
provided that Subtenant notifies Sublandlord as soon as practicable. Sublandlord
agrees to such repair request respond within a reasonable time. Notwithstanding
the foregoing, Subtenant
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covenants and agrees that it will repair promptly at its own expense any damage
to the Subpremises arising out of or from its occupancy of the Subpremises.
(c) Upon the Expiration Date or sooner termination of the Term,
Subtenant shall quit and surrender the Subpremises to Sublandlord, broom clean,
in good order and condition, ordinary wear and tear and damage by fire and other
casualty excepted, and Subtenant shall remove all of its property. If the
Expiration Date or sooner termination of the Term of this Sublease falls on a
Sunday, this Sublease shall expire at noon on the preceding Saturday unless it
be a legal holiday, in which case it shall expire at noon on the preceding
business day. Subtenant shall observe and perform the covenants herein stated
and Subtenant's obligations hereunder shall survive the Expiration Date or
sooner termination of the Term.
7. USE. Subtenant shall use and occupy the Subpremises for office,
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storage and distribution purposes, other related legal uses, and for no other
purpose. Subtenant shall have access to the Subpremises seven days a week, 24
hours a day and shall comply with Sublandlord's security systems relating to the
Building.
8. SUBTENANT'S OBLIGATIONS. Except as otherwise specifically provided
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herein, all acts to be performed and all of the terms and conditions to be
observed by and inuring to the benefit of, Sublandlord, as Tenant under the
Lease of the Premises, shall be performed, and observed by, and shall inure to
the benefit of, Subtenant, and Subtenant's obligations shall run to Sublandlord
as appropriate or required by the respective interests of Sublandlord and
Landlord. Subtenant shall indemnify Sublandlord against, and hold Sublandlord
harmless from, all liabilities, obligations, damages, penalties, claims, costs,
expenses and liabilities (including, but not limited to, reasonable attorneys'
fees and disbursements) paid, suffered or incurred by Sublandlord as a result of
the nonperformance or non-observance by Subtenant, Subtenant's agents,
contractors, employees, invitees or licensees of any such terms and conditions
contained in the Lease. In furtherance of the foregoing, Subtenant shall not (i)
do or permit to be done anything prohibited to Sublandlord, as Tenant under the
Lease, or (ii) take any action or do or permit anything which would result in
any additional cost or other liability to Sublandlord under the Lease and/or
this Sublease. In the event of any inconsistency between the Lease and this
Sublease, such inconsistency (i) if it relates to obligations of, or
restrictions on, Subtenant, shall be resolved in favor of that obligation which
is more onerous to Subtenant or that restriction which is more restrictive of
Subtenant, as the case may be, or (ii) if it relates to any other matter, the
Lease shall govern.
9. LANDLORD'S OBLIGATIONS. Anything contained in this Sublease or in the
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Lease to the contrary notwithstanding, Landlord shall have no responsibility to
Subtenant for, and shall not be required to provide, any of the services or make
any of the repairs or restorations that Landlord has agreed to make or provide,
or cause to be made or provided, under the Lease, and Subtenant shall rely upon,
and look solely to, Sublandlord for the provision or making thereof. Except as
may result from a default of Sublandlord from its obligations specified in the
preceding sentence, Subtenant shall not make any claim against Sublandlord for
any damage which may arise, nor shall Subtenant's obligations hereunder be
impaired or abated by reason of (i) the failure of Landlord to keep, observe or
perform its obligations pursuant to the Lease, or (ii) the acts or omissions of
Landlord and each of its agents, contractors, servants, employees, invitees
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or licensees. Notwithstanding the foregoing, Sublandlord shall enforce the
obligations of the Landlord under the Lease for the benefit of the Subtenant,
and shall deliver a copy of any notices received from Landlord regarding the
Subpremises.
10. COVENANTS WITH RESPECT TO THE LEASE. Subtenant covenants and agrees
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that Subtenant shall not do anything that would constitute a default under the
Lease or omit to do anything that Subtenant is obligated to do under the terms
of this Sublease as to cause there to be a default under the Lease.
11. BROKER. Sublandlord and Subtenant represent and warrant to each other
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that they have not dealt with any broker in connection with this Sublease other
than ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ of California, Inc. by Sublandlord and Pacific
Commercial Ventures by Subtenant. Sublandlord shall be responsible for the
brokerage commissions of ▇▇▇▇▇▇▇ & Wakefield of California, Inc., pursuant to
the terms of a brokerage agreement, and ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ shall be responsible
for any payment to Pacific Commercial Ventures. Subtenant shall indemnify
Sublandlord against, and hold Sublandlord harmless from, any claim on, or
liability to, any other broker or any other party with whom Subtenant shall have
dealt in connection with this transaction and Sublease.
12. TENANT IMPROVEMENT WORK.
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(a) Sublandlord shall enter into a contract with Devcon Construction,
Incorporated ("Devcon") for the construction of the Subtenant Improvement Work
described in the Work Letter Agreement attached hereto as Exhibit "C" pursuant
to plans and specifications prepared by Subtenant. Said construction contract
and plans and specifications shall be subject to Landlord and Sublandlord's
written approval which shall not be unreasonably withheld prior to commencement
of construction of the Subtenant Improvement Work.
