1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999 REGISTRATION NO. 333- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BROCADE COMMUNICATIONS SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ <TABLE> <S> <C> <C> CALIFORNIA (PRIOR TO 7372 77-0409517 REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER DELAWARE (AFTER REINCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) </TABLE> 1901 GUADALUPE PARKWAY SAN JOSE, CALIFORNIA 95131 (408) 487-8000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ GREGORY L. REYES PRESIDENT AND CHIEF EXECUTIVE OFFICER BROCADE COMMUNICATIONS SYSTEMS, INC. 1901 GUADALUPE PARKWAY SAN JOSE, CALIFORNIA 95131 (408) 487-8000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: <TABLE> <S> <C> LARRY W. SONSINI GREGORY M. GALLO JOHN T. SHERIDAN DENNIS C. SULLIVAN ALISANDE M. ROZYNKO JEFFREY D. BALL WILSON SONSINI GOODRICH & ROSATI GRAY CARY WARE & FREIDENRICH LLP PROFESSIONAL CORPORATION 400 HAMILTON AVENUE 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94304-1050 (650) 328-6561 (650) 493-9300 </TABLE> ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE <TABLE> <S> <C> <C> ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE ---------------------------------------------------------------------------------------------------------------- Common Stock ($.001 par value).............................. $41,400,000 $11,510 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- </TABLE> (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o). ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- --------------------------------------------------------------------------------

2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (Subject to Completion) Issued , 1999 Shares [BROCADE LOGO] COMMON STOCK ------------------------ BROCADE COMMUNICATIONS SYSTEMS, INC. IS OFFERING SHARES OF ITS COMMON STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR COMMON STOCK. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. ------------------------ WE HAVE APPLIED TO LIST THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "BRCD." ------------------------ INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5. ------------------------ PRICE $ A SHARE ------------------------ <TABLE> <CAPTION> UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS PUBLIC COMMISSIONS TO BROCADE -------- ------------- ---------- <S> <C> <C> <C> Per Share................................ $ $ $ Total.................................... $ $ $ </TABLE> The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Brocade has granted the underwriters the right to purchase up to additional shares to cover over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock to purchasers on , 1999. ------------------------ MORGAN STANLEY DEAN WITTER BT ALEXS BROWN DAIN RAUSCHER WESSELS a division of Dain Rauscher Incorporated , 1999

3 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Prospectus Summary.................. 3 Risk Factors........................ 5 Special Note Regarding Forward-Looking Statements........ 15 Use of Proceeds..................... 16 Dividend Policy..................... 16 Capitalization...................... 17 Dilution............................ 18 Selected Financial Data............. 19 Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 20 Business............................ 29 </TABLE> <TABLE> <CAPTION> PAGE ---- <S> <C> Management.......................... 41 Certain Transactions................ 52 Principal Stockholders.............. 56 Description of Capital Stock........ 59 Shares Eligible for Future Sale..... 62 Underwriters........................ 64 Legal Matters....................... 66 Experts............................. 66 Change in Independent Accountants and Fiscal Year End............... 66 Where You May Find Additional Information....................... 67 Index to Financial Statements....... F-1 </TABLE> ------------------------- We are a California corporation and will reincorporate in Delaware prior to the consummation of this offering. Our principal executive offices are located at 1901 Guadalupe Parkway, San Jose, California 95131, and our telephone number is (408) 487-8000. Our fiscal year ends on October 31. We maintain a worldwide web site at http://www.brocade.com. The reference to our Web address does not constitute incorporation by reference of the information contained in that site. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in those jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common stock. Unless otherwise specifically stated, the information in this prospectus has been adjusted to reflect the assumed exercise of warrants to purchase 296,881 shares of preferred stock prior to this offering and the subsequent conversion of all outstanding shares of preferred stock into common stock on the completion of this offering, but does not take into account the possible issuance of additional shares of common stock to the underwriters pursuant to their right to purchase additional shares to cover over-allotments. In this prospectus, "Brocade," "we," "us," and "our" refer to Brocade Communications Systems, Inc. UNTIL , 1999, 25 DAYS AFTER COMMENCEMENT OF THIS OFFERING, ALL DEALERS EFFECTING TRANSACTIONS IN OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. Brocade, SilkWorm, SilkWorm Express and Brocade's logo are trademarks of Brocade, some of which may be registered or are pending registration in certain jurisdictions. All other brand names, logos and trademarks appearing in this prospectus are the property of their respective holders. 2

4 PROSPECTUS SUMMARY You should read this summary together with the more detailed information and our financial statements and notes to the financial statements appearing elsewhere in this prospectus. BROCADE COMMUNICATIONS SYSTEMS, INC. We are the leading provider of Fibre Channel switching solutions for storage area networks, or SANs, which apply the benefits of a networked approach to the connection of storage systems and servers. Our family of SilkWorm switches enables enterprises to cost-effectively manage growth in their storage capacity requirements, improve the performance between their servers and storage systems and increase the size and scope of their SAN, while allowing them to operate data-intensive applications, such as reliable backup and restore, and disaster recovery on the SAN. We sell our SAN switching solutions through leading storage systems and server OEMs, including Compaq Computer, Dell Computer, McDATA Corporation, Sequent Computer Systems and StorageTek. These OEMs and our system integrator customers combine our switching solutions with other system elements and services for enterprise data centers. Over the past decade, the volume of business-critical data that is being captured, processed, stored and manipulated in business environments has exploded, creating a data transmission bottleneck between storage systems and servers. In response to the demand for high-speed and high-performance storage-to-server and server-to-server connectivity, the Fibre Channel interconnect, an industry standard network protocol, was developed in the early 1990s. Fibre Channel is well suited for data transfers between storage systems and servers and has earned broad support from storage and server industry leaders. Fibre Channel's support for networked connections, large data block transfers and multiple protocols enables SANs to meet the increasing performance, scalability, flexibility and management requirements of enterprise data centers. Our SilkWorm family of Fibre Channel switches provides a switch interconnect, enabling any-to-any connectivity between storage systems and servers. Multiple interconnected switches enable the deployment of our Brocade Fabric, which includes our Brocade Fabric Operating System, SAN management tools, fabric services and ready-to-deploy configurations. Our SAN solutions offer the following benefits: - Address the Input/Output Bottleneck. Our solutions are designed to deliver gigabit transfer rates and any-to-any connectivity, addressing the storage-to-server and server-to-server bottleneck. - Provide Scalability to SANs. Our switches can be used to incrementally increase the size and scope of the SAN, enabling enterprises to grow clusters of high performance storage systems and servers. Connecting in a meshed topology, or cascading, multiple SilkWorm switches enables enterprises to interconnect separate SAN clusters into one large SAN to share distributed data. - Build a Mission-Critical Data Center. We have designed our solutions to provide high levels of resiliency and availability with maximum up-time for business-critical applications. - Enable SAN Applications. Our products provide a network infrastructure that allows our customers and partners to address compelling data requirements by running multiple new data-intensive applications concurrently on the SAN, including data backup and restore, and disaster recovery. - Enhance SAN Management. Our Brocade Fabric is designed for ease of use and implementation to reduce the overall costs and improve the efficiency of managing SANs. We intend to capitalize on our SAN switching market leadership and our Fibre Channel technology leadership to leverage our core technologies and products to address the evolving SAN market. In addition to focusing on our distribution relationships with leading storage systems and server OEMs, we have recently launched our system integrator program. Furthermore, we intend to continue building relationships with leading technology partners. 3

5 THE OFFERING Common stock offered................ shares Common stock to be outstanding after this offering....................... shares Over-allotment option............... shares Use of proceeds..................... We intend to use the net proceeds for general corporate purposes, including repayment of outstanding indebtedness, capital expenditures and working capital. Proposed Nasdaq National Market symbol.............................. BRCD The foregoing information is as of January 31, 1999 and excludes 2,082,471 shares of common stock issuable upon exercise of options outstanding as of January 31, 1999 with a weighted average exercise price of $1.95 per share, 287,788 shares of common stock issuable upon exercise of warrants outstanding as of January 31, 1999 with a weighted average exercise price of $1.37 per share, and 466,516 shares of common stock reserved for additional option grants under our stock plans as of January 31, 1999. SUMMARY FINANCIAL DATA (in thousands, except per share data) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, ------------------------------------- ----------------- 1995 1996 1997 1998 1998 1999 ----- ------- -------- -------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Total revenues............................. $ -- $ -- $ 8,482 $ 24,246 $ 7,850 $ 8,007 Gross profit............................... -- -- 1,800 8,487 3,153 4,686 Loss from operations....................... (176) (3,818) (9,442) (15,231) (1,398) (1,846) Net loss................................... (166) (3,934) (9,619) (15,111) (1,355) (1,839) Pro forma basic net loss per share......... $ (.84) $ (.10) Shares used in per share calculations...... 17,915 18,973 </TABLE> The following table presents summary balance sheet data as of January 31, 1999, which has been adjusted to reflect the assumed exercise of warrants to purchase 296,881 shares of preferred stock at an exercise price of $6.78 per share prior to this offering and the subsequent conversion of our preferred stock into 14,623,614 shares of common stock upon completion of this offering, our sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share and the application of the estimated net proceeds. See "Use of Proceeds" and "Capitalization." <TABLE> <CAPTION> AS OF JANUARY 31, 1999 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (UNAUDITED) <S> <C> <C> BALANCE SHEET DATA: Cash and cash equivalents................................... $ 10,137 $ Working capital............................................. 4,500 Total assets................................................ 24,576 Long-term portion of debt and capital lease obligations..... 1,808 Redeemable convertible preferred stock...................... 35,261 Total stockholders' equity (deficit)........................ (27,825) </TABLE> 4

6 RISK FACTORS This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the following risk factors and the other information in this prospectus before investing in our common stock. Our business, financial condition and results of operations could be seriously harmed by any of the following risks. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment. WE HAVE AN ACCUMULATED DEFICIT OF $30.7 MILLION AND MAY NOT ACHIEVE PROFITABILITY We have incurred significant losses since inception and expect to incur losses in the future. As of January 31, 1999, we had an accumulated deficit of $30.7 million. Although our revenues have grown in recent quarters, we cannot be certain that we will be able to sustain these growth rates or that we will realize sufficient revenues to achieve profitability. We also expect to incur significant product development, sales and marketing and administrative expenses and, as a result, we will need to generate significant revenues to achieve and maintain profitability. Moreover, even if we do achieve profitability, we may not be able to sustain or increase profitability. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We also may incur additional losses as a result of our limited operating history. Specifically, Brocade has been operating less than four years. Therefore, we cannot forecast future operating results based on our historical results. We plan our operating expenses based in part on future revenue projections. Our ability to accurately forecast our quarterly revenue is limited for the reasons discussed below in "-- We Expect Our Quarterly Revenues and Operating Results to Fluctuate for a Number of Reasons Which Could Cause Our Stock Price to Fluctuate." Moreover, most of our expenses are fixed in the short-term or incurred in advance of receipt of corresponding revenue. As a result, we may not be able to decrease our spending to offset any unexpected shortfall in our revenues. If this were to occur, we would expect to incur significant losses. WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE FOR A NUMBER OF REASONS WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE Our quarterly revenues and operating results have varied significantly in the past and are likely to vary significantly in the future due to a number of factors, any of which may cause our stock price to fluctuate. The primary factors that may affect us include the following: - fluctuations in demand for our SilkWorm family of products and services; - the timing of customer orders and product implementations, particularly large orders from and product implementations of our OEM customers; - our ability to develop, introduce, ship and support new products and product enhancements; - announcements and new product introductions by our competitors; - the expected decline in the prices at which we can sell our SilkWorm family of products to our customers; - our ability to obtain sufficient supplies of sole or limited sourced components, including application specific integrated circuits, or ASICs, gigabit interface converters, or GBICs, and power supplies, for our SilkWorm family of products; - increases in the prices of the components we purchase; 5

