Master Equipment Lease Agreement - Venture Lending & Leasing Inc. and Brocade Communications Systems Inc.
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES
CHATTEL PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY
APPLICABLE JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED
EXCEPT THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART
OF SUCH LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED
COUNTERPART NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY
INTEREST CAN BE CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE
ALONE WITHOUT ANY ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO
TRANSFER, SALE, MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN
BE EFFECTED BY DISPOSITION OF THIS INSTRUMENT ALONE.
MASTER EQUIPMENT LEASE AGREEMENT
MASTER EQUIPMENT LEASE AGREEMENT dated as of September 5, 1996 (this
"Lease"), by and between VENTURE LENDING & LEASING, INC., a Maryland
corporation ("Lessor"), and BROCADE COMMUNICATIONS SYSTEMS, INC., a California
corporation ("Lessee").
Lessee desires to obtain from Lessor purchase money financing for
certain items of equipment used in Lessee's business, which equipment is
described more particularly under the caption "Description of Equipment" in one
or more Lease Schedules (as defined below) to this Lease (such equipment
together with all substitutions, renewals or replacements of, and all
additions, improvements and accessions to, any and all thereof, being
hereinafter collectively and separately referred to as the "Equipment").
Lessor is willing to provide financing for the Equipment to Lessee, all
on the terms and conditions hereinafter set forth, and on such additional terms
as are set forth in Lessor's commitment letter to Lessee dated August 14, 1996
(the "Commitment").
Accordingly, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Lease. This Lease establishes the general terms and conditions by
which Lessor may provide financing to Lessee with respect to the Equipment
listed on each lease schedule (sometimes, a "Lease Schedule" or "Schedule")
executed periodically pursuant to this Lease. Each Schedule shall be in the
form provided by Lessor, shall incorporate by reference the terms of this
Lease, and shall be and constitute a separate agreement as to the Equipment
listed thereon for all purposes, including default. If any provision of a Lease
Schedule conflicts with or supplements the provisions of this Lease, the
provisions of such Schedule shall be controlling. Pursuant to the commitment,
Lessor has agreed to arrange for the furnishing and lease to Lessee, and Lessee
has agreed to accept and lease Equipment having an
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aggregate Equipment Cost (as defined in each Schedule) of not in excess of One
Million Dollars ($1,000,000.00). Borrower may increase the line up to $500,000
under the same terms and conditions without an increase in the number of
warrants. Notwithstanding anything in the Lease to the contrary, it is
understood and agreed that Lessee is purchasing the Equipment and Lessor is
financing such purchases. Accordingly, title to the Equipment, except for
licensed software, shall be vested in Lessee upon its acceptance thereof. To
secure its obligations hereunder to Lessor, Lessee hereby grants to Lessor a
security interest in all right title and interest of Lessee in: (i) all
Equipment, whether now owned or hereafter acquired by Lessee; (ii) all leases
and other agreements covering the Equipment and any and all subleases of such
Equipment (whether or not permitted under this Lease); (iii) all software,
source code escrow arrangements, object code, user manuals and other technical
documentation, and licenses purchased as part of or in connection with the
Equipment to the extent permissible under the applicable license agreement: and
(iv) and all additions and accessions to, substitutions for and proceeds
(whether cash or non-cash) and products of any of the foregoing, including,
without limitation, all payments under insurance. Upon payment in full of all
rentals for such Equipment in accordance with the applicable Schedule and the
other terms of this Lease, the provisions of Sections 6 through 22 excluding
Section 15 of this Lease shall no longer apply to such items of Equipment and
such security interest shall be released.
2. Term. The term of this Lease as to each item of Equipment leased
hereunder, shall commence on the date of acceptance of such item and shall end
at the expiration of the term therefor specified under "Term" in the applicable
Schedule.
3. Rent. Lessee shall pay to Lessor as rent for each item of Equipment
during the applicable Term, on each Rent Payment Date (as defined in the
Schedule), the amount specified under "Lease Rental Payments" in the Schedule
(hereinafter referred to as "Rent"). If any amount due hereunder is not paid
when due, Lessee shall pay to Lessor, on demand, a reasonable late charge in the
amount of 5% of such overdue amount and interest on such overdue amount at the
rate of 2% per month (the "Late Payment Rate"); such late charge and interest
shall apply only if permitted by applicable law, and if not so permitted, such
late charge and interest shall be calculated at the maximum rates permitted by
applicable law. All payments of Rent and other amounts payable by Lessee to
Lessor hereunder shall be made at the office of Lessor specified under "Lessor's
Address" in the Schedule, or to such other person, firm or corporation or
Assignee (as defined in Section 21, "Assignment by Lessor") and at such other
place as Lessor or Assignee, as the case may be, may from time to time designate
in writing to Lessee. Notwithstanding any provisions hereof to the contrary, any
payment, including Rent, required under this Lease which is due on a day which
is not a business day shall be made on the business day next preceding the day
on which such payment is due. This Lease is non-cancelable and irrevocable for
the entire term set forth in the Schedule. Lessee's obligation to pay all
rentals and other amounts payable hereunder are absolute and unconditional and
shall not be subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment for any reason whatsoever, including but not limited to Lessee's
right to possession of
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the Equipment being terminated or Lessor retaking possession of the Equipment
because of a default by Lessee hereunder.