(b) Subject to completion of the Subtenant Improvement Work,
Subtenant waives all right to make repairs at the expense of Sublandlord, or to
deduct the costs thereof from the rent, and Subtenant waives all rights under
Section 1941 and 1942 of the Civil Code of the State of California. At the
termination of this Lease, Subtenant shall surrender the Subpremises in a broom
clean and good condition, except for ordinary wear and tear and except for
damage caused by casualty, the elements, acts of God, a partial taking by
eminent domain, or latent defects in the Subpremises existing as of the
Commencement Date.
13. INDEMNIFICATION.
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13.1 Indemnification of Sublandlord and Subtenant.
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(a) Subtenant shall indemnify, defend with competent and
experienced counsel and hold harmless Sublandlord, its subsidiaries and
affiliates and their respective officers, directors, shareholders and employees,
from and against any and all damages, liabilities, actions, causes of action,
suits, claims, demands, losses, costs and expenses (including without limitation
reasonable attorneys' fees and disbursements and court costs) to the extent
arising from or in connection with the
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negligence or willful misconduct of Subtenant, its agents, employees,
representatives or contractors.
(b) Sublandlord shall indemnify, defend with competent and
experienced counsel and hold harmless Subtenant from and against any and all
damages, liabilities, actions, causes of action, suits, claims, damages, losses,
costs and expenses (including without limitation reasonable attorneys' fees and
disbursements and court costs) to the extent arising from or in connection with
the negligence or willful misconduct of Sublandlord, its agents, employees,
representatives or contractors.
(c) The party seeking indemnification under this Section (the
"Indemnified Party") shall provide prompt written notice of any third party
claim to the party from whom indemnification is sought (the "Indemnifying
Party"). The Indemnifying Party shall have the right to assume exclusive control
of the defense of such claim or, at the option of the Indemnifying Party, to
settle the same. The Indemnified Party agrees to cooperate reasonably with the
Indemnifying Party in connection with the performance of the Indemnifying
Party's obligations under this Section.
(d) Notwithstanding anything to the contrary contained in this
Sublease, neither party hereto shall be liable to the other for any indirect,
special, consequential or incidental damages (including without limitation loss
of profits, loss of use or loss of goodwill) regardless of (i) the negligence
(either sole or concurrent) of either party or (ii) whether either party has
been informed of the possibility of such damages. It is expressly understood and
agreed that damages payable by either party to Landlord shall be deemed to
constitute direct damages of such party.
13.2 Indemnification by Subtenant of Sublandlord and Landlord.
--------------------------------------------------------
Subtenant agrees to defend, save harmless and indemnify Sublandlord, its
subsidiaries and affiliates and their respective officers, directors,
shareholders and employees, and Landlord to the same extent as Sublandlord is
required to do so under the provisions of the Lease; provided, however, that all
references therein to (i) "Lessee" shall be replaced with "Subtenant" and (ii)
"Premises" shall be replaced with "Subpremises".
13.3 Survival. The provisions of this Section shall survive the
--------
expiration or earlier termination of this Sublease.
14. QUIET ENJOYMENT. As long as Subtenant pays all of the Base Rent and
---------------
Additional Rent due hereunder and otherwise performs and observes all of the
obligations, terms and conditions contained herein and in the Lease as herein
incorporated, Subtenant shall peaceably and quietly have, hold and enjoy the
Subpremises, subject to Section 15 below.
15. TERMINATION OF LEASE. If for any reason the term of the Lease is
--------------------
terminated prior to the Expiration Date of this Sublease, this Sublease shall
thereupon terminate, and neither Sublandlord nor Landlord shall be liable to
Subtenant by reason thereof, except that Sublandlord agrees that it shall not
voluntarily terminate the Lease before June 30, 2000. If Sublandlord terminates
the Lease, effective after June 30, 2000 but while this Sublease is in effect,
Sublandlord agrees to (i) give Subtenant at least three hundred sixty (360) days
prior written notice of the termination, and (ii) pay Subtenant up
10
to One Hundred Thousand Dollars ($100,000) for relocating expenses.
Notwithstanding the foregoing, if the termination of the Lease does not result
in the termination of this Sublease by reason of Subtenant's attornment to, and
recognition of, Landlord as landlord hereunder in accordance with the provisions
of Section 5(b) hereof, Sublandlord shall not be liable to Subtenant hereunder
for damages or otherwise, and Sublandlord's obligation to Subtenant shall be
limited to returning to Subtenant a portion of any rent paid in advance by
Subtenant, if any, prorated as of the date of such termination.
16. MODIFICATION OF LEASE. For the purposes of this Sublease, in all
---------------------
provisions of the Lease requiring the approval, consent or notification of the
Landlord, Subtenant shall be required to obtain the approval or consent of, or
give notice to both Landlord and Sublandlord.
17. CONSENTS. Sublandlord's refusal to consent to or approve any matter or
--------
thing, whenever Sublandlord's consent or approval is required under this
Sublease or under the Lease, as incorporated herein, shall be deemed reasonable
if Landlord has refused or failed to give its consent or approval to such matter
or thing.
18. CONDITION OF THE SUBPREMISES; SUBTENANT'S CHANGES.
-------------------------------------------------
(a) Subtenant represents it has made a thorough examination of the
Subpremises and it is familiar with the condition thereof. Subtenant
acknowledges that it enters into this Sublease without any representation or
warranties by Sublandlord except as set forth in this Lease, or anyone acting or
purporting to act on behalf of Sublandlord, as to the present or future
conditions of the Subpremises or the appurtenances thereto or any improvements
therein or of the Building. Sublandlord represents that upon commencement of
this Sublease, the roof, HVAC systems, electric and plumbing systems, the
parking lot and the lighting systems will be in good working conditions.