7 - our ability to attain and maintain production volumes and quality levels for our SilkWorm family of products; - the mix of our SilkWorm and SilkWorm Express switches sold and the mix of distribution channels through which they are sold; - increased expenses, particularly in connection with our strategy to continue to expand our relationships with key OEMs and system integrators; - widespread adoption of SANs as an alternative to existing data storage and management systems; - decisions by end-users to reallocate their information resources to other purposes, including year 2000 preparedness; and - deferrals of customer orders in anticipation of new products, services or product enhancements introduced by us or our competitors. Accordingly, you should not rely on the results of any past periods as an indication of our future performance. It is likely that in some future period, our operating results may be below expectations of public market analysts or investors. If this occurs, our stock price may drop. OUR SUCCESS IS DEPENDENT UPON THE DEVELOPMENT OF THE EMERGING MARKET FOR SANS AND SAN SWITCHING PRODUCTS Our SilkWorm family of Fibre Channel switching products is used exclusively in storage area networks, or SANs. Accordingly, widespread adoption of SANs as an integral part of data-intensive enterprise computing environments is critical to our future success. In addition, our success depends upon market acceptance of our SAN switching solutions as an alternative to the use of hubs or other interconnect devices in SANs. The markets for SANs and SAN switching products have only recently begun to develop and are rapidly evolving. Because these markets are new, it is difficult to predict their potential size or future growth rate. In addition, SANs are often implemented in connection with deployment of new storage systems and servers and we are therefore dependent to some extent on this market. Potential end-user customers who have invested substantial resources in their existing data storage and management systems may be reluctant or slow to adopt a new approach, like SANs. Our success in generating revenue in these emerging markets will depend, among other things, on our ability to educate potential OEM and system integrator customers, as well as potential end-users, about the benefits of SANs and SAN switching technology and our ability to maintain and enhance our relationships with leading OEMs and system integrators. In addition, our products are designed to conform to the Fibre Channel interconnect networking protocol and certain other industry standards. Some of these standards may not be widely adopted, and competing standards may emerge that will be preferred by OEMs or end-users. WE CURRENTLY ONLY OFFER OUR SILKWORM PRODUCT FAMILY AND MUST DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE WIDESPREAD MARKET ACCEPTANCE We currently derive substantially all of our revenues from sales of our SilkWorm family of products. We expect that revenue from this product family will continue to account for a substantial portion of our revenues for the foreseeable future. Therefore, widespread market acceptance of these products is critical to our future success. Some of our products have been only recently introduced and therefore, the demand and market acceptance of our products is uncertain. Factors that may affect the market acceptance of our products include market acceptance of SAN switching products, the performance, price and total cost of ownership of our products, the availability and price of competing products and 6

8 technologies, and the success and development of our OEMs and system integrators. Many of these factors are beyond our control. Our future success depends upon our ability to address the rapidly changing needs of our customers by developing and introducing high-quality, cost-effective products, product enhancements and services on a timely basis and by keeping pace with technological developments and emerging industry standards. We have new product launches and upgrades to our existing products planned for 1999. Our future revenue growth will be dependent on the success of these new product launches. We have in the past experienced delays in product development and such delays may occur in the future. In addition, as we introduce new or enhanced products, we will have to manage successfully the transition from older products in order to minimize disruption in our customers' ordering patterns, avoid excessive levels of older product inventories and ensure that enough supplies of new products can be delivered to meet our customers' demands. Our failure to develop and introduce successfully new products and product enhancements, which are not broadly accepted, would reduce our revenues. WE DEPEND ON A FEW KEY OEM CUSTOMERS AND THE LOSS OF ANY OF THESE OEMS COULD SIGNIFICANTLY REDUCE OUR REVENUES We depend on a few key OEM customers. For example, in the three months ended January 31, 1999, sales to Sequent and McDATA accounted for 37% and 33% of our total revenues, respectively. We anticipate that our operating results will continue to depend on sales to a relatively small number of OEMs. Therefore, the loss of any of our key OEMs, or a significant reduction in sales to these OEMs could significantly reduce our revenues. EXPANDING OUR DISTRIBUTION CHANNELS AND SELLING OUR PRODUCTS TO END-USERS EACH INVOLVE LENGTHY SALES CYCLES Our strategy is to expand our OEM and system integrator distribution channels. Our success will depend on our continuing ability to develop and manage relationships with significant OEMs, as well as on the sales efforts and success of those OEMs. Our OEM customers typically conduct significant evaluation, testing, implementation and acceptance procedures before they begin to market and sell new technologies, including our products. This evaluation process is lengthy and may range from six months to a year. This process is also complex and may require significant sales and marketing and management efforts on our part. The complexity of this process increases if we have to qualify our products with multiple customers at the same time. We cannot assure you that we will be able to manage this process successfully. Our failure to do so could reduce our revenues. In addition, once our products have been qualified, the length of the sales cycle of our OEMs may vary depending upon whether the OEM is bundling our products with another product or selling our products as an option or add-on. Moreover, our agreements with our OEMs and system integrators have no minimum purchase commitments. We cannot assure you that our customers will market our products effectively. THE FAILURE OF OUR SOLE MANUFACTURER TO MEET OUR MANUFACTURING NEEDS WOULD NEGATIVELY IMPACT OUR ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS Solectron, a third party manufacturer for numerous companies, manufactures all of our products at its Milpitas, California facility on a purchase order basis. We currently do not have a long-term supply contract with Solectron. Therefore, Solectron is not obligated to supply products to us for any specific period, or in any specific quantity, except as may be provided in a particular purchase order. We generally place orders with Solectron up to four months prior to scheduled delivery of products to our customers. 7

9 Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate manufacturing capacity from Solectron to meet our customers' delivery requirements or we may accumulate excess inventories. We plan to regularly introduce new products and product enhancements, which will require that we coordinate our efforts with those of our suppliers and Solectron to rapidly achieve volume production. While we have not, to date, experienced supply problems with Solectron, we have experienced delays in product deliveries from one of our former contract manufacturers. If we should fail to effectively manage our relationships with our suppliers and Solectron, or if Solectron experiences delays, disruptions, capacity constraints or quality control problems in its manufacturing operations, our ability to ship products to our customers could be delayed and our competitive position and reputation could be harmed. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming. If we are required or choose to change contract manufacturers, we may lose revenue and damage our customer relationships. WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR CERTAIN KEY COMPONENTS INCLUDING ASICS AND POWER SUPPLIES We currently purchase several key components from single or limited sources. We purchase ASICs and power supplies from single sources, and printed circuit boards and GBICs from limited sources. If we are unable to buy these components on a timely basis we will not be able to manufacture our products. We use a rolling six-month forecast based on anticipated product orders to determine our component requirements. If we overestimate our component requirements, we may have excess inventory, which would increase our costs. If we underestimate our component requirements, we may have inadequate inventory, which could interrupt our manufacturing. In addition, lead times for materials and components we order vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. We also may experience shortages of certain components from time to time, which also could delay our manufacturing. THE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED SALES OF OUR PRODUCTS, REDUCED PROFITS AND REDUCED MARKET SHARE The markets for our SAN switching products are competitive, and are likely to become even more competitive. Increased competition could result in pricing pressures, reduced sales, reduced margins, reduced profits, reduced market share or the failure of our products to achieve or maintain market acceptance. Our products face competition from multiple sources. Some of our competitors and potential competitors have longer operating histories, greater name recognition, access to larger customer bases, or substantially greater resources than we have. As a result, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. For all of the foregoing reasons, we may not be able to compete successfully against our current and future competitors. See "Business -- Competition." THE PRICES OF OUR PRODUCTS ARE DECLINING WHICH COULD REDUCE OUR REVENUES AND GROSS MARGINS The average unit price of our products decreased 26% in fiscal 1998. We anticipate that the average unit price of our products may continue to decrease in the future in response to changes in product mix, competitive pricing pressures, increased sales discounts, new product introductions by us or our competitors or other factors. If we are unable to offset these factors by increasing our sales volumes, our revenues will decline. In addition, to maintain our gross margins, we must develop and introduce new 8

10 products and product enhancements, and we must continue to reduce the manufacturing cost of our products. UNDETECTED SOFTWARE OR HARDWARE ERRORS COULD INCREASE OUR COSTS AND REDUCE OUR REVENUES Networking products frequently contain undetected software or hardware errors when first introduced or as new versions are released. Our products are complex and errors may be found from time to time in our new or enhanced products. In addition, our products are combined with products from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. Moreover, the occurrence of hardware and software errors, whether caused by our or another vendor's SAN products, could delay or prevent the development of the SAN market. IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, WE MAY NOT BE SUCCESSFUL Our success depends to a significant degree upon the continued contributions of our key management, engineering and sales and marketing personnel, many of whom would be difficult to replace. In particular, we believe that our future success is highly dependent on Gregory L. Reyes, our President and Chief Executive Officer, Kumar Malavalli, our Vice President, Technology and Paul R. Bonderson, Jr., our Vice President, Engineering. We do not have employment contracts with, or key person life insurance on, any of our key personnel. We also believe that our success depends to a significant extent on the ability of our management to operate effectively, both individually and as a group. Certain members of our management team, including Mr. Reyes, and many of our employees have only recently joined us. We believe our future success will also depend in large part upon our ability to attract and retain highly skilled managerial, engineering, sales and marketing, and finance and operations personnel. Competition for these personnel is intense, especially in the San Francisco Bay Area. In particular, we have experienced difficulty in hiring qualified ASIC, software, system and test, and customer support engineers and there can be no assurance that we will be successful in attracting and retaining these individuals. The loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of and negatively impact our ability to sell our products. In addition, companies in our industry whose employees accept positions with competitors frequently claim that their competitors have engaged in unfair hiring practices. We cannot assure you that we will not receive such claims in the future as we seek to hire qualified personnel or that such claims will not result in material litigation. We could incur substantial costs in defending ourselves against these claims, regardless of their merits. WE MUST CONTINUE TO IMPROVE OUR OPERATIONAL SYSTEMS AND CONTROLS TO MANAGE FUTURE GROWTH We plan to continue to expand our operations significantly to pursue existing and potential market opportunities. This growth places a significant demand on our management and our operational resources. In order to manage growth effectively, we must implement and improve our operational systems, procedures and controls on a timely basis. 9

11 WE PLAN TO INCREASE OUR INTERNATIONAL SALES ACTIVITIES SIGNIFICANTLY, WHICH WILL SUBJECT US TO ADDITIONAL BUSINESS RISKS We plan to expand our international sales activities significantly. Our international sales growth will be limited if we are unable to establish relationships with international distributors, establish additional foreign operations, expand international sales channel management, hire additional personnel and develop relationships with international service providers. Even if we are able to successfully expand international operations, we cannot be certain that we will be able to maintain or increase international market demand for our products. Our international operations are subject to a number of risks, including: - protectionist laws and business practices that favor local competition; - dependence on local vendors; - multiple, conflicting and changing governmental laws and regulations; - longer sales cycles; - difficulties in collecting accounts receivable; - reduced or limited protections of intellectual property rights; and - political and economic instability. To date, none of our international revenues and costs have been denominated in foreign currencies. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and thus less competitive in foreign markets. A portion of our international revenues may be denominated in foreign currencies in the future, which will subject us to risks associated with fluctuations in those foreign currencies. WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WHICH WOULD NEGATIVELY AFFECT OUR ABILITY TO COMPETE We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants and corporate partners, and control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. See "Business -- Intellectual Property." OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE TIME-CONSUMING AND EXPENSIVE TO DEFEND In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We were previously the subject of a lawsuit alleging infringement of intellectual property rights. Although this dispute was resolved and the lawsuit dismissed, and we are not currently involved in any other intellectual property litigation, we may be a party to litigation in the future to protect our intellectual property or as a result of an alleged infringement of others' intellectual property. These claims and any resulting lawsuit could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their success, would likely be time- 10