4. Lessee's Selection, Inspection and Acceptance. Lessee has selected or
will select all items of Equipment to be leased hereunder from the manufacturer
or vendor thereof on the basis of its own judgment, and is not relying on any
statements, representations or warranties made by Lessor or its representatives.
Lessee shall assure that each item of Equipment is properly invoiced and sold to
Lessor. Upon delivery, Lessee, at its own expense, shall make all necessary
inspections and tests of the Equipment in order to determine whether the
Equipment conforms to specifications and is in good condition and repair. If the
Equipment is in good condition and repair, Lessee shall execute and deliver to
Lessor a Certificate of Acceptance, in substantially the form thereof attached
hereto. Lessee warrants that each item of the Equipment is leased solely for
commercial or business use.
5. DISCLAIMER OF WARRANTIES BY LESSOR. LESSOR DOES NOT MAKE, HAS NOT
MADE, AND SHALL NOT BE DEEMED TO MAKE OR HAVE MADE, ANY REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING,
WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY, DURABILITY, SUITABILITY OR ITS FITNESS FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT, OR THE
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR ORDERS RELATING THERETO OR TITLE TO THE EQUIPMENT OR ANY COMPONENT
THEREOF, AND LESSOR HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY (WHICH
DISCLAIMER LESSEE HEREBY ACKNOWLEDGES, EXCEPT THAT LESSOR WARRANTS THAT NEITHER
LESSOR NOR ANY ONE ACTING OR CLAIMING THROUGH LESSOR, BY ASSIGNMENT OR
OTHERWISE, WILL INTERFERE WITH LESSEE'S QUIET ENJOYMENT OF THE USE OF THE
EQUIPMENT SO LONG AS NO EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING).
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE OR
RESPONSIBLE FOR ANY DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT
DISCOVERABLE BY LESSEE OR LESSOR), IN ANY UNIT OF THE EQUIPMENT, OR FOR ANY
DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY RESULTING THEREFROM, OR FOR
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING STRICT OR ABSOLUTE LIABILITY IN
TORT), it being agreed that all such risks, as between Lessor and Lessee, are to
be borne solely by Lessee. Lessee acknowledges that Lessor is not a dealer in or
manufacturer of equipment of any kind, and that each item of Equipment subject
to this Lease is of a type, size, design and capacity selected solely by Lessee.
If the Equipment is not properly installed, does not operate as represented or
warranted by the manufacturer or seller thereof, or is unsatisfactory for any
reason, Lessee shall make any claim on account thereof solely against the
manufacturer or seller, and no such occurrence shall relieve Lessee of any of
its obligations hereunder. Lessor hereby assigns to Lessee any interest Lessor
may have in any manufacturer's or seller's warranty, whether express or implied,
on such item. All claims or actions on any warranty shall be made or prosecuted
by Lessee, who may do so in Lessor's name, at its sole expense, and Lessor shall
have no obligation whatsoever
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to make any claim on such warranty. At Lessor's option, all cash proceeds or
equivalent thereof from such warranty recovery shall be used to repair or
replace the Equipment.
6. Equipment to be and Remain Personal Property. Lessee shall take all
such actions as may be required to assure that the Equipment shall be, and at
all times shall remain, personal property, notwithstanding the manner in which
the Equipment may be attached or affixed to real property. Lessee shall give
Lessor prompt notice of any circumstances which may permit any person to
acquire, and shall obtain and record such instruments and take such steps as may
be reasonably requested by Lessor to prevent any such person from acquiring, any
rights in the Equipment by reason of the Equipment being claimed or deemed to be
real property. If requested by Lessor, Lessee shall obtain and deliver to Lessor
valid and effective waivers, in recordable form, by the owners, landlords and
mortgagees of any real property upon which the Equipment is located, or
certificates of Lessee that it is the owner of such real property and that such
real property is not leased and/or mortgaged. Lessee will at all times protect
and defend, at its own cost, Lessor's security interests in the Equipment from
and against all claims, liens and legal process of creditors of Lessee.
7. Location and Right of Inspection. The Equipment at all times shall be
located at the address of Lessee specified under "Location of Equipment" in the
Schedule or such other place as shall be agreed upon in writing between Lessor
and Lessee, Upon prior notice, Lessor shall at all reasonable times during
customary business hours have the right to enter into and upon the premises
where the Equipment may be located for the purpose of inspecting the Equipment.
Lessee shall not move the Equipment from its agreed location except with the
prior written consent of Lessor which will not be unreasonably withheld or
delayed. Lessee shall promptly advise Lessor of any circumstances with respect
to location which adversely affects the Equipment or Lessor's security interests
therein.
8. Markings and Filings. Lessee shall affix to the Equipment such
labels, plates or decals as may by provided by Lessor, or conspicuously mark the
Equipment with such language as Lessor may reasonably request, to reflect the
interest of Lessor therein and, if there is an Assignee of Lessor, that such
Assignee has such interest in the Equipment specified by Lessor. Lessor is
hereby authorized to cause this Lease or any financing or other statement in
respect thereto, showing the interest of Lessor and any Assignee in and to this
Lease and the Equipment, to be filed or recorded with any governmental office
deemed appropriate by Lessor. Lessee shall execute any such financing statements
presented to it by Lessor or any Assignee, and shall be responsible for the
payment of any fees for filing or recording such statements.
