Equipment Lease Agreement

EXHIBIT 10.6



MASTER EQUIPMENT LEASE NO. 0034



Under this Master Equipment Lease No. 0034 (the "Lease"), dated as of September 9, 1996, PHOENIX LEASING INCORPORATED, a California corporation ('Lessor'), hereby leases to ALTEON NETWORKS, INC., a Delaware corporation ('Lessee'), and Lessee hereby leases from Lessor, the equipment, including certain items generally considered fungible or expendable ("Soft Costs") (the equipment and Soft Costs being herein together called "Equipment') which is described on the schedule attached hereto or any subsequently-executed schedule entered into by Lessor and Lessee and which incorporates this Lease by reference. Any such schedules shall hereinafter individually be referred to as a 'Schedule" and collectively be referred to as the "Schedules." Lessor hereby leases the Equipment to Lessee upon the following terms and conditions:



1. TERM OF AGREEMENT. The term of this Lease begins on the date set forth above and shall continue thereafter and be in effect so long as and at any time any Schedule entered into pursuant to this Lease is in effect. The Initial Term and rent payable with respect to each leased item of Equipment shall be as set forth in and as stated in the respective Schedule(s). The terms of each Schedule hereto are subject to all conditions and provisions of this Lease as it may at any time be amended. Each Schedule shall constitute a separate and independent lease and contractual obligation of Lessee and shall incorporate the terms and conditions of this Master Equipment Lease and any additional provisions contained in such Schedule. In the event of a conflict between the terms and conditions of this Lease and any additional provisions of such Schedule, the additional provisions of such Schedule shall prevail with respect to such Schedule only.



2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be cancelled or terminated except as expressly provided herein. This Lease (including all Schedules to this Lease) constitutes a net lease and Lessee agrees that its obligations to pay all rent and other sums payable hereunder (and under any Schedule) and the rights of Lessor and assignee in and to such rent and other sums, are absolute and unconditional and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Lessee may have against Lessor, any assignee, the manufacturer or seller of the Equipment, or against any person for any reason whatsoever.



3. LESSOR COMMITMENT. So long as no Event of Default or event which with the giving of notice or passage of time, or both, could become an Event of Default has occurred or is continuing, Lessor agrees to lease to Lessee the groups of Equipment described on each Schedule, subject to the following conditions: (i) that in no event shall Lessor be obligated to lease Equipment to Lessee hereunder where the aggregate purchase price of all Equipment leased to Lessee hereunder would exceed $1,000,000 ('Commitment") of which amount Lessor may finance Soft Costs for lease to Lessee having an aggregate purchase price not exceeding an amount equal to 20% of the utilized Commitment; (ii) the amount of Equipment purchased by Lessor at any one time shall be at least equal to $25,000 except for a final advance which may be less than $25,000; (iii) Lessor shall not be obligated to purchase Equipment hereunder after March 31, 1997, provided that the funding period may be extended to October 31, 1997 (the "Commitment Termination Date") if Lessor has received and approved in its sole discretion (yy)