12 consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation also could force us to do one or more of the following: - stop selling, incorporating or using our products or services that use the challenged intellectual property; - obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; and - redesign those products or services that use such technology. If we are forced to take any of the foregoing actions, we may be unable to manufacture and sell our products, which would reduce our revenues. WE ARE THE SUBJECT OF A PENDING LEGAL PROCEEDING We have been sued by one of our former contract manufacturers in the Santa Clara County, California Superior Court. We believe that we have strong defenses against the claims alleged in the lawsuit. Accordingly, we intend to defend this suit vigorously. However, the litigation process is inherently uncertain and we may not prevail. Our defense of this litigation, regardless of its eventual outcome, has been, and will likely continue to be, time-consuming, costly and a diversion for our personnel. A failure to prevail could result in us having to pay monetary damages and reimburse the plaintiff for some or all of its attorneys' fees. See "Business -- Pending Legal Proceeding." WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES As part of our strategy, we expect to review opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our markets or enhance our technical capabilities, or that may otherwise offer growth opportunities. While we have no current agreements or negotiations underway, we may buy businesses, products or technologies in the future. In the event of any future purchases, we could: - issue stock that would dilute our current stockholders' percentage ownership; - incur debt; or - assume liabilities. These purchases also involve numerous risks, including: - problems combining the purchased operations, technologies or products; - unanticipated costs; - diversion of management's attention from our core business; - adverse effects on existing business relationships with suppliers and customers; - risks associated with entering markets in which we have no or limited prior experience; and - potential loss of key employees of purchased organizations. We cannot assure you that we will be able to successfully integrate any businesses, products, technologies or personnel that we might purchase in the future. 11

13 OUR FAILURE AND THE FAILURE OF OUR SUPPLIERS AND CUSTOMERS TO BE YEAR 2000 COMPLIANT COULD HARM OUR BUSINESS The year 2000 computer issue creates risks for us. Failure of our products to recognize correctly date information when the year changes to 2000 could result in significant decreases in market acceptance of our products, increases in warranty claims and legal liability for defective software. We have not tested our products in every possible computer environment, and therefore such products may not be fully year 2000 compliant. Year 2000 preparations by our customers could also slow down purchases of our products. If our suppliers, vendors, major distributors and partners fail to correct their year 2000 problems, these failures could result in an interruption in, or a failure of, our normal business activities or operations. If a year 2000 problem occurs, it may be difficult to determine which vendor's products have caused the problem. These failures could interrupt our operations and damage our relationships with our customers. Due to the general uncertainty inherent in the year 2000 problem resulting from the readiness of third-party suppliers and vendors, we are unable to determine at this time whether any year 2000 failures will harm us. Our customers' purchasing plans could be affected by year 2000 issues if they need to expend significant resources to fix their existing systems. This situation may reduce funds available to purchase our products. Therefore, some customers may wait to purchase our products until after the year 2000, which may reduce our revenue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Compliance." OUR PRODUCTS MUST COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS The market for SAN products is characterized by the need to support industry standards as they emerge, evolve and achieve acceptance. To remain competitive, we must continue to introduce new products and product enhancements that meet these industry standards. All components of the SAN must utilize the same standards in order to operate together. Our products comprise only a part of the entire SAN and we depend on the companies that provide other components of the SAN, many of whom are significantly larger than we are, to support the industry standards as they evolve. The failure of these providers to support these industry standards could adversely affect the market acceptance of our products. In addition, in the United States, our products must comply with various regulations and standards defined by the Federal Communications Commission and Underwriters Laboratories. Internationally, products that we develop will also be required to comply with standards established by authorities in various countries. Failure to comply with existing or evolving industry standards or to obtain timely domestic or foreign regulatory approvals or certificates could materially harm our business. MANAGEMENT CAN SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH THE STOCKHOLDERS MAY NOT AGREE Our management can spend the net proceeds from this offering in ways with which the stockholders may not agree. We cannot assure you that our investments and use of the net proceeds of this offering will yield favorable returns or results. See "Use of Proceeds." OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL EXERCISE SIGNIFICANT CONTROL OVER BROCADE Upon completion of this offering, our executive officers and directors and their affiliates will beneficially own, in the aggregate, approximately % of our outstanding common stock. As a result, these stockholders will be able to exercise significant control over all matters requiring stockholder 12

14 approval, including the election of directors and approval of significant corporate transactions, which could delay or prevent someone from acquiring or merging with us. See "Principal Stockholders." PROVISIONS IN OUR CHARTER DOCUMENTS, CUSTOMER AGREEMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A CHANGE IN CONTROL OF BROCADE AND MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. These provisions include: - authorizing the issuance of preferred stock without stockholder approval; - providing for a classified board of directors with staggered, three-year terms; - prohibiting cumulative voting in the election of directors; - requiring super-majority voting to effect certain amendments to our certificate of incorporation and bylaws; - limiting the persons who may call special meetings of stockholders; - prohibiting stockholder actions by written consent; and - establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings. Certain provisions of Delaware law also may discourage, delay or prevent someone from acquiring or merging with us. Further, our agreements with certain of our customers require us to give prior notice of a change of control of Brocade and grant certain manufacturing rights following the change of control. See "Description of Capital Stock -- Preferred Stock" and "-- Delaware Law and Certain Provisions of Our Certificate of Incorporation and Bylaws." OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us. This initial public offering price may vary from the market price of our common stock after the offering. If you purchase shares of common stock, you may not be able to resell those shares at or above the initial public offering price. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: - actual or anticipated fluctuations in our operating results; - changes in financial estimates by securities analysts; - changes in market valuations of other technology companies; - announcements by us or our competitors of significant technical innovations, contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - losses of major OEM customers; - additions or departures of key personnel; and - sales of common stock in the future. 13

15 In addition, the stock market has experienced extreme volatility that often has been unrelated to the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of our performance. You should read the "Underwriters" section for a more complete discussion of the factors to be considered in determining the initial public offering price of our common stock. OUR BUSINESS MAY BE HARMED BY CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources. WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH WOULD LIMIT OUR ABILITY TO GROW We believe that the net proceeds of this offering, together with our existing cash balances, credit facilities and cash flow expected to be generated from future operations, will be sufficient to meet our capital requirements at least through the next 12 months. However, we may be required, or could elect, to seek additional funding prior to that time. In the event we are required to raise additional funds we may not be able to do so on favorable terms, if at all. Further, if we issue equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. See "Use of Proceeds," "Dilution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK PRICE Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. Sales of a substantial number of shares of our common stock after this offering could cause our stock price to fall. In addition, the sale of these shares could impair our ability to raise capital through the sale of additional stock. See "Shares Eligible for Future Sale." YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price is expected to be substantially higher than the book value per share of our outstanding common stock immediately after the offering. Accordingly, if you purchase common stock in the offering, you will incur immediate dilution of approximately $ in the book value per share of our common stock from the price you pay for our common stock. This calculation assumes that you purchase our common stock for $ per share. See "Dilution." 14

16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intend," "potential" or "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks outlined under "Risk Factors" and elsewhere in this prospectus. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus or to conform such statements to actual results. 15

17 USE OF PROCEEDS We estimate that our net proceeds from the sale of the shares of common stock we are offering will be approximately $ , or $ if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and our estimated offering expenses. We expect to use a portion of the net proceeds to repay outstanding indebtedness under our bank credit facility and our equipment loan agreement. Borrowings under our credit facility bear interest at the bank's prime rate, which was 7.8% per annum as of January 31, 1999, and indebtedness under our equipment loan agreement bears interest at the bank's prime rate plus 1%. At January 31, 1999, the principal amount of outstanding indebtedness under our credit facility and our equipment loan agreement was $1.7 million and $2.7 million, respectively. We expect to use the balance of the net proceeds for general corporate purposes, including capital expenditures and working capital. A portion of the net proceeds may also be used for the acquisition of businesses, products and technologies that are complementary to ours. We have no current plans, agreements or commitments and are not currently engaged in any negotiations with respect to any acquisition. Pending such uses, we will invest the net proceeds of this offering in investment grade, interest-bearing securities. DIVIDEND POLICY We have not paid any cash dividends since our inception, and we do not intend to pay any cash dividends in the foreseeable future. In addition, the terms of our credit agreements prohibit the payment of dividends on our capital stock. 16

18 CAPITALIZATION The following table sets forth our short-term debt and capitalization as of January 31, 1999: - on an actual basis; - on a pro forma basis to reflect the assumed exercise of warrants to purchase 296,881 shares of preferred stock at an exercise price of $6.78 per share prior to this offering and the subsequent conversion of all outstanding shares of preferred stock into 14,623,614 shares of common stock; and - on a pro forma as adjusted basis to reflect our reincorporation in Delaware and the sale of the common stock in this offering at an assumed initial public offering price of $ per share and the application of the net proceeds, after deducting estimated underwriting discounts and commissions and our estimated offering expenses. The outstanding share information excludes 2,082,471 shares of common stock issuable on exercise of options outstanding as of January 31, 1999 with a weighted average exercise price of $1.95 per share, 287,788 shares of common stock issuable upon exercise of warrants outstanding as of January 31, 1999 with a weighted average exercise price of $1.37 per share, and 466,516 shares of common stock reserved for additional option grants under our stock plans as of January 31, 1999. In addition, subsequent to January 31, 1999, 1,000,000 shares have been reserved under our stock plans. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes to the financial statements. See "Use of Proceeds" and "Management -- Employee Benefit Plans." <TABLE> <CAPTION> AS OF JANUARY 31, 1999 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED --------- ---------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <S> <C> <C> <C> Short-term debt........................................... $ 3,644 $ 3,644 $ ======== ======== ======== Long-term portion of debt and capital lease obligations... $ 1,808 $ 1,808 $ Redeemable convertible preferred stock, no par value, 9,791,280 shares authorized, 9,235,448 issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted........ 35,261 -- Warrants to purchase redeemable convertible preferred stock................................................... 648 324 Stockholders' equity (deficit): Preferred stock, $.001 par value, no shares authorized, issued or outstanding, actual; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma as adjusted...................... Common stock, $.001 par value, 30,000,000 shares authorized, 7,408,167 shares issued and outstanding, actual; 50,000,000 shares authorized, 22,031,781 shares issued and outstanding, pro forma; 50,000,000 shares authorized, issued and outstanding, pro forma as adjusted................................ 10,309 47,907 Additional paid-in capital.............................. -- -- Notes receivable from stockholders...................... (4,899) (4,899) Deferred compensation................................... (2,566) (2,566) Accumulated deficit..................................... (30,669) (30,669) -------- -------- -------- Total stockholders' equity (deficit)................. (27,825) 9,773 -------- -------- -------- Total capitalization............................ $ 13,536 $ 15,549 $ ======== ======== ======== </TABLE> 17