9. Alterations. Lessee shall not make any material alterations,
additions or improvements to the Equipment without the prior written consent of
Lessor. Except as may be otherwise agreed between Lessor and Lessee, all such
alterations, additions and improvements shall be considered accessions to the
Equipment.
10. Use, Maintenance and Repair. Lessee shall use the Equipment solely
in the conduct of its business and shall comply with all laws, ordinances or
regulations, and all conditions contained in any insurance policies or
manufacturers' warranties, relating to the Equipment or its use, operation or
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maintenance. Lessee shall put the Equipment only to the use contemplated by the
manufacturers thereof. Lessee shall at Lessee's own expense maintain the
Equipment in good operating condition, repair and appearance furnish all parts
and labor required to keep the Equipment in such condition, protect same from
deterioration other than normal wear and tear. Lessee shall cause the Equipment
to be maintained in accordance with the supplier's standard preventive
maintenance contract, if available.
11. Insurance. Lessee will maintain at all times at its own expense,
with insurers of recognized standing, (i) insurance against "all physical loss"
perils subject to standard exclusions in an amount not less than the greater of
the full replacement value or the Stipulated Loss Value of such item of
Equipment as set forth on any Schedule B attached to the Lease Schedule and (ii)
public liability and property damage insurance policies insuring against third
party personal and property damage in respect of the use and operation of the
Equipment in an amount not less than $1,000,000 for each occurrence. Each policy
shall (i) name Lessor and Assignee, if any, as an additional insured and loss
payee, as their interests may appear; (ii) contain an agreement by the insurer
that any loss thereunder shall be payable to Lessor and Assignee notwithstanding
any breach of representation or warranty by Lessee; (iii) provide that there
shall he no recourse against Lessor or Assignee for payment of premiums or other
amounts with respect thereto; and (iv) provide that at least thirty (30) day's
prior written notice of cancellation change or lapse shall be given to Lessor
and Assignee by the insurer. All insurance for loss or damage shall provide that
losses, if any, shall be adjusted only with and payable to Lessor or its
Assignee, if any. Lessee shall pay all premiums for such insurance and shall
deliver to Lessor evidence of such payment and of the maintenance of the
insurance coverages required hereunder. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks or drafts received in payment for any loss or
damage under any such insurance policy.
12. All Risk of Loss. All risk of loss, damage, theft or destruction (a
"Loss") to the Equipment shall be borne entirely by Lessee, whether or not the
Loss is insured. Except as expressly provided in this Section, no Loss of any
kind shall relieve or release Lessee of its Rent and other obligations under
this Lease, all of which shall continue in full force and effect. In the event
of a Loss to any Equipment, Lessee shall promptly notify Lessor in writing of
such fact and of all details with respect thereto, and shall promptly, at
Lessee's option (or if an Event of Default has occurred and is continuing, at
the option of Lessor):
(a) repair and restore the item of Equipment to good mechanical
condition and working order; or
(b) replace the Equipment with other equipment of the same type,
capacity and condition, and free and clear of claims or encumbrances in favor of
any third party other than Lessor, whereupon such replacement equipment shall be
subject to this Lease and be deemed Equipment for purposes hereof; or
(c) pay to Lessor, on the Rent Payment Date next succeeding the
date on which the Loss occurred, an amount equal to the sum of (A) all accrued
and unpaid Rent payable for such
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Equipment through and including such Rent Payment Date, and (B) the Stipulated
Loss Value of the Equipment as of such Rent Payment Date as set forth on any
Schedule B attached to the Lease Schedule pertaining to such Equipment.
13. Licensing, Registration and Taxes. Lessee shall, at its sole cost
and expense, (i) obtain any licensing and registration of the Equipment as may
be required by law, (ii) pay and discharge when due all license and registration
fees, assessments, taxes (excluding any tax measured by Lessor's net income),
including, without limitation, sales, use, excise, personal property, ad
valorem, stamp, documentary and other taxes, and all other governmental charges,
fees, fines or penalties whatsoever, whether payable by or assessed to Lessor or
Lessee, on or relating to the Equipment or the use, registration, rental,
shipment, transportation, delivery, ownership, operation, or disposition
thereof, and on or relating to this Lease, (iii) file all returns required
therefor and furnish copies thereof to Lessor at its request, (iv) indemnify and
hold Lessor harmless from any of the foregoing. Notwithstanding the
foregoing, Lessee shall not be liable for any taxes, fees or charges to the
extent the same result from any sale or assignment or grant of security interest
by Lessor, or to the extent any such action by Lessor increases the taxes, fees
or charges that would otherwise be payable. Lessee reserves the right to contest
any taxes, fees or other charges asserted to be due hereunder.