Lessee's monthly calendar 1997 business plan ("1997 Monthly Business Plan") and (zz) hard copy evidence of Lessee's receipt of a $5,850,000 equity financing or alternative financial measure agreeable to Lessor in its sole discretion; (iv) all Lease documentation required by Lessor has been executed by Lessee or provided by Lessee no later than October 15, 1996; (v) the equipment described on the Schedule is acceptable to Lessor; (vi) with respect to each funding Lessee has provided to Lessor each of the closing documents and other items described in Exhibit A hereto (which documents shall be in form and substance reasonably acceptable to Lessor) and which list may be modified for each subsequent funding as reasonably requested by Lessor to perfect its lien in the Equipment; (vii) there is no material adverse change in Lessee's condition, financial or otherwise, as determined by Lessor, and Lessee so certifies, from (yy) the date of the most recent financial statements delivered by Lessee to Lessor prior to execution of this Lease, to (zz) the date of the proposed lease of the Equipment; (viii) at all fundings Lessee is performing substantially according to its quarterly business plan referred to as 'Projected Income Statement for Fiscal 1997 (7/1/96 to 6/30/97), Projected Balance Sheet for Fiscal 1997 (7/1/96 to 6/30/97) and Projected Cash Flow Statement for Fiscal 1997 (7/1/96 to 6/30/97)' dated August 1, 1996, as may be amended by Lessee's 1997 Monthly Business Plan and otherwise from time to time in form and substance acceptable to Lessor (collectively, "Business Plan") which Business Plan Lessee agrees to provide through December 31, 1997; (ix) Lessor or its agent has inspected and placed identification labels on the Equipment; (x) Lessee shall offer to Lessor, on an exclusive basis, all lease transactions for equipment contemplated by Lessee until the Commitment Termination Date; however if Lessor declines to finance any such transaction or Lessee and Lessor cannot agree upon terms within five (5) business days, then Lessee shall be free to seek such financing from any other third party; and (xi) Lessor has received in form and substance acceptable to Lessor: (a) Lessee's interim financial statements signed by a financial officer of Lessee; (b) for fundings after March 31, 1997, hard copy evidence of Lessee's receipt of $5,850,000 equity or alternative financial measure agreeable to Lessor in its sole discretion prior to March 31, 1997; (c) hard copy evidence of Lessee's $3,860,000 cash position as of June 30, 1996; and (d) Lessee's corporate resolution authorizing the transaction set forth herein.



4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly installed, does not operate as represented or warranted by Vendor or is unsatisfactory for any reason, Lessee shall make any claim on account thereof solely against Vendor and shall, nevertheless, pay Lessor all rent payable under this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor hereby agrees to assign to Lessee solely for the purpose of making and prosecuting any said claim, to the extent assignable, all of the rights which Lessor has against Vendor for breach of warranty or other representation respecting the Equipment. Lessor shall have no responsibility for delay or failure to fill the order. (c) Lessee understands and agrees that neither the Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No salesman or agent of Vendor is authorized to waive or alter any term or condition of this Lease, and no representations as to the Equipment or any other matter by the Vendor shall in any way affect Lessee's duty to pay the rent and perform its other obligations as set forth in this Lease. (d) Lessee hereby requests Lessor to purchase Equipment from Vendor





and to lease Equipment to Lessee on the terms and conditions of the Lease set forth herein. (e) Lessee hereby authorizes Lessor to insert in this Lease and each Schedule hereto the serial numbers and other identification data of the Equipment when determined by Lessor.



5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and warrants that (a) it is a corporation in good standing under the laws of the state of its incorporation, and duly qualified to do business, and will remain duly qualified during the term of this Lease, in each state where the Equipment will be located, as specified on each Schedule hereto; (b) it has full authority to execute and deliver this Lease and perform the terms hereof, and this Lease has been duly authorized and constitutes valid and binding obligations of Lessee enforceable in accordance with its terms; (c) this Lease will not contravene any law, regulation or judgment affecting Lessee or result in any breach of any material agreement or other material instrument binding on Lessee; (d) no consent of Lessee's shareholders or holder of any indebtedness, or filing with, or approval of, any governmental agency or commission, is a condition to the performance of the terms hereof; (e) there is no action or proceeding pending or threatened against Lessee before any court or administrative agency which might have a materially adverse effect on the business, financial condition or operations of Lessee; (f) no deed of trust, mortgage or third party interest arising through Lessee will attach to the Equipment or the Lease; (g) the Equipment will remain at all times under applicable law, removable personal property, free and clear of any lien or encumbrance in favor of Lessee or any other person, notwithstanding the manner in which the Equipment may be attached to any real property; (h) all credit, financial and any other information submitted to Lessor herewith or any other time is true and correct; and (i) Lessee has provided, or will provide if requested, Lessee's tax identification number.



6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing, rigging, transportation and installation charges for the Equipment and Lessor may separately invoice Lessee for such charges. Lessee has selected the Equipment itself and shall arrange for delivery of Equipment so that it can be accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify and hold Lessor harmless from any claims, liabilities, costs and expenses (other than claims, liabilities, costs and expenses arising out of Lessor's gross negligence or willful misconduct), including reasonable attorneys' fees, incurred by Lessor arising out of any purchase orders or assignments executed by Lessor with respect to any Equipment or services relating thereto.