19 DILUTION The pro forma net tangible book value of our common stock as of January 31, 1999, was approximately $9.8 million, or $.44 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by 22,031,781 shares of common stock outstanding after giving effect to the assumed exercise of warrants to purchase 296,881 shares of preferred stock at an exercise price of $6.78 per share prior to this offering and the subsequent conversion of all outstanding shares of preferred stock into shares of common stock upon completion of this offering. After giving effect to our sale of shares of common stock in this offering at an assumed initial offering price of $ per share and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses, our net tangible book value as of January 31, 1999, would have been $ million or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to purchasers of common stock in this offering, as illustrated in the following table: <TABLE> <S> <C> <C> Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of January 31, 1999............................................... $.44 Increase per share attributable to new investors.......... ---- Pro forma net tangible book value per share after this offering.................................................. ---- Dilution per share to new investors......................... ==== </TABLE> The following table sets forth on a pro forma basis as of January 31, 1999, after giving effect to the assumed exercise of warrants to purchase 296,881 shares of preferred stock at an exercise price of $6.78 per share prior to this offering, the subsequent conversion of all outstanding shares of preferred stock into common stock upon completion of this offering, the differences between the existing stockholders and the purchasers of shares in this offering, at the assumed initial public offering price of $ per share, with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share: <TABLE> <CAPTION> SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------- ---------------------- PRICE PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ----------- ------- --------- <S> <C> <C> <C> <C> <C> Existing stockholders..... 22,031,781 % $43,917,000 % $1.99 New stockholders.......... ---------- ----- ----------- ----- Total........... 100.0% $ 100.0% ========== ===== =========== ===== </TABLE> As of January 31, 1999, there were options outstanding to purchase a total of 2,082,471 shares of common stock at a weighted average exercise price of $1.95 per share. In addition, as of January 31, 1999, there were warrants outstanding to purchase 287,788 shares of common stock on an as converted basis at a weighted average exercise price of approximately $1.37 per share, which we have assumed will not be exercised prior to this offering. To the extent outstanding options or warrants are exercised, there will be further dilution to new investors. See "Management -- Employee Benefit Plans" and notes 6 and 7 to our financial statements. 18

20 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with our financial statements and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and other financial information appearing elsewhere in this prospectus. The statement of operations data set forth below for each of the years in the three-year period ended October 31, 1998 and the balance sheet data as of October 31, 1997 and 1998 are derived from, and qualified by reference to, our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the period from inception on August 24, 1995 to October 31,1995 and the balance sheet data as of October 31, 1995 and 1996 are derived from audited financial statements not included herein. The statement of operations data for the three-month periods ended January 31, 1998 and 1999 and the balance sheet data as of January 31, 1999 are derived from unaudited financial statements appearing elsewhere in this prospectus which, in the opinion of our management, reflect all normal recurring adjustments that we consider necessary for a fair presentation of such information in accordance with generally accepted accounting principles. Operating results for the three months ended January 31, 1999 are not necessarily indicative of the results that may be expected for the full fiscal year. <TABLE> <CAPTION> THREE MONTHS ENDED PERIOD ENDED OCTOBER 31, JANUARY 31, -------------------------------------- ----------------------- 1995 1996 1997 1998 1998 1999 ------ ------- -------- -------- -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> STATEMENT OF OPERATIONS DATA: Revenues: Product revenue....................... $ -- $ -- $ 8,482 $ 22,414 $ 7,824 $ 6,429 License revenue....................... -- -- -- 1,832 26 1,578 ------ ------- -------- -------- -------- ------- Total revenues................. -- -- 8,482 24,246 7,850 8,007 Cost of revenues........................ -- -- 6,682 15,759 4,697 3,321 ------ ------- -------- -------- -------- ------- Gross profit............................ -- -- 1,800 8,487 3,153 4,686 ------ ------- -------- -------- -------- ------- Operating expenses: General and administrative............ 52 575 1,464 3,813 639 741 Sales and marketing................... -- 152 2,112 5,154 1,074 1,729 Research and development.............. 124 3,091 7,666 14,744 2,838 2,905 Amortization of deferred compensation........................ -- -- -- 7 -- 1,157 ------ ------- -------- -------- -------- ------- Total operating expenses....... 176 3,818 11,242 23,718 4,551 6,532 ------ ------- -------- -------- -------- ------- Loss from operations.................... (176) (3,818) (9,442) (15,231) (1,398) (1,846) Other income (expense).................. 10 (116) (177) 120 43 7 ------ ------- -------- -------- -------- ------- Net loss................................ $ (166) $(3,934) $ (9,619) $(15,111) $ (1,355) $(1,839) ====== ======= ======== ======== ======== ======= Basic net loss per share................ $ -- $ (9.50) $ (4.82) $ (4.44) $ (.53) $ (.42) ====== ======= ======== ======== ======== ======= Shares used in computing basic net loss per share............................. -- 414 1,997 3,400 2,570 4,349 ====== ======= ======== ======== ======== ======= Pro forma basic net loss per share (unaudited)........................... $ (.84) $ (.10) ======== ======= Shares used in computing pro forma basic net loss per share (unaudited)........ 17,915 18,973 ======== ======= </TABLE> <TABLE> <CAPTION> AS OF OCTOBER 31, AS OF -------------------------------------- JANUARY 31, 1995 1996 1997 1998 1999 ------ ------- -------- -------- ----------- (IN THOUSANDS) (UNAUDITED) <S> <C> <C> <C> <C> <C> <C> BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........................... $1,168 $ 700 $ 2,552 $ 10,420 $ 10,137 Working capital......................... 922 104 15,334 5,276 4,500 Total assets............................ 1,549 2,605 26,100 21,301 24,576 Long-term portion of debt and capital lease obligations..................... -- 874 1,954 2,209 1,808 Redeemable convertible preferred stock................................. 1,411 4,613 30,359 35,261 35,261 Total stockholders' deficit............. (166) (3,957) (13,458) (27,355) (27,825) </TABLE> 19

21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and the related notes included elsewhere in this prospectus. OVERVIEW We are a provider of Fibre Channel switching solutions for storage area networks, or SANs. We sell our SAN switching solutions through leading storage systems and server OEMs, including Compaq Computer, Dell Computer, McDATA Corporation, Sequent Computer Systems and StorageTek. These OEMs and our system integrator customers combine our switching solutions with other system elements and services for enterprise data centers. From our inception in August 1995 through April 1997, our operating activities related primarily to developing our research and development capabilities, building an ASIC design infrastructure, developing, prototyping and testing our SilkWorm products, staffing our administrative, marketing and sales organizations and establishing relationships with OEMs. In the three months ended July 31, 1997, we commenced volume shipments of our SilkWorm switch. Since our inception we have incurred significant losses and as of January 31, 1999, we had an accumulated deficit of $30.7 million. Our revenue is derived primarily from sales of our SilkWorm family of products. Additionally, we have recognized licensing revenue in connection with the licensing of certain technology rights to a customer. In fiscal 1998, sales to Sequent and McDATA accounted for 72% and 11% of our total revenues, respectively, and in the three months ended January 31, 1999, Sequent and McDATA accounted for 37% and 33% of our total revenues, respectively. These percentages exclude deferred revenue, which is discussed further below. The level of sales to any customer may vary from quarter to quarter. However, we expect that significant customer concentration will continue for the foreseeable future. We currently sell substantially all of our products through several major OEMs. The initial evaluation and product qualification cycle with OEMs typically takes six to 12 months and includes technical evaluation, integration, testing, product launch planning and execution. Our sales strategy also includes recruiting system integrators with a Fortune 500 data center presence and the technical resources to design, implement and support SANs. To date, substantially all of our sales have been in the United States. However, we have launched sales and marketing efforts in Europe and have a distributor in Japan. Product revenue is recognized when products are shipped to customers, unless at the time of shipment product returns cannot be estimated or significant support services are required to successfully launch the customer's products. In the three months ended January 31, 1999, several of our customers were implementing SAN solutions, including our product, for their end-users for the first time. Given the recent adoption of the SAN model and Brocade's solution by these OEMs and because substantial Brocade services were required to support these OEMs' product launches, the revenue related to shipments to these OEM customers has been deferred. The deferred revenue will be recognized on a customer-by-customer basis as each customer successfully completes its product launch. Similarly, revenue is deferred for new products that have not completed the beta test phase. For the three months ended January 31, 1999, $3.4 million of revenue was deferred. It is expected that this deferred revenue will be recognized in fiscal 1999. We believe that, as the SAN market matures, this revenue deferral method for new customers may not be necessary. We do not provide our customers with product return programs. We provide a reserve for warranty returns based on our warranty history. License revenue is 20

22 recognized when collection is reasonably assured. We do not anticipate significant licensing revenues in the future. From fiscal 1997 to fiscal 1998 our average unit selling price decreased 26.0% primarily due to the introduction of the SilkWorm Express, a lower port count product. We expect continued declines in our average unit selling price due to anticipated increases in per customer sales volume, the impact of competitive pricing pressures and new product introductions. Our gross margins will be affected by declines in average unit selling prices, fluctuations in manufacturing volumes and component costs, the mix of products sold and the introduction of new products. Additionally, our gross margins may be impacted by the mix of distribution channels through which our products are sold. In July 1998, we outsourced our manufacturing and the majority of our supply chain management operations. Accordingly, a significant portion of our cost of revenues consists of payments to our contract manufacturer, Solectron. We conduct quality assurance, manufacturing engineering, documentation control and repairs at our facility in San Jose, California. General and administrative expenses consist primarily of salaries and related expenses for executive, finance and human resources personnel, recruiting expenses, professional fees and other corporate expenses. We expect general and administrative expenses to increase in absolute dollars as we add personnel and incur additional costs related to the growth of our business and our operation as a public company. Selling and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in marketing, sales and customer engineering support functions, as well as costs associated with promotional and travel expenses. We believe that continued investment in sales and marketing is critical to the success of our strategy to expand our relationships with leading OEMs and to maintaining our leadership position in the SAN market. As a result, we expect these expenses to increase in absolute dollars in the future. Research and development expenses consist primarily of salaries and related personnel expenses, fees paid to consultants and outside service providers, prototyping expenses related to the design, development, testing and enhancements of our ASICs and software and the costs of computer support services. We believe that continued investment in research and development is critical to our strategic product and cost-reduction objectives. As a result, we expect these expenses to increase in absolute dollars in the future. In fiscal 1998, we initiated a plan to reduce our operating expenses by restructuring our operations. In connection with this plan, we recorded a $3.2 million restructuring charge allocated among various expense categories. In connection with the grant of certain stock options to employees during fiscal 1998 and the three months ended January 31, 1999, we recorded deferred compensation of $307,000 and $3.4 million, respectively, representing the difference between the deemed value of our common stock for accounting purposes and the option exercise price of these options at the date of grant. Deferred compensation is presented as a reduction of stockholders' equity and amortized ratably over the vesting period of the applicable options. We expensed $1.2 million of deferred compensation during the three months ended January 31, 1999. We will expense the balance ratably over the remainder of the vesting period of the options. See note 6 to our financial statements. As of January 31, 1999, we had operating loss carryforwards of approximately $20.5 million for federal purposes and $6.5 million for state purposes. The federal net operating loss carryforwards expire on various dates between 2010 and 2018, and the state net operating loss carryforwards will begin to 21