14. Liens. Lessee will not directly or indirectly, voluntarily or by
operation of law, create, incur, assume or permit to exist any claim, mortgage,
security interest, pledge, lien, charge or other encumbrance ("Liens") against
the Equipment, except the following: (i) the rights of Lessee and Lessor under
this Lease, (ii) Liens against Lessor's interests in the Equipment created or
granted by Lessor or resulting from claims against Lessor not related to the
transactions contemplated hereby, (iii) Liens for taxes, assessments or
governmental charges or levies, not due and delinquent, and (iv) undetermined or
inchoate materialmen's, mechanics', workmen's, repairmen's or other like Liens
arising in the ordinary course of business which in each case, either are not
delinquent or have been bonded ("Permitted Liens"). Lessee, at its own cost and
expense, will promptly pay, satisfy, discharge and otherwise take such action as
may be necessary to keep the Equipment free and clear of, and duly to discharge,
any Lien other than Permitted Liens.
15. Indemnification. Lessee assumes liability for, will pay when due and
will indemnify, protect, save, defend and hold Lessor, its advents, employees,
successors and assigns harmless from and against, any and all obligations,
liabilities, losses, damages, injuries, fines, penalties, interest, claims,
demands, actions, suits, costs and expenses, including reasonable attorneys'
fees and expenses of every kind and nature whatsoever imposed on, incurred by or
asserted against, Lessor, its agents, employees, successors and assigns except
for those caused by Lender's gross negligence or willful misconduct in any way
relating to or arising out of (a) the manufacture, ordering, purchase,
acceptance or rejection, ownership, delivery, leasing, possession, use,
operation, or disposition of the Equipment by or for Lessee, including, without
limitation any of such as may arise from patent or latent defects in the
Equipment (whether or not discoverable by Lessee or Lessor), any claims based on
strict liability in tort, and any claims based on patent, trademark or copyright
infringement, arising from acts or events during the term of each Lease Schedule
and prior to re-delivery of the Equipment to Lessor in accordance with the terms
of the Lease, or (b) any failure on the part of Lessee to perform or comply with
any of the terms of this Lease. Lessee shall give written notice to
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Lessor of any occurrence, event or condition known to Lessee as a consequence of
which Lessor is entitled to indemnification hereunder. Lessee's obligations
under this Section 15 are contingent upon Lessor or an indemnified party, as
applicable, giving Lessee prompt written notice of any claim, providing Lessee
with all assistance reasonably requested and tending full control of the defense
and settlement of such claim to Lessee. If any action, suit or proceeding is
brought against any indemnified party in connection with any claim indemnified
against under this Section, Lessee may, and upon the request of such indemnified
party shall, at Lessee's expense, resist and defend such action, suit or
proceeding, or cause the same to be resisted or defended, by counsel selected by
Lessee and reasonably approved by such indemnified party, and Lessee shall pay
all reasonable costs and expenses (including without limitation attorneys' fees
and expenses) incurred by Lessee in connection with such action, suit or
proceeding. Lessor or any indemnified party may participate in such action at
its own expense. If a claim is made against any indemnified party with respect
to which such indemnified party is entitled to indemnification from Lessee under
this Section, Lessor shall promptly notify Lessee thereof. Lessee shall
forthwith upon demand of Lessor reimburse Lessor and any other indemnified party
for amounts reasonably expended by Lessor or such other indemnified party in
connection with, and as permitted under, any of the foregoing or pay such
amounts directly. The provisions of this Section shall apply from the date of
the execution of this Lease and shall survive the expiration or earlier
termination of this Lease.
16. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) Default by Lessee in payment of any installment of Rent or
other monetary obligation now or hereafter owed by Lessee to Lessor under this
Lease and the continuance of such default for 5 consecutive days; (for purposes
of this subparagraph (a) "affiliate of Lessor" shall mean any person or entity
which controls or is controlled by or under common control with Lessor);
(b) Default by Lessee in the performance of any of the covenants
of Lessee set forth in Sections 7 ("Location and Right of Inspection"), 11
("Insurance"), 18 ("Return of Equipment") and 20 ("Assignment by Lessee") hereof
which default is not cured within 30 days of Lessor's written notice of such
default to Lessee;
(c) Default by Lessee in the payment or performance of any
obligation with respect to any indebtedness for any borrowing or the deferred
purchase of property or any lease of property, in excess of $250,000 and which
default results in the acceleration of such indebtedness, or a default by Lessee
under any agreement, license or other document relating to software required to
operate the Equipment, the effect of which would permit any licensor or third
party to terminate either Lessee's or Lessor's license or other rights with
respect to such software. Legitimate disputes arising out of transactions in the
ordinary course of Lessee's business are excluded from this paragraph (c);
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(d) Any representation or warranty made by Lessee in this Lease
or in any other document or certificate furnished to Lessor in connection
herewith or pursuant hereto, shall prove to be untrue or incorrect in any
material respect as of the date of issuance or making thereof;
(e) Lessee becomes insolvent or bankrupt or admits in writing its
inability or fails to pay its debts as they mature, or makes an assignment for
the benefit of creditors, or applies for or consents to the appointment of a
trustee or receiver for any of its properties or assets;
(f) Any proceedings shall be authorized by corporate action taken
by Lessee's shareholders or directors, or shall be commenced by or against
Lessee, for any relief under any bankruptcy or insolvency laws, or laws relating
to the relief of debtors, readjustments of indebtedness, reorganizations,
arrangements, compositions or extensions, unless, in the case of involuntary
proceedings only, such proceedings shall have been dismissed within 60 days
after such proceedings shall have been commenced;
(g) Default by Lessee under any warrant to purchase capital stock
of Lessee issued to Lessor in connection with the execution of this Agreement (a
"Warrant"), or breach of any undertaking, covenant or material representation or
warranty made by Lessee for the benefit of Lessor in any document, instrument or
agreement relating to the Warrant or made in connection therewith, including any
registration rights or antidilution provisions; or
(h) Default by Lessee in the performance or observance of any
other obligation, covenant or liability of Lessee contained in this Lease and
the continuance of such default for 30 consecutive days after written notice
thereof by Lessor to Lessee.