(b) Notwithstanding anything to the contrary contained in the Lease,
Subtenant shall not make any changes to the Subpremises whatsoever, including,
without limitation, structural or non-structural changes, without the prior
written consent of Sublandlord and Landlord. All permitted alterations or
additions shall be constructed in accordance with the requirements of the Lease.
19. ASSIGNMENT AND SUBLETTING. Subtenant, for itself, its successors and
assigns, expressly covenants that it shall not assign, whether by operation of
law or otherwise, or pledge or otherwise encumber this Sublease, or sublet all
or any part of the Subpremises. Any purported assignment, pledge, encumbrance or
sublease by Subtenant shall be void and of no force or effect and shall
constitute a default by Subtenant hereunder. Subject to complying with the
provisions of the Lease, Sublandlord reserves the right to transfer and assign
its interest in and to this Sublease to any entity or person who shall succeed
to Sublandlord's interest in and to the Lease.
20. INSURANCE.
---------
(a) Subtenant agrees to maintain in responsible companies qualified
to do business, and in good standing, in California (i) public liability
insurance covering the Subpremises insuring Landlord and Sublandlord as well as
Subtenant (to the extent of
11
Subtenant's negligence) with limits which shall be equal to those required to be
maintained by Sublandlord under the Lease, and naming Sublandlord and Landlord
as additional insureds, (ii) Worker's Compensation Insurance with statutory
limits covering all of Subtenant's employees working in the Subpremises, and
(iii) Commercial All-Risk Property Insurance written on an all risk of loss
form, and on a replacement cost basis, covering Subtenant's personal property
and leasehold improvements. Subtenant shall deposit promptly with Sublandlord
certificates for such insurance, and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after thirty (30) days
written notice to both Sublandlord and Landlord. Subtenant shall pay all
premiums and charges for such insurance, and if Subtenant shall fail to obtain
such insurance, Sublandlord may, but shall not be obligated to, obtain the same,
in which event the amount of the premium paid shall be paid by Subtenant to
Sublandlord upon Sublandlord's demand therefor, shall be deemed Additional Rent
and shall be collectible by Sublandlord in the same manner and with the same
remedies as though said sums were Additional Rent reserved hereunder.
(b) Subtenant acknowledges that Sublandlord will not carry any
insurance in favor of Subtenant, and that neither Landlord nor Sublandlord will
carry insurance on Subtenant's furniture and/or furnishings or any fixtures or
equipment, improvements or appurtenances of Subtenant in or about the
Subpremises.
21. WAIVER OF SUBROGATION.
---------------------
(a) Anything in Section 19 of this Sublease to the contrary
notwithstanding, Sublandlord and Subtenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, any fire or extended coverage
insurance policy obtained by it and covering the Subpremises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against such third party. The waiver of subrogation or permission for waiver of
any claim herein before referred to shall extend to the agents of each party and
its employees. If, and to the extent that such waiver or permission can be
obtained only upon payment of an additional charge, then, except as provided
herein, the party benefiting from the waiver or permission shall pay such charge
upon demand, or shall be deemed to have agreed that the party obtaining the
insurance coverage in question shall be free of any further obligations under
the provisions hereof relating to such waiver or permission.
(b) Subject to the provisions of this Section 21, and insofar as may
be permitted by the terms of the insurance policies carried by it, each party
hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damage or destruction with respect to its property by fire or other casualty.
22. END OF TERM. If Subtenant shall remain in possession of the
-----------
Subpremises or any part thereof after the expiration or prior termination of the
Term hereof, the parties agree that no such holding over by Tenant shall operate
to extend or renew this Sublease, and that any such holding over shall be
construed as a tenancy-at-will as per Section 17 of the Lease when such holding
over shall have commenced, and such
12
tenancy shall otherwise be subject to all the terms, conditions, covenants and
agreements of this Sublease. Subtenant further agrees to pay to Sublandlord any
additional amounts payable by Sublandlord to Landlord under the Lease by reason
of any such holding over by Subtenant.
23. DEFAULT.
-------
(a) In the event that Subtenant shall default in the payment of
Annual Fixed Rent, Additional Rent or any other charge payable hereunder, or
shall default in the performance or observance of any of the terms, conditions
and covenants of this Sublease, Sublandlord, in addition to and not in
limitation of any rights otherwise available to it, shall have the same rights
and remedies with respect to such default as are provided to Landlord under the
Lease with respect to defaults by Sublandlord as Tenant thereunder, with the
same force and effect as though all such provisions relating to any such default
or defaults were set forth herein in their entirety, and Subtenant shall have
all of the obligations of the Tenant under the Lease with respect to such
default or defaults.