7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and dated Acceptance Notice attached to each Schedule hereto (a) acknowledging the Equipment has been received, installed and is ready for use and (b) accepting it as satisfactory in all respects for the purposes of this Lease. Lessor is authorized to fill in the Rent Start Date on each Schedule in accordance with the foregoing.



8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and shall not be removed from the Equipment "Location" shown on each Schedule without prior written notice to Lessor, which "Location" shall in all events be at Lessee's business offices within the United States provided, however, any laptop computers with a cumulative original purchase price not exceeding approximately $50,000, may be temporarily removed from the Location. Lessee agrees to promptly execute any necessary or appropriate UCC financing





statements or amendments and agrees to use its best efforts to obtain a landlord waiver and consent from the landlord of any new Location if the "Location" of the Equipment is changed. Lessor shall have the right to inspect Equipment at any reasonable time. Lessee shall be responsible for all labor, material and freight charges incurred in connection with any removal or relocation of such Equipment which is requested by the Lessee and consented to by Lessor, as well as for any charges due to the installation or moving of the Equipment. The rental payments shall continue during any period in which the Equipment is in transit during a relocation. Lessor or its agent shall mark and label Equipment, which labels shall state Equipment is owned by Lessor, and Lessee shall keep such labels on the Equipment as labeled by Lessor or its agent.



9. EQUIPMENT MAINTENANCE. (a) General. Lessee will locate or base each item of Equipment where designated in an Acceptance Notice and will reasonably permit Lessor to inspect such item of Equipment and its maintenance records. Lessee will at its sole expense comply with all applicable laws, rules, regulations, requirements and orders with respect to the use, maintenance, repair, condition, storage and operation of each item of Equipment. Except as required herein, Lessee will not make any addition or improvement to any item of Equipment that is not readily removable without causing material damage to any item or impairing its original value or utility. Any addition or improvement that cannot be so removed will immediately become the property of Lessor if financed by Lessor or if financed by Lessee, shall become the property of Lessor if the Equipment is returned to Lessor pursuant to Section 17 hereof. (b) Service and Repair. With respect to computer equipment, other than personal computers, Lessee has entered into, and will maintain in effect, Vendor's standard maintenance contract or another contract satisfactory to Lessor for a period equal to the term of each Schedule and extensions thereto which provides for the maintenance of the Equipment and repairs and replacement parts thereof in good condition and working order, all in accordance with the terms of such maintenance contract. Lessee shall have the Equipment certified for the Vendor's standard maintenance agreement prior to delivery to Lessor upon expiration of this Lease. With respect to any other Equipment, Lessee will, at its sole expense, maintain and service, and repair any damage to, each item of Equipment in a manner consistent with prudent industry practice and Lessee's own practice so that such item of Equipment is at all times (i) in the same condition as when delivered to Lessee, except for ordinary wear and tear, (ii) in good operating order for the function intended by its manufacturer's warranties and recommendations.



10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the Equipment through use, operation or otherwise. Lessee hereby indemnifies and holds harmless Lessor from and against all claims, loss of rental payments, costs, damages, and expenses relating to or resulting from any loss, damage or destruction of the Equipment, any such occurrence being hereinafter called a "Casualty Occurrence.' On the first rental payment date following such Casualty Occurrence, or, if there is no such rental payment date, thirty (30) days after such Casualty Occurrence, Lessee shall (i) repair the Equipment, returning it to good operating condition or (ii) replace the Equipment with identical or substantially similar equipment of equal value in good condition and repair, the title to which shall vest in Lessor and which thereafter shall be subject to the terms of this 'Lease; or (iii) pay to Lessor (a) any unpaid accrued amounts relating to such Equipment due Lessor under this Lease up to the date of the Casualty Occurrence, and (b) a sum equal to the Casualty Value as set forth in the Casualty Value table attached to each Schedule hereto for such Equipment. Upon the making of such payment, the





term of this Lease as to each unit of Equipment with respect to which the Casualty Value was paid shall terminate.