23 expire in 2003. We have provided a full valuation allowance against our deferred tax assets, consisting primarily of net operating loss carryforwards, because of the uncertainty regarding their realization. RESULTS OF OPERATIONS The following table sets forth certain financial data for the periods indicated as a percentage of total revenues. <TABLE> <CAPTION> THREE MONTHS YEAR ENDED ENDED OCTOBER 31, JANUARY 31, --------------- -------------- 1997 1998 1998 1999 ------ ----- ----- ----- (UNAUDITED) <S> <C> <C> <C> <C> Revenues: Product revenue..................................... 100.0% 92.4% 99.7% 80.3% License revenue..................................... -- 7.6 .3 19.7 ------ ----- ----- ----- Total revenues................................. 100.0 100.0 100.0 100.0 Cost of revenues...................................... 78.7 65.0 59.8 41.5 ------ ----- ----- ----- Gross margin.......................................... 21.3 35.0 40.2 58.5 ------ ----- ----- ----- Operating expenses: General and administrative.......................... 17.3 15.7 8.1 9.2 Sales and marketing................................. 24.9 21.3 13.7 21.6 Research and development............................ 90.4 60.8 36.2 36.3 Amortization of deferred compensation............... -- -- -- 14.4 ------ ----- ----- ----- Total operating expenses....................... 132.6 97.8 58.0 81.5 ------ ----- ----- ----- Loss from operations.................................. (111.3) (62.8) (17.8) (23.0) Other income (expense)................................ (2.0) .5 .5 -- ------ ----- ----- ----- Net loss.............................................. (113.3)% (62.3)% (17.3)% (23.0)% ====== ===== ===== ===== </TABLE> THREE MONTH PERIODS ENDED JANUARY 31, 1998 AND 1999 Revenues. Total revenues increased by 1.3% from $7.9 million for the three months ended January 31, 1998 to $8.0 million for the three months ended January 31, 1999. This increase was due to license revenue of $1.6 million in the three months ended January 31, 1999. There was no significant license revenue in the comparable three month period in fiscal 1998 and we do not anticipate significant licensing revenues in the future. This increase was substantially offset by a decrease in product revenue of $1.4 million primarily due to the deferral of $3.4 million of product revenue in connection with shipments to new customers, In addition, product revenue was adversely affected by a decline in average unit selling prices resulting from the introduction of the SilkWorm Express, a lower port count product. Gross profit. Gross profit increased from $3.2 million for the three months ended January 31, 1998 to $4.7 million for the three months ended January 31, 1999. Gross margin increased from 40.2% for the three months ended January 31, 1998 to 58.5% for the three months ended January 31, 1999. The increases were due to lower manufacturing costs and the recognition of $1.6 million in non-recurring license revenue for the three months ended January 31, 1999, which had no related direct cost of revenues. General and administrative expenses. General and administrative expenses increased by 16.0% from $639,000 for the three months ended January 31, 1998 to $741,000 for the three months ended 22

24 January 31, 1999. This increase was due primarily to increased legal expenses related to pending litigation. See "Business -- Legal Proceeding." Sales and marketing expenses. Sales and marketing expenses increased by 60.9% from $1.1 million for the three months ended January 31, 1998 to $1.7 million for the three months ended January 31, 1999. This increase was due primarily to an increase in personnel. Sales and marketing personnel totalled 17 and 30 for the three months ended January 31, 1998 and 1999, respectively. Research and development expenses. Research and development expenses increased by 2.4% from $2.8 million for the three months ended January 31, 1998 to $2.9 million for the three months ended January 31, 1999. The increase primarily resulted from the increased cost of prototype materials. Amortization of deferred compensation. During fiscal 1998 and the three months ended January 31, 1999, we recorded total deferred compensation of $3.7 million in connection with stock option grants. We are amortizing this amount over the vesting periods of the applicable options, resulting in amortization expense of $1.2 million for the three months ended January 31, 1999. YEARS ENDED OCTOBER 31, 1996, 1997 AND 1998 Revenues. We shipped our first commercial product in the second quarter of fiscal 1997, generating revenues of $8.5 million for the year. Total revenues increased by 185.0% to $24.2 million in fiscal 1998 reflecting the ramp-up of sales to a significant OEM customer, the introduction of the SilkWorm Express product and the recognition of $1.8 million in license revenue. Unit shipments of SilkWorm increased by 242.0% from fiscal 1997 to fiscal 1998. However, average unit selling prices decreased by 26.0% in fiscal 1998, due primarily to the introduction of SilkWorm Express, a lower port count product. Gross Profit. Gross profit increased from $1.8 million in fiscal 1997 to $8.5 million in fiscal 1998. Gross margin increased from 21.3% in fiscal 1997 to 35.0% in fiscal 1998. Fiscal 1997 cost of revenues included higher component and manufacturing costs associated with the lower initial production volumes, as well as overhead costs which were applied to a relatively low number of units produced. In fiscal 1998, cost of revenues was also reduced as a result of the decision to outsource all manufacturing activities during the year. In addition, there were no significant costs associated with $1.8 million of license revenue in fiscal 1998, resulting in an overall gross margin increase. However, this increase was somewhat offset by a $1.3 million restructuring charge resulting from a change in contract manufacturers. General and administrative expenses. General and administrative expenses increased from $575,000 for fiscal 1996 to $1.5 million for fiscal 1997 and to $3.8 million for fiscal 1998. These increases were primarily due to increased staffing and associated expenses necessary to manage and support our increased scale of operations. Fiscal 1998 expenses were also affected by costs related to a business restructuring which totaled $1.2 million, primarily related to headcount reduction and severance arrangements for our former Chief Executive Officer. Sales and marketing expenses. Sales and marketing expenses increased from $152,000 in fiscal 1996 to $2.1 million in fiscal 1997 and to $5.2 million in fiscal 1998. The increases reflect the hiring of additional sales and marketing personnel. Sales and marketing personnel totaled 12 and 24 at the end of fiscal 1997 and fiscal 1998, respectively. Research and development expenses. Research and development expenses increased from $3.1 million in fiscal 1996 to $7.7 million in fiscal 1997 and to $14.7 million in fiscal 1998. These increases reflect significant research and development efforts required to bring the SilkWorm and SilkWorm Express products to market and to begin development of second generation products. The 23

25 increase in fiscal 1998 expenses also reflects restructuring costs associated with the cancellation of a development project. Amortization of deferred compensation. During fiscal 1998 and the three months ended January 31, 1999, we recorded total deferred compensation of $3.7 million in connection with stock options grants. We are amortizing this amount over the vesting periods of the applicable options, resulting in amortization expense of $7,000 in fiscal 1998. 24

26 QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited statement of operations data for each of the seven quarters ended January 31, 1999, as well as such data expressed as a percentage of our total revenues for the quarters presented. This unaudited quarterly information has been prepared on the same basis as our audited financial statements and, in the opinion of our management, reflects all normal recurring adjustments that we consider necessary for a fair presentation of the information for the periods presented. Operating results for any quarter are not necessarily indicative of results for any future period. <TABLE> <CAPTION> THREE MONTHS ENDED --------------------------------------------------------------------------------------- JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1997 1997 1998 1998 1998 1998 1999 -------- ----------- ----------- --------- -------- ----------- ----------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> Revenues: Product revenue....................... $ 1,534 $ 6,347 $ 7,824 $ 5,134 $ 4,056 $ 5,400 $ 6,429 License revenue....................... -- -- 26 1,286 513 7 1,578 ------- ------- ------- ------- ------- ------- ------- Total revenues...................... 1,534 6,347 7,850 6,420 4,569 5,407 8,007 Cost of revenues........................ 1,212 4,435 4,697 3,672 4,351 3,039 3,321 ------- ------- ------- ------- ------- ------- ------- Gross profit............................ 322 1,912 3,153 2,748 218 2,368 4,686 ------- ------- ------- ------- ------- ------- ------- Operating expenses: General and administrative............ 378 462 639 624 1,979 571 741 Sales and marketing................... 616 839 1,074 1,302 1,444 1,334 1,729 Research and development.............. 2,046 2,847 2,838 3,457 5,016 3,433 2,905 Amortization of deferred compensation........................ -- -- -- -- -- 7 1,157 ------- ------- ------- ------- ------- ------- ------- Total operating expenses............ 3,040 4,148 4,551 5,383 8,439 5,345 6,532 ------- ------- ------- ------- ------- ------- ------- Loss from operations.................... (2,718) (2,236) (1,398) (2,635) (8,221) (2,977) (1,846) Other income (expense).................. (50) (119) 43 120 114 (157) 7 ------- ------- ------- ------- ------- ------- ------- Net loss................................ $(2,768) $(2,355) $(1,355) $(2,515) $(8,107) $(3,134) $(1,839) ======= ======= ======= ======= ======= ======= ======= </TABLE> <TABLE> <CAPTION> AS A PERCENTAGE OF TOTAL REVENUES --------------------------------------------------------------------------------------- JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 1997 1997 1998 1998 1998 1998 1999 -------- ----------- ----------- --------- -------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Revenues: Product revenue....................... 100.0% 100.0% 99.7% 80.0% 88.8% 99.9% 80.3% License revenue....................... -- -- .3 20.0 11.2 .1 19.7 ------- ------- ------- ------- ------- ------- ------- Total revenues...................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues........................ 79.0 69.9 59.8 57.2 95.2 56.2 41.5 ------- ------- ------- ------- ------- ------- ------- Gross margin............................ 21.0 30.1 40.2 42.8 4.8 43.8 58.5 ------- ------- ------- ------- ------- ------- ------- Operating expenses: General and administrative............ 24.6 7.3 8.1 9.7 43.3 10.6 9.2 Sales and marketing................... 40.2 13.2 13.7 20.3 31.6 24.7 21.6 Research and development.............. 133.4 44.8 36.2 53.8 109.8 63.5 36.3 Amortization of deferred compensation........................ -- -- -- -- -- .1 14.4 ------- ------- ------- ------- ------- ------- ------- Total operating expenses............ 198.2 65.3 58.0 83.8 184.7 98.9 81.5 ------- ------- ------- ------- ------- ------- ------- Loss from operations.................... (177.2) (35.2) (17.8) (41.0) (179.9) (55.1) (23.0) Other income (expense).................. (3.2) (1.9) .5 1.8 2.5 (2.9) -- ------- ------- ------- ------- ------- ------- ------- Net loss................................ (180.4)% (37.1)% (17.3)% (39.2)% (177.4)% (58.0)% (23.0)% ======= ======= ======= ======= ======= ======= ======= </TABLE> 25

27 Revenues. Our total revenues increased each quarter from our initial product introduction during the three months ended April 30, 1997 through the three months ended January 31, 1998 when total revenues reached $7.9 million. The substantial increase in total revenues for the three-month periods ended October 31, 1997 and January 31, 1998 primarily resulted from purchases by an OEM customer in connection with the customer's product launch and hub replacement program. Total revenues decreased to $6.4 million and $4.6 million for the three-month periods ended April 30, and July 31, 1998 due to reduced purchases by the same customer because of their inventory position. Since July 31, 1998, total revenues have increased each quarter, primarily as a result of an expanded customer base. Gross margin. Gross margin has generally increased each quarter since we commenced volume shipments in the three months ended July 31, 1997. Gross margin increased from 21.0% in the three months ended July 31, 1997 to 58.5% in the three months ended January 31, 1999. These increases have been due to reduced production costs on a per unit basis as manufacturing volumes increased, a reduction in manufacturing costs due to increased use of outsourcing and nonrecurring license revenue in the three months ended January 31, 1999. The only exception to this trend was in the third quarter of fiscal 1998 when gross margin decreased to 4.8%. This decrease was due primarily to a corporate restructuring charge of $1.3 million associated with the outsourcing of manufacturing which resulted in a reduction of internal manufacturing personnel and the write-off of excess and obsolete inventory. Operating expenses. Operating expenses increased each quarter until our restructuring in the three months ended July 31, 1998. In connection with this restructuring plan, we recorded a $1.9 million charge to operating expenses, which included a $700,000 charge to research and development expenses and a $1.2 million charge to general and administrative expenses. The restructuring charge included costs associated with a reduction of personnel in these areas, the write-off of excess equipment and the write-off of other tangible and intangible assets related to the cancellation of certain development and simulation projects. As a result of these charges, total operating expenses declined in absolute dollars for the three-month periods ended October 31, 1998 and January 31, 1999. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations to date primarily through the sale of preferred stock, for aggregate proceeds of approximately $35.8 million, capital equipment lease lines and bank debt. During fiscal 1996, cash utilized by operating activities was $3.4 million, compared to $7.3 million in fiscal 1997 and $11.6 million in fiscal 1998. The increases in cash utilized in fiscal 1997 and 1998 reflected the increased working capital required to fund expanding operations and increases in inventory and accounts receivable. Capital expenditures were $1.5 million in fiscal 1996, $3.4 million in 1997 and $3.8 million in 1998. These expenditures reflect our investments in computer equipment, software development tools and facilities, which were required to support our business expansion. Our principal sources of liquidity as of January 31, 1999 consisted of $10.1 million in cash and cash equivalents and our bank credit facility. The credit facility includes a revolving line of credit providing borrowings up to the lesser of $4.0 million or 80% of eligible accounts receivable and an equipment loan agreement providing for financing up to $5.0 million. Borrowings under the revolving line of credit bear interest at the bank's prime rate, which was 7.8% at January 31, 1999, are secured by our accounts receivable and inventory, and are payable in August 1999. Borrowings under the equipment loan agreement bear interest at the bank's prime rate plus 1.0%, are secured by the related capital equipment and are payable through June 30, 2002. The line of credit and equipment loan contain provisions that prohibit the payment of cash dividends and require the maintenance of specified levels of tangible net worth and certain financial ratios measured on a monthly basis. As of January 31, 1999, there were borrowings under the revolving line of credit of $1.7 million and under the equipment financing of 26