(b) In the event of a default by Subtenant in the performance of any
of its non-monetary obligations hereunder, Sublandlord may, at its option, and
without waiving any other remedies for such default herein or at law or by
incorporation by reference of the Lease provided, at any time thereafter, give
written notice to Subtneant that if such default is not cured, or the cure not
commenced, within twenty (20) days after receipt of such notice by Subtenant,
and if so commenced is not thereafter pursued diligently to completion,
Sublandlord may cure such default for the account of Subtenant, and any amount
paid or incurred by Sublandlord in so doing shall be deemed paid or incurred for
the account of Subtenant and Subtenant agrees promptly to reimburse Sublandlord
therefor and save Sublandlord harmless therefrom; provided, however, that
Sublandlord may cure any such default as aforesaid prior to the expiration of
any waiting period if reasonably necessary to protect Sublandlord's interest
under the Lease or to prevent injury or damage to persons or property.
24. DESTRUCTION, FIRE AND OTHER CASUALTY. If the whole or any part of the
------------------------------------
Subpremises or the Building shall be damaged by fire or other casualty and the
Lease is not terminated on account thereof by either Sublandlord or Landlord in
accordance with the terms thereof, this Sublease shall remain in full force and
effect and Base Rent and Additional Rent shall not ▇▇▇▇▇ except to the extent
Base Rent and Additional Rent for the Subpremises shall ▇▇▇▇▇ under the terms of
the Lease.
25. NOTICES.
-------
(a) Whenever, by the terms of this Sublease, notice demand or other
communication shall or may be given to either party, the same shall be in
writing and address as follows:
If to Sublandlord: Real Estate Manager
Building 81-06
AMP Incorporated
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
13
Legal Department
AMP Incorporated
Building #176-41
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
If to Landlord: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Attorney at Law
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to Subtenant: ▇▇. ▇▇▇▇▇-▇▇ ▇▇▇▇▇
President
NetlQ Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇
or to such other address or addresses as shall from time to time be designated
by written notice by either party to the other as herein provided. All notices
shall be sent by registered or certified mail, postage prepaid and return
receipt requested, or by Federal Express or other comparable courier providing
proof of delivery, and shall be deemed duly given and received (i) if mailed, on
the third business day following the mailing thereof, or (ii) if sent by
courier, the date of its receipt (or, if such day is not a business day, the
next succeeding business day.
(b) Each party hereunder shall promptly furnish the other with copies
of all notices, requests, demands or other communications which relate to the
Subpremises or the use or occupancy thereof after receipt of the same from
Landlord or others.
25. SUBLEASE CONDITIONAL UPON CERTAIN CONSENTS. Sublandlord and Subtenant
------------------------------------------
each acknowledge and agree that this Sublease is subject Sublandlord's obtaining
the unconditional consent of Landlord in accordance with the terms of the Lease,
and that if such consent shall not be obtained, or condition waived, within
fifteen (15) days of the date hereof, then this Sublease shall be deemed
canceled and terminated and neither of the parties hereto shall have any
liability to the other.
26. SECURITY DEPOSIT. Subtenant shall deposit with Sublandlord, upon the
----------------
completion, execution and delivery of this Sublease, the sum of Forty Five
Thousand Five Hundred Seventy Five Dollars and seventy cents ($45,575.70) to be
held by Sublandlord, without obligation to pay interest thereon, as security for
Subtenant's covenants to pay the rental herein reserved and for the keeping and
performance of all other covenants and obligations required to be kept or
performed by Subtenant under the terms and provisions of the Sublease. In the
event of any default on the part of Subtenant in the payment of
14
said rental, or in the keeping of performance of any of the other covenants
required to be kept or performed by Subtenant, Sublandlord shall have the right,
but not the obligation, to apply said security deposit, or any portion thereof,
to cure such default. In the event the security is reduced by reason of such
application, then within five (5) days after written notice thereof from
Sublandlord, Subtenant shall deposit with Sublandlord such sum as may be
necessary to restore the security deposit to the original amount. In the absence
of any default on the part of the Subtenant, Sublandlord shall repay the said
security deposit without deduction, to Subtenant promptly upon the termination
of this Lease, but if the security deposit has been reduced to cure any default
on the part of Subtenant, and has not been restored to its original amount, the
remainder of the security deposit if any, shall be promptly paid to Subtenant
upon termination of this Lease.
27. LETTER OF CREDIT.
----------------
(a) Upon execution of the Sublease, Subtenant, at Subtenant's sole
cost and expense, shall provide to Sublandlord an irrevocable letter of credit,
in a form reasonably acceptable to Sublandlord, in the amount of Three Hundred
Fifty-Three Thousand Dollars ($353,000) (the "Letter of Credit"). The Letter of
Credit shall be renewed each year throughout the Term except that the amount
secured by the Letter of Credit shall be reduced by Seventy Seven Thousand One
Hundred Twenty-Three and 75/100 Dollars ($77,123.75) for each year of the Term
that Subtenant has complied with all terms and conditions of this Sublease
without default.
(b) Issuer. The Letter of Credit shall be issued by a national bank
------
(the "Issuer") reasonably acceptable to Sublandlord.
(c) Draws. Sublandlord shall hold the Letter of Credit as security
-----
for the performance of Subtenant's covenants and obligations under this
Sublease, it being expressly understood and agreed that the Letter of Credit is
not an advance rental deposit or a measure of Sublandlord's damages in case of
Subtenant's default. Notwithstanding any contrary provision herein, upon the
occurrence of any default by Subtenant in the performance of its obligations
under this Sublease (including the Work Letter Agreement), Sublandlord may, from
time to time, without prejudice to any other remedy provided herein, under the
Lease or by law, draw upon the Letter of Credit in an amount equal to the amount
payable by Subtenant as a consequence of such default and any other damage,
injury, expense or liability caused by such default, and Subtenant shall, upon
demand, restore the Letter of Credit to its full amount. In the event a Letter
of Credit is not maintained, renewed, extended, replaced or restored as required
by this Section, Sublandlord shall be entitled to draw one hundred percent
(100%) of the Letter of Credit and hold such amount as security for the
performance of Subtenant's covenants and obligations under this Lease.