17. Remedies of Lessor, Upon the occurrence of any Event of Default and
at any time thereafter, Lessor M shall have no further obligations under the
Commitment, and (ii) may, without any further notice, exercise one or more of
the following remedies as Lessor in its sole discretion shall elect:
(a) Declare all unpaid Rent and other sums due or to become due
under this Lease to be immediately due and payable;
(b) Terminate this Lease, whereupon all rights of Lessee to the
use of the Equipment shall absolutely cease and terminate but Lessee shall
remain liable as herein provided; and thereupon Lessee will permit Lessor to
store the Equipment on Lessee's premises or wherever the Equipment may then be
located, without charge, until sold or otherwise disposed of and, if so
requested by Lessor, shall at the expense of Lessee, promptly deliver possession
of the Equipment to Lessor at such place as Lessor shall designate in the manner
provided in Section 18 hereof;
(c) Take possession of the Equipment wherever found, and for this
purpose enter upon any premises of Lessee without a breach of the peace and
remove the Equipment all without liability on the part of Lessor for or by
reason of such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or otherwise except for damages caused
by
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Lessors gross negligence or willful misconduct. Taking possession of the
Equipment shall not be construed to be an election to terminate this Lease and
this Lease shall remain in effect and Lessee shall remain liable for all
payments to be made hereunder;
(d) Sell the Equipment at public or private sale, in such
commercially reasonable manner as Lessor may deem appropriate (giving Lessee at
least ten (10) days' prior written notice of the time and place of any such
public sale, or the time after which a private sale may be made, which notice
Lessee hereby agrees is reasonable), or otherwise dispose of, hold, 'se, operate
or keep idle the Equipment, all as Lessor, in its sole discretion, may determine
and all free and clear of any rights of Lessee and without any duty to account
to Lessee (except as hereinafter provided) for such action or inaction or for
any proceeds resulting therefrom. Lessor shall apply the net proceeds (the
proceeds of any sale minus all costs and expenses incurred with the recovery,
repair, storage, sale) of any such sale to the payment of Lessee's obligations
hereunder, Lessee remaining liable for any deficiency, which at Lessor's option,
shall be paid monthly, as suffered, or immediately in a lump sum, or at the end
of the term, as damages for Lessee's default;
(e) By written notice to Lessee, cause Lessee to pay Lessor (as
liquidated damages for loss of a bargain and not as a penalty) on the date
specified in such notice, an amount equal to the sum of: (A) any unpaid Rent
that accrued on or before the occurrence of the Event of Default, and (B) the
Stipulated Loss Value of such Equipment, as of the date of occurrence of the
Event of Default, as set forth on any Schedule B attached to the Lease Schedule
pertaining to such Equipment. If Lessor proceeds pursuant to this subsection
(e), Lessor hereby appoints Lessee its agent to dispose of the Equipment at the
best price obtainable on an "as-is," "where is" basis, without representation or
warranty, express or implied. If Lessee has previously paid the amount of
liquidated damages specified above to Lessor, Lessee shall be entitled to the
proceeds of such sale of the Equipment to the extent they do not exceed the
liquidated damages amounts and shall pay any excess to Lessor; or
(f) Avail itself of any other remedy provided by any statute or
otherwise available at law, in equity or in bankruptcy.
No remedy referred to in this Section is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law, in equity or in bankruptcy, and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all
such other remedies. No waiver by Lessor of any Event of Default hereunder shall
in any way be or be construed to be a waiver of any future or subsequent Event
of Default. Lessee shall be liable for all costs and expenses (including
reasonable attorneys' fees and disbursements and the costs of any retaking)
incurred by reason of the occurrence of any Event of Default and the exercise of
Lessor's remedies with respect thereto. To the extent permitted by applicable
law, Lessee hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell, lease or otherwise use any Equipment
in mitigation of Lessor's damages as set forth in this Section or which may
otherwise limit or modify any of Lessor's rights or remedies under this Section.
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18. Return of Equipment After Default. Upon early termination of this
Lease pursuant to Section 17 ("Remedies of Lessor"), Lessee shall return each
item of Equipment to Lessor in good condition, ordinary wear and tear resulting
from proper use thereof excepted, in the following manner: by forthwith
delivering possession of the Equipment to Lessor. Lessee will, at its sole cost
and risk, forthwith prepare, dismantle, crate and deliver the Equipment at the
place designated by Lessor, arrange for storage of the Equipment until the
Equipment has been sold or otherwise disposed of by Lessor, and/or deliver the
same to any carrier for shipment (insurance and freight prepaid) to such place
within California as shall be designated by Lessor, all as directed by Lessor.