28 $2.7 million. We intend to pay off our existing line of credit and equipment loan with a portion of the net proceeds of this offering. We believe the net proceeds of this offering, together with our existing cash balances and credit facilities and cash flow expected to be generated from future operations, will be sufficient to meet our capital requirements at least through the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time. Our future capital requirements will depend on many factors, including the rate of revenue growth, the timing and extent of spending to support product development efforts and expansion of sales and marketing, the timing of introductions of new products and enhancements to existing products, and market acceptance of our products. There can be no assurances that additional equity or debt financing, if required, will be available on acceptable terms or at all. YEAR 2000 COMPLIANCE Impact of the year 2000 computer problem. The year 2000 computer problem refers to the potential for system and processing failures of date-related data as a result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date represented as "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. State of readiness of our products. We have been testing our existing products for use in the year 2000 and beyond, and believe all of our products are year 2000 compliant. However, our testing does not cover every possible computing environment. Accordingly, some customers may have year 2000 problems with products that we believe are year 2000 compliant. State of readiness of our internal systems. Our business may be affected by year 2000 issues related to non-compliant internal systems developed by us or by third-party vendors. We are obtaining assurances from our third-party vendors for all material systems in use by us that such systems are year 2000 compliant. We are not currently aware of any year 2000 problem relating to any of our internal, material systems. We plan to test all such systems for year 2000 compliance before the end of our fiscal year. We do not believe that we have any significant systems that contain embedded chips that are not year 2000 compliant. Our internal operations and business are also dependent upon the computer-controlled systems of third parties such as suppliers, customers and service providers. We believe that absent a systemic failure outside our control, such as a prolonged loss of electrical or telephone service, year 2000 problems at such third parties will not have a material impact on our operations. Cost. Based on our assessment to date, we do not anticipate that costs associated with remediating our internal systems will exceed $250,000. Risks. Any failure by us to make our products year 2000 compliant could result in a decrease in sales of our products, an increase in allocation of resources to address year 2000 problems of our customers without additional revenue commensurate with such dedication of resources, or an increase in litigation costs relating to losses suffered by our customers due to such year 2000 problems. Failures of our internal systems could temporarily prevent us from processing orders, issuing invoices, and developing products, and could require us to devote significant resources to correcting such problems. Due to the general uncertainty inherent in the year 2000 computer problem resulting from the uncertainty of the year 2000 readiness of third-party suppliers and vendors, we are unable to determine at this time whether the consequences of year 2000 failures will have a material impact on our business. 27

29 RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. We have not had significant software sales to date and do not expect the adoption of SOP 98-9 to have a significant effect on our financial condition or results of operations. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the nature of our short-term investments, we have concluded that there is no material market risk exposure. Therefore, no quantitative tabular disclosures are required. 28

30 BUSINESS OVERVIEW We are the leading provider of Fibre Channel switching solutions for storage area networks, or SANs, which apply the benefits of a networked approach to the connection of storage systems and servers. Our family of SilkWorm switches enables enterprises to cost-effectively manage growth in their storage capacity requirements, improve the performance between their servers and storage systems and increase the size and scope of their SAN, while allowing them to operate data-intensive applications, such as reliable backup and restore, and disaster recovery, on the SAN. We sell our SAN switching solutions through leading storage systems and server OEMs, including Compaq Computer, Dell Computer, McDATA Corporation, Sequent Computer Systems and StorageTek. These OEMs and our system integrator customers combine our switching solutions with other system elements and services for enterprise data centers. INDUSTRY BACKGROUND BUSINESS-CRITICAL DATA STORAGE REQUIREMENTS The last decade has seen an explosion in the volume of business-critical data that is being captured, processed, stored and manipulated in business environments. This has fueled an increase in demand for data storage capacity. According to International Data Corporation, an independent industry research company, from 1994 to 2002, shipments of direct access storage capacity, which excludes tape and optical storage, are expected to increase more than a hundredfold. Efficient data storage and management is becoming one of the most important aspects of business-critical decision making. Increased reliance on applications ranging from business intelligence and decision support, data warehousing and data mining of large databases, disaster tolerance and recovery, enterprise software, and imaging and graphics have all contributed to this trend. In addition, the development of Web-based business operations and e-commerce in particular, has intensified the demand placed on data centers. Customer interactions over the Web have increased operational focus on the performance, scalability, management and flexibility of systems that use business-critical data. This dependence on data for fundamental business processes by employees, customers and suppliers has greatly increased the number of input and output transactions, or I/Os, required of storage systems and servers. In addition, the complexity of enterprise computing and storage is further compounded by the use of multiple incompatible server operating systems, such as the proliferation of Windows NT in traditional UNIX environments. As a result, organizations are being forced to dedicate substantial financial and personnel resources to manage and maintain the distributed storage capabilities of their networks. BOTTLENECK IN STORAGE AND SERVER CONNECTIONS Despite the increased attention and resources which have been devoted to data storage requirements, the technical capabilities of data storage systems have not kept pace with increasing data management demands and with the advancements in other networking technologies. In the 1980s, the near ubiquity of PCs, workstations and servers required broader connectivity, resulting in the development of local and wide area networks to support messaging between computer systems. The data used by computers and servers connected to local and wide area networks are typically located on storage systems and servers, which store, process and manipulate data. The adoption of high speed messaging technologies such as gigabit Ethernet and asynchronous transfer mode, or ATM, increased local and wide area network transmission speeds by more than 1,000 times during the 1990s. However, storage-to-server data transmission speeds increased by less than ten times during this period, creating a bottleneck between the local or wide area network and business-critical storage systems and servers. 29

31 Traditionally, distributed systems have linked a single server with a limited number of storage systems in close proximity. The Small Computer Systems Interface, or SCSI, standard was adopted as the I/O interface standard for storage-to-server and server-to-server connections in the 1980s. SCSI is a parallel interface that permits throughput of 20 to 40 megabytes per second. SCSI's throughput limitations have become much more pronounced as local and wide area network transmission technologies have migrated from Ethernet, which transfers data at 10 megabits per second, to gigabit Ethernet, which transfers data at 1,000 megabits per second. In addition, SCSI allows a maximum transmission distance of only 12 meters and supports just 32 devices on a single bus. As a result, SCSI does not adequately support the increasing requirements for speed, scalability and flexibility of today's data-intensive enterprises. INTRODUCTION AND STANDARDIZATION OF FIBRE CHANNEL In response to the demand for high-speed and high-performance storage-to-server and server-to-server connectivity, the Fibre Channel protocol, an industry standard networking protocol, was developed in the early 1990s. The Fibre Channel interconnect standard received American National Standards Institute, or ANSI, approval in 1994 and has subsequently earned broad support from industry and independent testing laboratories. Fibre Channel supports large data block transfers at gigabit speeds and is therefore well suited for data transfers between storage systems and servers. It also supports multiple protocols such as SCSI and Internet Protocol, or IP. Furthermore, it provides transmission reliability with guaranteed delivery and transmission distances of up to 10 kilometers. Fibre Channel complements and supports advancements in local and wide area network technologies, such as gigabit Ethernet and ATM, which are not effective for large block data intensive transfers. ADVENT OF THE STORAGE AREA NETWORK Fibre Channel has enabled the development of a storage area network, or SAN, to meet the requirements of data centers and other data-intensive, distributed computing environments. Similar to local and wide area networks, the SAN applies the distributed computing model to storage systems and servers and takes advantage of the inherent benefits of a networked approach. These benefits include the decoupling of storage systems and servers, increasing scalability and providing a higher level of connectivity than currently exists in the SCSI environment. Additionally, the SAN provides high-speed connectivity for data-intensive applications across multiple operating systems, including UNIX and Windows NT. By bringing networking technology into the data center, a SAN also provides increased flexibility, fault tolerance, ease of management and lower total cost of ownership. The SAN market is expected to grow substantially as organizations embrace this emerging solution. According to the Gartner Group, an independent industry research company, more than 70% of shared storage in networked environments is projected to be reorganized into SANs by the year 2002. The simplest SAN configuration is a loop topology, which is similar to traditional SCSI-based distributed systems and interconnects multiple nodes over a shared Fibre Channel networking device, such as a hub. A Fibre Channel hub can support up to 126 devices, but the available bandwidth is shared among all the devices, resulting in signal and performance degradation as the number of devices in the loop increases. In addition, loop topologies suffer from limited network management and fault isolation capabilities. For example, when a single device is added to the loop, it will cause the loop to reset, resulting in application disruption. The limitations of shared networks have been addressed in local and wide area network environments by the development of switching technologies that have yielded advancements in performance, scalability, flexibility and management at competitive costs. In order for the SAN model to become more widely adopted in data centers, today's enterprises must be able to connect any device on the network to any other device on the network, or any-to-any connectivity, without performance degradation in order to effectively leverage distributed storage systems, servers, 30

32 workstations and other enterprise resources. Guaranteed reliability and availability are vital to the storage, processing and manipulation of business-critical data. Networks require dedicated connections operating at high performance levels to support large data transfer demands. Finally, data centers are characterized by a high degree of change that must be supported by a flexible network infrastructure. THE BROCADE SOLUTION We are the leading provider of Fibre Channel SAN switching solutions. We combine advanced switching technologies with our Fibre Channel technology leadership and systems expertise to provide the Brocade Fabric, comprised of Fibre Channel switches, a proprietary switch operating system, management tools, management services and ready-to-deploy configurations. Our products provide an infrastructure backbone that allows our customers to concurrently run multiple applications across the SAN, reducing congestion of local and wide area networks. Our Brocade Fabric helps enterprises cost-effectively manage the growth in storage capacity, improve server-to-storage and server-to-server performance, and increase the size and scope of their SANs, while enabling data intensive applications, such as reliable backup and restore and disaster recovery. Our solutions have the following key benefits: Address the input/output bottleneck. Deployment of SANs based on our Brocade Fabric not only enhances point-to-point bandwidth with Fibre Channel connections, but helps solve the I/O bottleneck between data storage systems and servers. Our SilkWorm family of Fibre Channel switches delivers full-duplex 1 gigabit per second performance at every port. In addition, unlike hubs or other shared devices, our switches are designed to provide any-to-any connectivity and to maintain 1 gigabit per second performance per port as additional devices are added to the SAN. Our superior frame-forwarding capability provides end-users with rapid data retrieval and allows a greater number of user transactions. Provide SAN scalability. Our modular Fibre Channel switches, supporting from two to 16 ports per switch, enable incremental growth by interconnecting or cascading multiple switches for hundreds of connections in a fully meshed configuration. Our Brocade Fabric enables enterprises to grow clusters of high performance servers or provide multiple servers with high bandwidth connections to multiple storage systems. Additionally, Fibre Channel allows connections up to 10 kilometers, enabling enterprises to interconnect separate SAN clusters or islands into a single SAN. Enable SAN applications. The Brocade Fabric creates a SAN backbone for data-intensive applications, enabling organizations to solve complex problems in data centers. Our products allow all departments within an enterprise to share data storage resources despite operating within a computing environment that includes incompatible operating systems sharing storage resources. The Brocade Fabric allows highly flexible configurations and supports a wide range of data traffic, including high throughput and low latency processing. For example, high throughput applications, such as data backup and restore, and disaster recovery can be performed on the SAN, freeing up valuable bandwidth on the local and wide area network and eliminating the need for expensive backup servers. Additionally, enterprises utilizing the Brocade Fabric for their e-commerce and other low latency transaction processing applications can leverage hundreds of storage devices and servers. Support a mission-critical data center. We have designed our solutions to provide high levels of resiliency and availability with maximum up-time for business-critical, data-intensive applications. Our switches have auto-configuration and reconfiguration capabilities that incorporate redundant and alternate data paths for frame forwarding, which enable our Brocade Fabric to be self-healing. They also support up to eight parallel links to other switches. As a result, any cable, port, switch or link failure can be isolated, providing a resilient solution. This increases the availability and up-time of the data center. Enhance SAN management. Our Brocade Fabric Operating System and our network management tools enable our customers to centrally manage storage systems and servers handling business-critical 31