(d) No Waiver. No draw under the Letter of Credit shall be deemed a
---------
waiver of, or be deemed to have cured, any default by Subtenant under any
provision of the Sublease and Sublandlord shall be entitled to any other remedy
available to it under this Sublease, the Lease or by law. The funds drawn by
Sublandlord under the Letter of Credit shall be nonrefundable and, once applied
to Subtenant's obligations under the Sublease, shall remain the property of
Sublandlord.
15
(e) Authorization for Draws. To obtain a partial or full draw under
-----------------------
the Letter of Credit, Sublandlord shall deliver to the Issuer (with a copy to
Subtenant) an original statement signed by a person who purports to be an
authorized representative of Sublandlord stating that Sublandlord is entitled to
draw on the Letter of Credit in the amount of the requested draw in accordance
with the terms of this Sublease and the Letter of Credit. The Issuer shall not
be entitled to delay the honor of any such draw by reason of the alleged non-
occurrence of any such event.
28. SUBTENANT AUTHORITY. Subtenant is a duly organized and validly
-------------------
existing corporation in good standing under the laws of the California and is
duly and legally qualified to do business as a corporation and has powers
adequate for the execution, delivery and performance of its obligations under
the Sublease and for carrying on the business now conducted or proposed to be
conducted by it. Subtenant has taken all necessary corporate action required to
make the Sublease the legal, valid and binding obligations they purport to be.
The Sublease is in full force and effect and is a legal, valid and binding
obligation of the Subtenant and, subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting the enforcement
of creditors' rights generally, and general equitable principles, is enforceable
in accordance with its terms.
29. MISCELLANEOUS.
-------------
(a) This Sublease may not be extended, renewed, terminated, or
otherwise modified except by an instrument in writing signed by the party
against whom enforcement of any such modification is sought.
(b) It is understood and agreed that all understandings and
agreements heretofore had between the parties hereto are merged in this
Sublease, which alone fully and completely expresses their agreement, and that
the same is entered into after full investigation, neither party relying upon
any statement, representation or warranty made by the other not embodied in this
Sublease.
(c) The paragraph headings appearing herein are for purposes of
convenience only and are not deemed to be a part of this Sublease.
(d) The provisions of this Sublease shall be governed by and
construed in accordance with the laws of the California.
(e) No delay or omission on the part of either party to this Sublease
in requiring performance by the other party or in exercising any right hereunder
shall operate as a waiver of any provision hereof or of any right hereunder, and
the waiver, omission or delay in requiring performance or exercising any right
hereunder on any one occasion shall not be construed as a bar to or waiver of
such performance or right on any future occasion.
(f) Any and all rights and remedies which either party may have under
this Sublease, at law or in equity, shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time insofar as permitted by law.
16
(g) If any term or provision of this Sublease or the application
thereof to any person or circumstance shall to any extent be held invalid or
unenforceable, the remainder of this Sublease or the application of such term or
provision to other persons or circumstances shall not be affected thereby, and
each term and provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law. Section headings and the organization of this
Sublease are for descriptive purposes only and shall not control or alter the
meaning of this Sublease.
(h) This Sublease shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, this Agreement of Sublease has been duly executed as of the
day and year first above written.
SUBLANDLORD:
AMP Incorporated
By: /s/ ▇.▇. ▇▇▇▇▇▇
Name: ▇.▇. ▇▇▇▇▇▇
Title: Chairman
SUBTENANT:
Net IQ Corporation
By: /s/ Ching-▇▇ ▇▇▇▇▇
Name: ▇▇▇▇▇-▇▇ ▇▇▇▇▇
Title: President
17
WORK LETTER AGREEMENT
---------------------
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
THIS WORK LETTER AGREEMENT ("this Agreement") is made and entered into as
of July 31, 1998, between AMP Incorporated, a Pennsylvania corporation,
-------
hereafter referred to as "Sublandlord," and Net IQ Corporation, a California
corporation, hereafter referred to as "Subtenant". This Agreement is made and
entered into concurrently with the execution and delivery of that certain
Sublease of even date (the "Sublease") between Sublandlord and Subtenant
covering approximately 21, 198 square feet of the building commonly referred to
as ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ (the "Subpremises"). All
capitalized terms not defined herein shall have the meaning ascribed to them in
the Sublease.
The parties agree as follows:
1. Subtenant Improvement Work. Sublandlord shall cause to be constructed
--------------------------
by Devcon Construction, Incorporated ("Devcon") the Subtenant Improvement Work
to the Subpremises required for Subtenant's use and occupancy of the Subpremises
(the "Subtenant Improvement Work") in accordance with this Agreement.
Sublandlord agrees that after final plan approval, Subtenant may enter the
Subpremises for the purpose of installing Subtenant's fixtures and equipment,
provided that neither Subtenant nor any of Subtenant's vendors or contractors
shall interfere with the construction by Devcon of the Subtenant Improvement
Work.