The preparation, dismantling, creating, delivery, storage and transporting of
the Equipment shall be at the expense and risk of Lessee and are of the essence
of this Lease, and upon application to any court of equity having jurisdiction
Lessor shall be entitled to a decree against Lessee requiring specific
performance of the covenants of Lessee so to prepare, dismantle, crate, deliver,
store and transport the Equipment. During any storage period until the
expiration Term of the Lease, Lessee will, at its own expense and risk, maintain
and keep the Equipment fully insured and in good order and repair and will
permit Lessor or any person designated by it, including the authorized
representative or representatives of any prospective purchaser of any item of
the Equipment, to inspect the same upon reasonable notice and during normal
business hours. Lessee shall be responsible, at its sole cost and expense, for
any repairs necessary to place the Equipment in the condition hereinabove
required upon return, and for the discharge of all Liens (other than Permitted
Liens) thereon at the time of such return.
19. Totality of Remedies. Notwithstanding anything to the contrary in
this Lease, specifically in Sections 11, 12, 17 and 18, the exercise of the
remedies of Lessor shall not result in Lessor's actually receiving in excess of
its actual losses, costs or damages.
20. Assignment by Lessee. Lessee shall not assign, pledge or hypothecate
this Lease in whole or in part, or any interest therein, nor shall Lessee
sublease or otherwise relinquish possession of, any item of the Equipment
without the prior written consent of Lessor, which will not be unreasonably
withheld or delayed. Lessee's interest herein may not be assigned or transferred
by operation of law. Consent to any of the foregoing acts by Lessor shall not be
deemed to be consent to any subsequent similar act by Lessor, Any assignment by
Lessee in violation of the provisions of this Section shall be void.
21. Assignment by Lessor. Lessor may at any time, with or without notice
to Lessee, transfer, sell, mortgage, grant a security interest in or assign this
Lease, any Lease Schedule (each such schedule constituting a separate Lease as
to the Equipment described therein), any Rent due or to become due hereunder, or
its security interests in the Equipment; and in such event Lessor's transferee,
purchaser, mortgagee, secured party, or assignee (an "Assignee") shall have all
of Lessor's rights, powers, privileges and remedies hereunder and shall not be
obligated to perform any duty, covenant or condition required to be observed or
performed by Lessor, subject only to the rights of Lessee to possession and
quiet enjoyment of the Equipment as long as no Event of Default has occurred and
is continuing under this Lease. After written notice from Lessor all amounts
payable to Lessor under this Lease shall be payable to Assignee at such address
as Assignee may designate in writing to Lessee. Lessee acknowledges and agrees
that the rights of any Assignee in and to the sums
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<PAGE> 11
payable by Lessee under any provision of this Lease shall not be subject to any
abatement whatsoever aid shall not be subject to any defense, setoff,
counterclaim or recoupment of any nature whatsoever by reason of any liability
or obligation, howsoever and whenever arising, of Lessor to Lessee or to any
other person, firm or corporation or governmental authority, or for any other
cause whatsoever.
22. Successors and Assigns. All of the covenants, conditions and
obligations of each party contained in this Lease shall be binding upon, and,
subject to the provisions of Section 20, inure to the benefit of, the respective
successors and assigns of the parties hereto.
23. Lessor's Performance of Lessee's Obligations. If Lessee shall fail
to duly and promptly perform any of its obligations under this Lease with
respect to the Equipment, Lessor may (at its option) perform any act or make any
payment required of Lessee, and Lessee shall reimburse Lessor payable by Lessee
on demand) for all sums so paid or incurred by Lessor, together with interest at
the Late Payment Rate and any reasonable legal fees incurred by Lessor in
connection therewith. The performance of any act or payment by Lessor as
aforesaid shall not be deemed a waiver or release of any obligation or default
on the part of Lessee.
24. Managerial Assistance. During the Term and so long as any
obligations under this Lease remain outstanding:
(a) Lessor shall make available to Lessee, to be accepted at
Lessee's option, "significant managerial assistance", as defined in Section
2(a)(47) of the Investment Company Act of 1940, as amended, either in the form
of: (i) consulting arrangements with Lessor or any of its officers, directors,
employees or affiliates (ii) Lessee's allowing Lessor to propose potential
members of Lessee's Board of Directors, ox. (iii) Lessor, at Lessee's request,
seeking the services of third-party consultants to aid Lessee with respect to
its management and operations; and
(b) Lessee shall permit Lessor, as a "venture capital operating
company," to participate in, and influence the conduct of management of Lessee
through the exercise, in the manner set forth in Section 24(b), of "management
rights", as those terms are defined in Section 2510.3-101 of the U.S. Department
of Labor's regulations, Title 29 of the Code of Federal Regulations.