11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless Lessor from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (collectively, "Liabilities"), imposed upon or incurred by or asserted against Lessor or any assignee of Lessor by Lessee or any third party by reason of the occurrence or existence (or alleged occurrence or existence) of any act or event relating to or caused by the Equipment, including but not limited to, consequential or special damages of any kind, or any failure on the part of Lessee to perform or comply with any of the terms of this Lease; provided, that notwithstanding the foregoing, Lessee shall not be required to indemnify Lessor for any Liabilities arising out of Lessor's gross negligence or willful misconduct. In the event that any action, suit or proceeding is brought against Lessor by reason of any such occurrence, Lessee, upon request of Lessor, will at Lessee's expense resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated and approved 'by Lessor and reasonably acceptable to Lessee. Lessee's obligations under this Section 11 shall survive the expiration of this Lease with respect to acts or events occurring or alleged to have occurred prior to the purchase by Lessee of the Equipment at the end of the Lease term pursuant to Section 36 hereof, or earlier return of the Equipment to Lessor pursuant to the terms and conditions of this Lease.



12. INSURANCE. Lessee at its expense shall keep the Equipment insured for the entire term and any extensions of this Lease against all risks for at least the replacement value of such Equipment and shall provide for a loss payable endorsement to Lessor or any assignee of Lessor. Lessee shall maintain comprehensive general public liability insurance with respect to loss or damage for personal injury, death or property damage in an amount not less than $2,000,000 per occurrence, naming Lessor or any assignee of Lessor as additional insured. Such insurance shall contain insurer's agreement to give thirty (30) days written notice to Lessor before cancellation or material change of any policy of insurance. Lessee will provide Lessor and any assignee of Lessor with certificate of insurance from the insurer evidencing Lessor's or such assignee's interest in the policy of insurance. Such insurance shall cover any Casualty Occurrence to any unit of Equipment. Notwithstanding anything in Section 10 or this Section 12 to the contrary, this Lease and Lessee's obligations hereunder and under each Schedule shall remain in full force and effect with respect to any unit of Equipment which is not subject to a Casualty Occurrence. If Lessee fails to provide or maintain insurance as require, herein, Lessor shall have the right, but shall not be obligated to obtain such insurance In that event, Lessee shall pay to Lessor the cost thereof.



13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if instructed by Lessor), and agrees to indemnify and hold Lessor harmless from, all fees (including but not limited to, license, documentation, recording and registration fees), and al sales, use, gross receipts, personal property, occupational, value added or other taxes levies, imposts, duties, assessments, charges, or withholdings of any nature whatsoever together with any penalties, fines, additions to tax, or interest thereon (all of the foregoing being hereafter referred to as "Impositions") except same as may be attributable to Lessor's income, arising at any time prior to or during the term of this Lease, or upon termination or early termination of this Lease and levied or imposed upon Lessor directly or otherwise by any Federal, state or local government in





the United States or by any foreign country or foreign or international taxing authority upon or with respect to (i) the Equipment, (ii) the exportation, importation, registration, purchase, ownership delivery, leasing, possession, use, operation, storage, maintenance, repair, return, sale transfer of title, or other disposition thereof, (iii) the rentals, receipts, or earning arising from the Equipment, or any disposition of the rights to such rentals, receipts, or earnings, (iv) any payment pursuant to this Lease, and (v) this Lease or the transaction or any part thereof. Lessee's obligations under this Section 13 shall survive the expiration of this Lease with respect to acts or events occurring or alleged to have occurred prior to the return of the Equipment to Lessor at the end of the Lease term.



14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or perform any act required hereunder, then Lessor may, but shall not be required to, after such notice to Lessee as is reasonable under the circumstances, make such payment or perform such act with the same effect as if made or performed by Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all costs and expenses incurred in connection with the performance of any such act.



15. SURRENDER OF EQUIPMENT. Subject to Section 36 hereof, upon termination or expiration of this Lease, with respect to each group of Equipment, Lessee will forthwith surrender the Equipment to Lessor delivered in as good order and condition as originally delivered, reasonable wear and tear excepted. Lessor may, at its sole option, arrange for removal and transportation of the Equipment provided that Lessee's obligations under Sections 10, 11 and 12 shall not be released. Subject to Section 36, Le ...