2. Working Drawings.
----------------
(a) Subtenant shall cause to be prepared and shall deliver to
Sublandlord preliminary plans and specifications for the Subtenant Improvement
Work within fifteen (15) days following the execution and delivery of this
Agreement by the parties. Said preliminary plans and specifications shall
include the minimum improvements described in Exhibit A to Amendment Number One
to the Lease and shall be subject to Landlord's and Sublandlord's approval,
which shall not be unreasonably withheld or delayed.
(b) On or before_____________, 1998, Subtenant shall cause to be
prepared final plans, specifications, and working drawings ("Working Drawings")
for the Subtenant Improvement Work which shall substantially conform to the
preliminary plans and specifications previously delivered by Subtenant, and a
preliminary construction budget approved by Subtenant. Within three (3) days
after receipt thereof, Subtenant and Sublandlord shall approve such Working
Drawings and preliminary construction budget, or Sublandlord shall deliver to
Subtenant, Sublandlord's specific written changes or objections to such Working
Drawings or budget. Sublandlord shall not unreasonably withhold or delay its
approval of the Working Drawings or preliminary budget. The parties
2
shall negotiate in good faith to reach agreement on any aspect of the Working
Drawings or preliminary budget disapproved by Sublandlord, with each party using
its best efforts to complete and to approve the Working Drawings and preliminary
budget on or before __________________, 1998. Subtenant shall proceed with
reasonable diligence in the preparation and completion of the Working Drawings.
(c) Upon approval, Sublandlord and Subtenant shall each initial and
date the Working Drawings and Sublandlord shall submit the Working Drawings to
all appropriate governmental agencies for approval. Immediately after all
necessary governmental approvals have been obtained, four (4) copies of the
Working Drawings shall be initialed and dated by Sublandlord and Subtenant if
any changes thereto have been made by the governmental agencies. The Working
Drawings as approved and all change orders permitted pursuant to Paragraph 5
hereof are referred to herein as the "Approved Plans." Sublandlord and Subtenant
shall deliver a copy of the Approved Plans to Landlord.
3. Contractor.
----------
(a) Devcon shall be the general contractor for the construction of
the Subtenant Improvement Work.
(b) Devcon shall have the following obligations during the
performance of the Subtenant Improvement Work and, where appropriate, following
the completion of the Subtenant Improvement Work, in addition to all other
conditions and obligations set forth in the Construction Contract or otherwise
applicable to Devcon as general contractor:
(1) Devcon shall obtain at least three (3) competitive bids for
all subcontractors unless Sublandlord and Subtenant approve a single
subcontractor or unless Sublandlord and Subtenant approve in writing a fewer
number of competitive bids;
(2) Devcon shall expressly assume responsibility for all work
done by all persons working under its supervision and control; and
(3) Devcon shall use its best efforts to ensure that all persons
working under its supervision and control are, during the entire course of their
duties, properly licensed and qualified to do the particular jobs for which they
were hired.
4. Construction Contract.
---------------------
(a) The Subtenant Improvement Work shall be performed by Devcon
pursuant to a fixed price construction contract (the "Construction Contract")
between Sublandlord and Devcon which shall describe the scope of work and costs
for the Subtenant Improvement Work and Devcon's overhead and profit, which shall
not exceed seven percent (7%) (not including field general conditions). Such
Construction Contract shall be subject to approval by Landlord, which shall not
be unreasonably withheld. Both Sublandlord and Subtenant shall participate in
the negotiation of the general conditions to the Subtenant Improvement Work, but
in the event of any disagreement between Sublandlord and Subtenant with respect
thereto, Sublandlord's determination shall be
3
final. Sublandlord shall supervise Devcon and the performance of the Subtenant
Improvement Work. Subtenant may also retain at Subtenant's sole expense a
construction supervisor who shall act as Subtenant's representative during
construction of the Subtenant Improvement Work. The Construction Contract shall
provide that Devcon shall provide a warranty of one year with respect to the
Subtenant Improvement Work plus applicable warranties on equipment installed.
(b) Sublandlord shall obtain Devcon's bid to perform the Subtenant
Improvement Work, which bid shall be itemized to show the amount to be charged
by each subcontractor for its part of the Subtenant Improvement Work.
Subcontractors shall be chosen on the basis of competitive bids, as set forth in
Paragraph 3(b)(1) above. Sublandlord shall promptly submit Devcon's bid to
Subtenant for Subtenant's review and approval, which approval shall not be
unreasonably withheld.
(c) Either Sublandlord or Subtenant's representative shall have the
right to disapprove any bid for any item of the Subtenant Improvement Work, and
if Sublandlord or Subtenant's representative does so, Sublandlord, Subtenant's
representative, and Devcon shall immediately confer and attempt in good faith to
reach agreement upon an alternative bid acceptable to Sublandlord and
Subtenant's representative and Devcon. If the parties are unable to reach
agreement within five (5) business days after Sublandlord or Subtenant's
representative has disapproved a subcontractor, then the part of the Subtenant
Improvement Work that is the subject of the disapproval bid shall re rebid to
one subcontractor, and such work shall be awarded to such subcontractor if its
bid is lower than the disapproved bid. In selecting alternative subcontractors,
Sublandlord and Subtenant's representative shall act reasonably and in good
faith, acknowledging that a subcontractor's ability to do quality work completed
on time is as important as the price charged, and acknowledging further that the
approval of Devcon of any Subcontractor must be obtained. Any rebidding process
undertaken pursuant to the subparagraph shall be completed within ten (10)
business days after Sublandlord or Subtenant's representative first disapproves
the subcontractor bid in question.