25. Financial and Other Reports. During the Term and so long as any
obligations under this Lease remain outstanding, Lessee shall:
(a) Furnish to Lessor and any Assignee of Lessor identified to
Lessee (i) within 120 days after the close of each fiscal year of Lessee, an
audited balance sheet and statement of changes in financial position of Lessee
at and as of the end of such fiscal year, together with an audited statement of
income of Lessee for such fiscal year; (ii) within 45 days after the close of
each calendar month (or, if the stock of Lessee is publicly traded, each fiscal
quarter) of each fiscal year of Lessee, an unaudited balance sheet and statement
of cash flows of Lessee at and as of the end of such month (or quarter, as the
case may be), together with an unaudited statement of income of Lessee for
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<PAGE> 12
such month or quarter, as the case may be; and (iii) from time to time, such
other information as Lessor or Assignee may reasonably request regarding
Lessee's business, financial condition and prospects subject to reasonable
obligations of confidentiality; and
(b) Permit Lessor reasonable access to Lessee's management and/or
Board of Directors and opportunity to present Lessor's views with respect to
Lessee's equipment acquisition and financing plans, and such other matters
affecting the business, financial condition and prospects of Lessee as Lessor
shall reasonably deem relevant.
Lessee hereby warrants and represents that all financial statements delivered to
Lessor or such Assignee by or upon behalf of Lessee, and any statements and data
submitted in writing to Lessor or such Assignee in connection with this Lease,
are true and correct and fairly present the financial condition of Lessee for
the periods involved, and are prepared in accordance with generally accepted
accounting principles consistently applied, and that there has occurred no
material adverse change in the financial condition of Lessee since the date of
the last financial statement delivered to Lessor which has not been disclosed-in
writing to Lessor.
26. Power; Absence of Conflict. Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The execution, delivery and performance of this Lease, and the
obligations of Lessee hereunder have been duly authorized by all necessary
corporate action, and constitute the valid and binding obligations of Lessee
enforceable in accordance with their terms. The performance by Lessee of its
obligations hereunder will not result in a breach or violation of, or constitute
a default under, any statute, note, agreement, lease or other instrument to
which Lessee is a party or by which Lessee is bound, Lessee's articles of
incorporation or bylaws, or any order, rule or regulation of any court or
governmental agency-or body having jurisdiction over Lessee.
27. Attorneys' Fees. If Lessor or Lessee institutes legal action against
the other to interpret or enforce this Lease or to obtain damages for any
alleged breach thereof, the prevailing party in such action shall be entitled to
an award of reasonable attorneys' fees and costs.
28. Notices. All notices required or permitted under this Lease shall be
in writing and shall be deemed to have been duly given on the date of service if
served personally on the party to whom notice is to be given, or on the third
calendar day after deposit in the mail, if sent by first class mail, registered
or certified, postage prepaid, and properly addressed to Lessor or Lessee, as
the case may be, at their respective addresses set forth in the Schedule, or at
such other address as either party shall from time to time designate in the
manner provided above to the other party.
29. Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California, without regard to the
conflicts of laws provisions thereof. The parties acknowledge and agree that
this agreement and the transactions contemplated hereunder involve the provision
of equipment financing by Lessor and the creation of security interests in such
equipment, and shall not be deemed a lease as defined in Division 10 of the
California Commercial Code.
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<PAGE> 13
30. Entire Agreement; Amendments; Waivers. This Lease, together with any
and all Schedules and exhibits attached hereto, constitutes the entire agreement
between Lessor and Lessee, and supersedes all prior oral or written agreements
or understandings, with respect to the subject matter hereof, and it shall not
be amended, altered or changed, except by written agreement signed by the
parties hereto. No waiver of any provision of this Lease and no consent to any
departure by Lessee therefrom shall be effective unless the same shall be in
writing and signed by both parties, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
31. Severability. If any term or provision of this Lease or the
application thereof shall, to any extent, be invalid or unenforceable, such
invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Lease, and this Lease shall be valid
and enforced to the fullest extent permitted by law.
32. Headings. The Section headings used herein are solely for
convenience of reference and shall not be construed to define or limit any of
the terms or provisions hereof.
33. Further Assurances. Lessee shall execute and deliver to Lessor, upon
Lessor's request, such instruments and assurances as Lessor reasonably deems
necessary or desirable for the confirmation of Lessor's rights hereunder. In
furtherance thereof, Lessee agrees to take whatever action as may be reasonably
necessary to enable Lessor or any Assignee to file, register or record, and
refile, re-register and re-record, this Lease and any financing statements or
other documents requested by Lessor or any Assignee pursuant to the Uniform
Commercial Code or otherwise. Lessee authorizes Lessor to effect any such filing
(including, where permitted by applicable law, the filing of any financing
statements without the signature of Lessee) and Lessor's expenses with respect
hereto shall be payable by Lessee on demand except that Lessee shall not be
liable for any expenses arising from any sale or assignment or grant of Security
Interest by Lessor.
TO THE EXTENT THAT THIS LEASE AND ANY LEASE SCHEDULE CONSTITUTES CHATTEL
PAPER (AS DEFINED IN THE UNIFORM COMMERCIAL CODE, AS IN EFFECT IN ANY APPLICABLE
JURISDICTION), NO SECURITY INTEREST HEREIN OR THEREIN MAY BE CREATED EXCEPT
THROUGH THE TRANSFER AND POSSESSION OF THE ORIGINAL EXECUTED COUNTERPART OF SUCH
LEASE SCHEDULE, WHICH SHALL BE IDENTIFIED AS THE ORIGINAL EXECUTED COUNTERPART
NO. 1 BY THE LESSOR ON THE SIGNATURE PAGE THEREOF. NO SECURITY INTEREST CAN BE
CREATED IN THIS LEASE BY TRANSFER OR POSSESSION OF THIS LEASE ALONE WITHOUT AN
ACCOMPANYING ORIGINAL COUNTERPART OF A LEASE SCHEDULE. NO TRANSFER, SALE,
MORTGAGE OR OTHER DISPOSITION OF ANY INTEREST IN THIS LEASE CAN BE EFFECTED BY
DISPOSITION OF THIS INSTRUMENT ALONE.