33 data. Our products deliver a rich set of SAN management information that can be accessed both locally and remotely. Data-intensive connections in the enterprise can be centrally managed to share resources with other points on the network. All of these factors combine to help organizations reduce the overall costs and increase the efficiency of their data network. THE BROCADE STRATEGY Our objective is to maintain our position as the leading provider of SAN switching solutions. The key elements of our strategy include the following: Leverage our SAN switching market leadership. We believe we were the first company to provide a comprehensive Fibre Channel fabric solution and that we are the market leader based upon the number of switch ports shipped. We intend to capitalize on our first mover advantage and in-depth customer and product knowledge. We believe we are well positioned to anticipate the future requirements of the SAN marketplace. Capitalize on leadership in Fibre Channel technologies and standards. We have been a leader in the development of Fibre Channel technologies and the implementation of ANSI Fibre Channel standards. Our technology efforts are led by some of the most widely recognized members of the Fibre Channel industry. In addition, our technical personnel have substantial expertise in storage, file system, routing algorithms and network management technologies. We have also provided major contributions to many of the ANSI Fibre Channel standards that have been developed to date. We believe that taking a continued proactive role in this expanding market will enable us to extend our leading market position. Leverage core architecture. We are leveraging our core switching expertise, ASIC architectures, Brocade Fabric Operating System and Fibre Channel technology to expand our family of SilkWorm products to address the expanding SAN market. While to date we have focused on the workgroup and midrange segments of the SAN market, we intend to leverage our leadership position in these segments to broaden our reach into other segments of the SAN switch market as they emerge. We expect that the demand for SAN switching solutions in entry level applications will increase, particularly as Windows NT-based servers are increasingly used in data centers. We are developing products designed to address the specific needs of organizations that use Windows NT-based servers in anticipation of this growth. Continue to expand network of OEMs and system integrators. We intend to continue to expand our relationships with key storage system and server OEMs and system integrators, both domestically and abroad. Currently, our major OEM customers include Compaq Computer, Dell Computer, McDATA Sequent Computer Systems and StorageTek. These relationships allow us to leverage the systems and services capabilities of these industry-leading OEMs. We have also recently entered into relationships with system integrators including Cranel, Polaris, RAID Power, Tokyo Electron Ltd. and TranSoft Networks. We expect that our relationships with leading system integrators will allow us to penetrate the market opportunities by leveraging the reach of these distribution channels. Develop strategic partnerships. We are building strategic relationships with Fibre Channel component and device vendors and storage management software companies. By partnering with these organizations, we believe we can enhance SAN applications and interoperability, thereby accelerating the time to market and overall deployment and functionality of our products. 32

34 CUSTOMERS Our primary customers are OEMs. The following is a representative list of our OEM customers who have purchased more than $500,000 worth of products since the beginning of fiscal 1998: <TABLE> <S> <C> Compaq Computer Sequent Computer Systems Dell Computer StorageTek McDATA </TABLE> Sequent and McDATA accounted for approximately 72% and 11%, respectively, of our total revenues in the fiscal year ended October 31, 1998 and 37% and 33% of our total revenues, respectively, for the three-month period ended January 31, 1999. Our total revenues do not include deferred revenue. In the third quarter of fiscal 1998, we launched our system integrators program. To date, we have entered into relationships with Cranel, Polaris, RAID Power, Tokyo Electron Ltd. and TranSoft Networks. CUSTOMER SERVICE AND SUPPORT Our customer service and support organization provides technical support to our OEMs and system integrators, enabling them to provide technical support to their end-users. We prepare our OEMs and system integrator customers for product launch through a comprehensive training program. In addition, we employ systems engineers for pre- and post-sales support and technical support engineers for field support. Our OEM and system integrator customers provide primary technical support. We have developed an extensive training course for our OEM and system integrator customers. The curriculum includes Fibre Channel architecture, SAN implementation and Brocade product training. SALES AND MARKETING Our sales and marketing strategy is focused on an indirect sales model executed through OEMs and system integrators. Our distribution channels are supported by a sales and marketing organization comprised of 32 individuals, including managers, sales representatives and technical and administrative support personnel. We have entered into a relationship with a distributor in Japan, and we expect to expand our international sales activities. Our marketing effort is focused on developing strategic partnerships and relationships with industry analysts, providing customer sales support, managing new product planning and supporting industry standard initiatives. OEMs. We have established key relationships with several storage systems and server OEMs. Each OEM provides installation, service and technical support to its customers while we focus on high-level back-up support. In addition to maintaining and enhancing our relationships with our existing OEM customers, we intend to pursue relationships with additional OEMs that may offer products or distribution channels that complement ours. We believe that these relationships allow us to leverage the systems and services capabilities of our OEMs. System integrators. We have recently launched our system integrator program and have established several relationships within this channel. Although we have not experienced significant volume from this channel to date, we believe revenues from this channel may increase significantly in the future. Each system integrator provides installation, service and technical support to its customers, while we focus on integration and technical back-up support. We intend to continue to develop relationships with system integrators who may offer products or distribution channels that complement ours. 33

35 PRODUCTS Brocade provides the SilkWorm family of Fibre Channel switches, which creates a switch interconnect, enabling any-to-any connectivity between storage devices and servers. SilkWorm switches can be used individually for server clustering or storage consolidation, or cascaded with other switches to form a powerful networking infrastructure, the Brocade Fabric. Brocade's software solutions provide network administrators with tools to manage the switches and the SAN. Brocade also provides extensive Fabric services, in order to optimize the Brocade Fabric for an enterprise's particular needs. Moreover, Brocade SOLUTIONware provides instructions to enterprises on implementing SANs. SILKWORM FAMILY OF SWITCHES Our SilkWorm switches are a key element of a SAN. SilkWorm, introduced in March 1997, is a configurable 16-port switch used to connect servers to storage devices to create a SAN. File servers and storage devices can then access information anywhere on the SAN. In April 1998, Brocade introduced SilkWorm Express, an eight-port Fibre Channel switch. The SilkWorm family of switches share a common platform designed to provide the following features and benefits: - High throughput. Each port delivers a 1 gigabit per second, full-duplex data rate regardless of network connectivity. - Hardware-based data path. SilkWorm reduces latency by eliminating software processing from the path of data frames. - Management. SilkWorm supports customers' existing management solutions, such as local and wide area networks, SCSI tools and web tools. - In-order delivery of data frames. SilkWorm guarantees that frames are delivered to a destination in the same order as received by the switch from the originator. - Cut-through frame routing. Frames are sent without waiting for the entire frame or for a response back from its destination, thereby improving bandwidth utilization and minimizing transmission delays. - Cascading. SilkWorm may be connected to as many other SilkWorm switches as there are available ports creating in a meshed topology, enabling hundreds of connections and large SANs. - Flexible switch buffering. If the destination is busy, data frames are stored by a SilkWorm switch for only as long as is necessary, thereby moving data faster through the switch. - Path selection. SilkWorm identifies failures automatically and immediately, and reroutes data to alternate paths, creating a highly resilient network. - Registered state change notification. SilkWorm automatically detects changes in configuration and port status to enable quick corrective action. - Media independent. SilkWorm enables the SAN to support diverse media, including fiberoptic connections up to 10 kilometers and copper connections. - Auto-configuration. SilkWorm enhances scalability by automatically expanding the SAN as new devices are added or removed without interrupting the operation of the rest of the network. SilkWorm seamlessly incorporates more Brocade switches into the network, thereby increasing 34

36 aggregate bandwidth as connectivity increases; network services automatically expand without additional system resources. BROCADE FABRIC OPERATING SYSTEM The SilkWorm family of switches is supported by the Brocade Fabric Operating System. The Brocade Fabric Operating System provides the intelligence for the Brocade Fabric, provides services for the switch hardware, runs the value-added Brocade Fabric services such as name service, which is used to assist discovery of connected devices, monitors the status of the hardware and fabric and notifies the host operating system as devices are added to or removed from the Brocade Fabric. The Brocade Fabric Operating System provides a common platform upon which system services can be built. The Brocade Fabric Operating System is layered with well-defined application interfaces, or APIs, that allow third parties, such as data storage and data backup software vendors, to write applications that leverage Brocade's Fabric Operating System. By incorporating API technology, these third party vendors can develop applications, thereby increasing the capabilities of the overall switch fabric solution. FABRIC SERVICES Fabric services are product features that increase the functionality of the SAN. Our current Brocade Fabric Services include zoning and multicasting. Brocade Zoning is an add-on software product that allows the creation of multiple logical connectivity groups within a single SAN. By creating a zone, the SAN provides the network with benefits that would otherwise only be possible using multiple SANs. Through zoning, systems that have different operating environments, such as UNIX and Window NT, can be isolated from each other allowing both operating systems to co-exist on a single SAN. Zoning can be used to create functional areas in the fabric and designate closed user groups for greater security and control. Also, zoning facilitates time-sensitive functions, such as creating a temporary zone used to backup storage devices that are members of other zones. Brocade Zoning offers dynamic configuration and an unlimited number of zones. Finally, Brocade Zoning allows devices to be a member of more than one zone thereby increasing flexibility. Brocade Multicasting enables up to 32 groups of devices to replicate data in a one-to-one method or in a one-to-many method. By accomplishing this replication through hardware, Brocade is able to maintain high throughput. SOLUTIONWARE Brocade's SOLUTIONware is a set of application notes that facilitates the implementation of SAN solutions incorporating products and applications from multiple vendors, including Brocade. These applications notes include specific details including equipment requirements, software specifics, detailed installation instructions and tested application software. This enables OEMs and system integrators to replicate high performance solutions. Our first SOLUTIONware release, Brocade Tape Backup and Restore, provides customers with a detailed road map to address their data backup needs using Brocade's products. MANAGEMENT TOOLS Brocade Web Tools is an add-on software product that helps to remotely manage a SAN of our SilkWorm family of switches via the Internet or intranet. The information technology administrator can 35