(d) In consideration for the payment of the Monthly Base Rent provided
for in the Lease, Sublandlord shall pay the sum of Six Hundred Twenty Thousand
Dollars ($620,000) (20,000 square feet x $31.00) on account of the cost of
performance of the Subtenant Improvement Work. The entire balance of the total
cost of the Tenant Improvement Work, including any construction cost overruns,
shall be paid by Subtenant. Once the bid of Devcon and its subcontractors has
been obtained, Sublandlord shall deliver to Subtenant a final estimate of the
Total Cost of the Subtenant Improvement Work (as defined below). If the Total
Cost of the Subtenant Improvement Work exceeds said sum of Six Hundred Twenty
Thousand Dollars ($620,000), Subtenant shall have the right to approve any
engineers, subcontractors, or other professionals whose fees are not included in
Sublandlord's contribution to the cost of the Subtenant Improvement Work.
5. Change Orders. After the Working Drawings have been approved by
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Sublandlord and Subtenant in final form as provided above, Subtenant shall have
the right to request change orders to the Subtenant Improvement Work. Any change
order shall be subject to the prior written approval of Sublandlord, Landlord
and Subtenant's representative, which approval shall not be unreasonably
withheld or delayed, provided that Subtenant shall pay any increase in the Total
Cost of the Subtenant Improvement
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Work resulting from any change order and any change order requested by Subtenant
which is approved by Sublandlord which results in a delay in completion of the
Subtenant Improvement Work shall not delay the Commencement Date of the Sublease
specified in Paragraph 2(a) of the Sublease.
6. Payment. Sublandlord and Subtenant shall pay their respective pro rata
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share of each construction progress payment for the Subtenant Improvement Work
at the time and in the manner specified in the Construction Contract based upon
their respective percentage share of the Total Cost of the Subtenant Improvement
Work.
7. Commencement and Construction. As soon as (i) the Working Drawings
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have been prepared and approved as provided above, (ii) all necessary building
permits and governmental approvals have been obtained, and (iii) Sublandlord has
entered into the Construction Contract, then Sublandlord shall thereafter cause
performance of the Subtenant Improvement Work to be commenced and diligently
prosecuted to completion, so that the Subtenant Improvement Work is completed as
soon as practicable, subject to force majeure delays beyond Sublandlord's
reasonable control and unexpected conditions at the Subpremises, as provided in
Paragraph 17 hereof.
8. Total Cost of the Subtenant Improvement WorK. "Total Cost of the
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Subtenant Improvement Work" shall mean the sum of the following "Included
Costs", but not the following "Excluded Costs: for the Subtenant Improvement
Work:
(a) Included Costs. "Included Costs" shall mean the following: (i) the
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total amount due pursuant to the fixed price Construction Contract entered into
pursuant to this Agreement and any change orders approved pursuant to this
Agreement; (ii) all costs paid to governmental authorities for governmental
applications, approvals, plan check fees, and building permit fees required to
perform the Subtenant Improvement Work; (iii) the reasonable fees of Subtenant's
architect who prepares the plans and specifications for the Subtenant
Improvement Work in an amount by Sublandlord, and the reasonable fees of
engineers, contractors, subcontractors, or other professionals retained by
Sublandlord, Subtenant, or Devcon for services rendered in connection with the
design and performance of the Subtenant Improvement Work; (iv) any costs paid to
governmental authorities to inspect and obtain approval of the Subtenant
Improvement Work; (v) the premium for course of construction insurance insuring
the Subtenant Improvement Work; and (vi) any other costs of performing and
obtaining governmental approvals for the Subtenant Improvement Work shown on the
Working Drawings, other than the "Excluded Costs" described below.
(b) Excluded Costs. "Excluded Costs" shall mean and the Total Cost of
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the Subtenant Improvement Work shall not include; (i) the cost of Subtenant's
furniture, fixtures, or equipment; (ii) costs incurred as a consequence of a
contractor's or subcontractor's default; (iii) interest, principal and other
charges with respect to any construction or permanent loan for the Subtenant
Improvement Work; (iv) compensation paid or expenses reimbursed by Subtenant to
Subtenant's consultants or construction representative; (v) costs of management
and other services provided by employees or affiliates of Sublandlord and the
cost of any administration, profit and overhead for Sublandlord or Subtenant or
any of their respective employees and affiliates; (vi) all costs and expenses
incurred with respect to work not required by the Approved Plans, as the
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same may be amended by change orders; (vii) attorneys' fees incurred in
connection with negotiation of construction contracts, and attorneys' fees,
experts' fees and other costs of legal and arbitration proceedings to resolve
construction disputes; (viii) premiums for payments, performance, mechanics'
liens, completion, and other bonds; or (ix) costs covered by warranties and
insurance.
9. Final Accounting. Subtenant shall receive a copy of the monthly
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running total of the cost of the Subtenant Improvement Work prepared by Devcon.