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<PAGE> 14
IN WITNESS WHEREOF, the parties have duly executed this Lease as of the
day and year first above written.
LESSOR:
VENTURE LENDING & LEASING, INC.,
a Maryland corporation
By: /s/ Ronald W. Swenson
__________________________________
Its: CEO
__________________________________
LESSEE:
BROCADE COMMUNICATIONS SYSTEMS, INC.
a California corporation
By: /s/ Bruce J. Bergman
__________________________________
Its: CEO
__________________________________
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<PAGE> 15
INSURANCE AUTHORIZATION LETTER
In accordance with the insurance coverage requirements of the Master Equipment
Lease Agreement dated September 5, 1996 (the "Lease") between VENTURE LENDING &
LEASING, INC. ("Lessor"), and BROCADE COMMUNICATIONS SYSTEMS, INC., ("Lessee"),
coverage is to be provided as set forth below:
COVERAGE: All risk including liability and property damage
insurance as described in the Lease, attached
hereto as Exhibit 1.
INSURED: BROCADE COMMUNICATIONS SYSTEMS, INC.
457 East Evelyn Avenue
Suite E
Sunnyvale, CA 94086
LOCATION OF
EQUIPMENT: 457 East Evelyn Avenue
Suite E
Sunnyvale, CA 94086
15707 Rockfield Blvd., Suite 215
Irvine, CA 92718
ADDITIONAL INSURED AND LOSS PAYEE: Lessor and it's Assignee's as their
interest may appear.
Lessor: VENTURE LENDING & LEASING, INC.
2010 North First Street, Suite 310
San Jose, CA 95131
Assignee: FLEET BANK N.A.
(if any) 175 Water Street
New York, NY 10038-4924
Attn: John Topolovec
The above coverage is to be provided prior to funding the Lease. Lessee
hereby agrees to pay for the coverage above and by signing below acknowledges
its obligation to do so.
LESSEE: BROCADE COMMUNICATIONS
SYSTEMS, INC.
By: /s/ Bruce J. Bergman
_________________________________
Date: 11 Sept. 96
_________________________________
Insuring Agent: Calco Ins. - Hartford Fire Insurance
____________________________________
Address: 2000 Alameda de las Pulgas
__________________________
San Mateo, CA 94402
__________________________
Phone No.: 415 574-0773
_____________________
<PAGE> 16
EXHIBIT 1
Lessee will maintain at all times, at its own expense, with insurers of
recognized standing, (i) insurance against "all physical loss" perils subject to
standard exclusions in an amount not less than the greater of the full
replacement value or the Stipulated Loss Value of such item as set forth on any
Schedule B attached to the Lease Schedule, as of such date, and (ii) public
liability and property damage insurance policies insuring against third party
personal and property damage in respect of the use and operation of the
Equipment in an amount not less than $1,000,000 for each occurrence. Each policy
shall (i) name Lessor and Assignee, if any, as an additional insured and loss
payee, as their interests may appear; (ii) contain an agreement by the insurer
that any loss thereunder shall be payable to Lessor and Assignee notwithstanding
any breach of representation or warranty by Lessee; (iii) provide that there
shall be no recourse against Lessor or Assignee for payment of premiums or other
amounts with respect thereto; and (iv) provide that at least thirty (30) day's
prior written notice of cancellation, change or lapse shall be given to Lessor
and Assignee by the insurer. All insurance for loss or damage shall provide that
losses, if any, shall be adjusted-only with and payable to Lessor or its
Assignee, if any. The Lessee shall pay all premiums for such insurance and shall
deliver to Lessor evidence of such payment and of the maintenance of the
insurance coverages required hereunder. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks or drafts received in payment for any loss or
damage under any such insurance policy.
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<PAGE> 17
CERTIFICATE CONCERNING CAPITALIZATION
As Chief Executive Officer of BROCADE COMMUNICATIONS SYSTEMS, INC.,
("Lessee"), I hereby certify that as of the date hereof the following shares of
the Lessee's securities (listed by common and preferred by series)* were issued
and outstanding:
NO. OF SHARES
-------------
PREFERRED STOCK SERIES _______ 1,425,000
PREFERRED STOCK SERIES _______ 816,250
PREFERRED STOCK SERIES _______
PREFERRED STOCK SERIES _______
PREFERRED STOCK SERIES _______
COMMON STOCK 2,248,777
---------
TOTAL 4,490,027
Signature: /s/ Bruce J. Bergman
____________________________________
Title: CEO
____________________________________
As of Date: 11 Sept. 96
___________________________________
------------------------------------
* Number of shares of Preferred Stock are stated in terms of number of
shares of Common Stock into which each series is convertible.