Brocade (BRCD), A10 Settle Litigation; Brocade to Get $5M Cash, $70M Conv. Note

May 23, 2013 4:26 PM EDT
On May 20, 2013, Brocade Communications Systems, Inc. (Nasdaq: BRCD) and A10 Networks, Inc. (“A10”) reached an agreement to settle the lawsuit that Brocade filed against A10, A10's founder and other individuals in the United States District Court for the Northern District of California on August 4, 2010, and to settle the lawsuit that A10 filed against Brocade on September 9, 2011, along with all related claims.

Among other agreed upon terms, A10 has granted Brocade a broad patent license and agreed to pay Brocade $5 million in cash and issue a $70 million unsecured convertible promissory note payable to Brocade. The note will bear interest at 8% per annum and will be due in six months after the issuance date with up to 50% convertible, at Brocade's sole option, into A10 preferred shares issued in a subsequent round of equity financing. The note may be prepaid at any time, however in the event that the note is not paid in full within 90 days, then Brocade shall receive warrants to purchase A10 preferred shares and additional warrants every 30 days thereafter that the note is not paid in full. A10 also has agreed not to use any of the versions of source code that were found to infringe any of Brocade's copyrights, patents or trade secrets, except as necessary to service prior versions of product already sold to and in the possession of A10's customers. In addition, Brocade and A10 will provide certain covenants not to sue to each other for various periods of time and certain general releases. The existing permanent injunctions that prohibit A10 from shipping any A10 products that infringe Brocade's patents and prohibit A10 from further use of the misappropriated trade secrets will remain in effect until A10 satisfies the applicable terms of the settlement.

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