When the Subtenant Improvement Work is completed pursuant to ▇▇▇▇▇▇▇▇▇ ▇▇,
▇▇▇▇▇▇▇▇▇▇▇ shall submit to Subtenant a final and detailed accounting of the
Total Cost of the Subtenant Improvement Work actually incurred to complete the
Subtenant Improvement Work, certified as true and correct by Sublandlord.
Subtenant shall have the right, during normal business hours after giving
Sublandlord at least two (2) business days prior written notice, to audit the
books, records and supporting documents of Sublandlord at Sublandlord's premises
to the extent such audit discloses a discrepancy of more than five percent (5%),
in which event Subtenant shall pay the cost thereof. Any such audit must be
conducted, if at all, within ninety (90) days after Sublandlord delivers such
accounting to Subtenant.
10. Course of Construction Insurance. Sublandlord shall obtain as a cost
--------------------------------
of the Subtenant Improvement Work course of construction insurance coverage
insuring the Subtenant Improvement Work in an amount equal to the estimated
Total Cost of the Subtenant Improvement. If the Subtenant Improvement Work is
damaged or destroyed by a casualty covered by said insurance, Sublandlord shall
promptly and diligently complete performance of the Subtenant Improvement Work
in accordance with this Agreement.
11. Completion. The Subtenant Improvement Work shall be deemed
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substantially complete when the Subtenant Improvement Work has been
substantially completed in accordance with requirements of applicable law and in
accordance with the Working Drawings, as amended by change orders approved
pursuant to Paragraph 5 of this Agreement, all utilities and services necessary
for the use and occupancy have been obtained, and any certificate of occupancy
required by the City of Santa ▇▇▇▇▇ for occupancy of the Subpremises by
Subtenant has been obtained. Substantial completion of the Subtenant Improvement
Work shall be deemed to have occurred pursuant to the foregoing even though
Subtenant's fit up work has not be completed.
12. Inspection.
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(a) As soon as the Subtenant Improvement Work is substantially
completed, Sublandlord and Subtenant shall conduct a joint "walk through" of the
Subpremises and shall inspect the Subtenant Improvement Work so completed using
their best efforts to discover any incomplete or defective work. After such
inspection has been completed, Sublandlord and Subtenant shall sign a "punch
list" setting forth any incomplete or defective items.
(b) Sublandlord shall use its best efforts to cause Devcon to complete
and/or repair such "punch list" items within thirty (30) days after the "walk
through". Nothing contained herein shall impair any of Subtenant's other rights
under the Sublease.
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(c) Notwithstanding any provision in the Sublease or this Agreement to
the contrary, for purposes of determining the completion of the Subtenant
Improvement Work pursuant to Paragraph 2(a) of the Sublease, the Subtenant
Improvement Work shall not be deemed to have been completed until all incomplete
or defective items referred to in the "punch list" referred to above that have a
material adverse effect on Subtenant's use and enjoyment of the Subpremises have
been completed or repaired to Subtenant's reasonable satisfaction.
13. Warranty. Devcon shall warrant for a period of one year after the date
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the Subtenant Improvement Work is completed that the Subtenant Improvement Work
has been performed in a good and workmanlike manner, using new materials and
equipment of good quality, and in accordance with the Approved Plans (as
modified by any change orders approved pursuant to the terms of Paragraph 5 of
this Agreement). There shall be a guarantee of one (1) year, or such other
period as Sublandlord shall approve in writing, on replaced equipment installed
as part of the Subtenant Improvement Work. Sublandlord shall assign to Subtenant
any manufacturers' warranties for equipment which is installed in the
Subpremises as part of the Subtenant Improvement Work.
14. Allocation of Deductions. The Subtenant Improvement Work and resulting
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improvements constructed pursuant to this Agreement shall be the property of
Landlord upon the expiration or sooner termination of the Sublease. All tax
deductions and accelerated or component depreciation for tax purposes and any
investment tax credit shall be taken by Sublandlord and Subtenant in proportion
to their respective contributions to the Total Cost of the Subtenant Improvement
Work.
15. Headings. The description headings used and inserted in this Agreement
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are for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
16. Effect of Agreement. In the event of any inconsistency between this
-------------------
Agreement and the Sublease, the terms of the Sublease shall prevail.
17. Delays. Sublandlord shall not be responsible for any delay in
------
completion of the Subtenant Improvement Work to the extent any such delay is
attributable to Subtenant or to Subtenant's representative, Subtenant's
employees or contractors, change orders requested by Subtenant, inclement
weather, shortage of materials or labor, acts of God, casualty, unanticipated
site conditions, or other events or circumstances beyond the reasonable control
of Sublandlord, Devcon, or any subcontractor. To the extent Subtenant reserves
the right to approve the Construction Contract, the scope of work, change
orders, drawings, plans, specifications or other matters relating to the
Subtenant Improvement Work, Subtenant shall not unreasonably withhold, delay or
condition its approval thereof.
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IN WITNESS WHEREOF, the Sublandlord and Subtenant have duly executed this
Work Letter Agreement to be effective as set forth above.
"Subtenant"
Net IQ Corporation
Date: July 23, 1998 By: /s/ Ching-▇▇ ▇▇▇▇▇
Its: President
"Sublandlord"
AMP Incorporated
Date: 7/29/98, 1998 By: /s/ ▇.▇. ▇▇▇▇▇▇
Its: ▇.▇. ▇▇▇▇▇▇, Chairman
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