37 log onto a switch from a host with a java-based Web browser. From that switch, the administrator can monitor the status and performance of any switch in the SAN. TECHNOLOGY FIBRE CHANNEL. Fibre Channel is an industry-standard, open protocol for server-to-storage and server-to-server connectivity and data-intensive transfers. Fibre Channel combines the high-speed I/O capabilities of a channel technology with the increased functionality of a networking technology to seamlessly connect and transfer data from one device to another. Fibre Channel, which was designed for storage systems and is well suited for SANs. It offers a single network for both server clustering and shared storage. It accommodates both high throughput and low latency dependent traffic required for large block data transfers and inter-processor communication messages. We believe the following characteristics of Fibre Channel make it more suitable for data-intensive and storage related applications than either gigabit Ethernet or ATM, two widely used networking protocols: - Fibre Channel has an industry standard interconnect rate of 1 gigabit per second per port that is expected to increase to 2 gigabits per second in 1999 as compared to gigabit Ethernet's, 1 gigabit per second and ATM's 622 megabits per second speeds. - Fibre Channel is designed to transmit large packets of information and is therefore well-suited for data-intensive applications as compared to gigabit Ethernet and ATM, which use smaller packets and are designed for smaller but more frequent data transfers; - Fibre Channel relies more on hardware than software during data transfers and therefore, is better suited to handle the higher speeds and low latency required during data transfers; - In addition to supporting networking protocols including IP, Fibre Channel also supports I/O storage protocols like SCSI; - Unlike gigabit Ethernet and ATM, which can lose or drop packets due to congestion, Fibre Channel manages packet flow to ensure delivery; and - Fibre Channel relieves each port from the responsibility of station management and instead delegates that responsibility to the interconnect device. Therefore, each Fibre Channel port only has to manage a single point-to-point connection between itself and an interconnect device. SILKWORM ARCHITECTURE Brocade is focused on implementing Fibre Channel standards in the Brocade Fabric. We utilize a layered architecture to provide a high performance, flexible, and extensible solution. This architecture is comprised of media interfaces, a switching platform, the Brocade Fabric Operating System and value- added services. - Media interfaces. Media interfaces comprise the lowest layer of our architecture. Fibre Channel standards specify numerous media interfaces. The SilkWorm architecture supports removable gigabit copper (up to 13 meters), short wavelength laser (up to 500 meters) and long wavelength laser (up to 10 kilometers) interfaces. Removable media interfaces provide flexible product configurations and simple product maintenance. 36

38 - Switching platform. Our SilkWorm products are based on a central memory time multiplexed switching architecture. The architecture is implemented through the use of highly integrated Application Specific Integrated Circuits. The use of ASIC technology is required to provide the high bandwidth and low latency necessary for Fibre Channel switching to cater to both high throughput and low latency data transfer. The switching architecture is non-blocking and utilizes cut through routing techniques to achieve low latency. The data path of the architecture is completely implemented in hardware and the CPU and operating system are not in the data path. - Brocade Fabric Operating System. The architecture of the Brocade Fabric Operating System is highly structured, modular, hardware independent and layered with well-defined interfaces. This extensible architecture is easy to maintain and upgrade with new features. The base operating system is a UNIX-like realtime operating system with extensive libraries and services. The layers of the Brocade Fabric Operating System include hardware drivers, a board level support package, a Fibre Channel layer, services and application program interfaces. - Value added services. Value-added services comprise the top layer of the our architecture. Brocade value-added services include Brocade Zoning, and multicasting. The Brocade value-added services run on top of the Brocade Fabric Operating System through well-defined application program interfaces. MANUFACTURING We currently use a single contract manufacturer, Solectron Corporation, based in San Jose, California, to manufacture our products. Although we use Solectron for final turnkey product assembly, we maintain key component expertise internally. We design and develop the key components of our products, including ASICs, GBICs and software, as well as certain details in the fabrication and enclosure of our products. In addition, we determine the components that are incorporated in our products and select the appropriate suppliers of the components. Although we use standard parts and components for our products where possible, we currently purchase several key components used in the manufacture of our products from single or limited sources. Our principal single source components include ASICs, power supplies and chassis, and our principal limited source components include printed circuit boards and GBICs. See "Risk Factors -- The Failure of Our Sole Manufacturer to Meet Our Manufacturing Needs Would Negatively Impact Our Ability to Manufacture and Sell Our Products." RESEARCH AND DEVELOPMENT In fiscal 1998, and the three months ended January 31, 1999, our research and development expenses were $14.7 million and $2.9 million, respectively. We believe that our future success depends on our ability to continue to enhance our existing products and to develop new products that maintain technological competitiveness. We focus our product development activities on solving the needs of SAN users. We work closely with our OEMs and system integrators to monitor changes in the market place. We design our products around current industry standards and will continue to support emerging standards that are consistent with our product strategy. Our products have been designed around a core system architecture, which facilitates a relatively short product design and development cycle and reduce the time to market for new products and features. We intend to continue to leverage our architecture to develop and introduce additional products and enhancements in the future. 37

39 There can be no assurance that our product development efforts will result in commercially successful products or that our products will not be rendered obsolete by changing technology or new product announcements by other companies. See "Risk Factors -- We Currently Only Offer Our SilkWorm Product Family and Must Develop New and Enhanced Products That Achieve Widespread Market Acceptance." COMPETITION Although the competitive environment in the Fibre Channel switching market has yet to develop fully, we anticipate that the current and potential market for our products will be highly competitive, continually evolving and subject to rapid technological change. New SAN products are being introduced by major server and storage providers, and existing products will be continually enhanced. We currently face competition from other manufacturers of SAN switches, including Ancor Communications, Inc. We also face competition from manufacturers of hubs, including Gadzoox Networks, Inc. and Vixel Corporation. In addition, as the market for SAN products grows, we may face competition from traditional networking companies and other manufacturers of networking equipment who may enter the SAN market with their own switching products. It is also possible that customers could develop and introduce products competitive with our product offerings. We believe the competitive factors in this market segment include product performance and features, product reliability, price, ability to meet delivery schedules, customer service and technical support. Some of our current and potential competitors have longer operating histories, significantly greater resources and name recognition, and a larger installed base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours, which would allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. In addition, some of our current and potential competitors have already established supplier or joint development relationships with divisions of our current or potential customers. These competitors may be able to leverage their existing relationships to discourage these customers from purchasing additional Brocade products or persuade them to replace our products with their products. Such increased competition may result in price reductions, lower gross margins and loss of our market share. There can be no assurance that we will have the financial resources, technical expertise or marketing, manufacturing, distribution and support capabilities to compete successfully in the future. There can also be no assurance that we will be able to compete successfully against current or future competitors or that competitive pressures will not materially harm our business. INTELLECTUAL PROPERTY We rely on a combination of patents, trademarks, and trade secrets, as well as confidentiality agreements and other contractual restrictions with employees and third parties, to establish and protect our proprietary rights. Despite these precautions, there can be no assurance that the measures we undertake will be adequate to protect our proprietary technology, or that they will preclude competitors from independently developing products with functionality or features similar to our products. There can be no assurance that the precautions we take will prevent misappropriation or infringement of our technology. We have filed 11 patent applications in the United States with respect to our technology and are also seeking protection for the technology in selected international locations. However, it is possible that patents may not be issued for these applications. Our issued patents may not adequately protect our technology from infringement or prevent others from claiming that our technology infringes that of third parties. Failure to protect our intellectual property could materially harm our business. In addition, our competitors may independently develop similar or superior technology. It is possible that litigation may 38

40 be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of our resources and could materially harm our business. From time to time, we have received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights. Infringement or other claims could be asserted or prosecuted against us in the future, and it is possible that past or future assertions or prosecutions could harm our business. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause delays in the development and release of our products, or require us to develop non-infringing technology or enter into royalty or licensing arrangements. Such royalty or licensing arrangements, if required, may not be available on terms acceptable to us, or at all. For these reasons, infringement claims could materially harm our business. PENDING LEGAL PROCEEDING In October 1998, we were sued by one of our former contract manufacturers, Manufacturers' Services Central U.S. Operations, Inc. and Manufacturers' Services Western U.S. Operations, Inc., in the Santa Clara County, California Superior Court. The suit involves claims for amounts allegedly owed by us for circuit boards manufactured by MSL and previously shipped to us (approximately $900,000), for circuit boards manufactured for us and held by MSL (approximately $500,000), and for raw material purchased by MSL for inclusion in circuit boards to be manufactured for us (approximately $1.5 million). We do not dispute that we owe MSL for the circuit boards previously shipped to us, but we contend that the amount owed should be offset by amounts due to us under MSL's warranty (approximately $600,000), the value of equipment and electronic components consigned by us to MSL (approximately $200,000) and other damages sustained by us related to MSL's performance during our manufacturing relationship (approximately $150,000). We deny any liability for the circuit boards manufactured by MSL but not shipped to us or for raw material purchased by MSL. In December 1998, MSL obtained a writ of attachment against us for approximately $1.4 million and related to the circuit boards manufactured by MSL. We responded by posting a bond for this amount. The parties have exchanged documents and conducted preliminary discovery. No trial date has been set. We believe that we have strong defenses against MSL's lawsuit. Accordingly, we intend to defend this suit vigorously. However, we may not prevail in this litigation. The litigation process is inherently uncertain. Our defense of this litigation, regardless of its eventual outcome, has been, and will likely continue to be, time-consuming, costly and a diversion for our personnel. A failure to prevail could result in us having to pay monetary damages to MSL and reimburse MSL for some or all of its attorneys' fees which could materially harm our business. EMPLOYEES As of February 15, 1999, we had 110 full-time employees, 41 of whom were engaged in research and development, 32 of whom were in sales and marketing and 37 of whom were in finance, administration and operations. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. 39

41 FACILITIES Our principal administrative, sales and marketing, education, customer support and research and development facilities are located in a single office building in San Jose, California. We currently occupy approximately 35,000 square feet of office space in the San Jose facility under the terms of a lease that expires in November 2000. We believe our current facilities will be adequate to meet our needs for the next 12 months. If our growth continues, we will need larger facilities after that time. We cannot assure you that suitable additional facilities will be available as needed on commercially reasonable terms. We also lease office space for sales and marketing in Nashua, New Hampshire and Irvine, California. 40

42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding our executive officers and directors as of January 31, 1999: <TABLE> <CAPTION> NAME AGE POSITION ---- --- -------- <S> <C> <C> Gregory L. Reyes................. 36 President, Chief Executive Officer and Director Paul R. Bonderson, Jr............ 46 Vice President, Engineering B. Carl Lee...................... 50 Vice President, Finance and Chief Financial Officer Kumar Malavalli.................. 56 Vice President, Technology Victor M. Rinkle................. 46 Vice President, Operations Charles W. Smith................. 37 Vice President, Worldwide Sales Peter J. Tarrant................. 39 Vice President, Marketing and Business Development Seth D. Neiman(1)................ 44 Chairman of the Board Neal Dempsey(1)(2)............... 58 Director Mark Leslie(2)................... 53 Director Larry W. Sonsini................. 58 Director </TABLE> ------------------------- (1) Member of Audit Committee. (2) Member of Compensation Committee. Gregory L. Reyes has served as our President and Chief Executive Officer and a member of our board of directors since July 1998. From January 1995 to June 1998, Mr. Reyes served as President, Chief Executive Officer and Chairman of the board of directors of Wireless Access, Inc., a wireless data communications products company. From January 1991 to January 1995, Mr. Reyes served as Divisional Vice President and general manager of Norand Data Systems, a data collection company. Mr. Reyes also serves as a director of Proxim, Inc., a wireless networking company. Mr. Reyes received a B.S. in Economics and Business Administration from Saint Mary's College in Moraga, California. Paul R. Bonderson, Jr. co-founded Brocade in August 1995 and has served as Vice President, Engineering since August 1995. From March 1986 to August 1995, Mr. Bonderson held several engineering positions at Sun Microsystems, Inc., most recently as Director of Engineering. Mr. Bonderson received a B.S. in Electrical Engineering from California Polytechnic State University, San Luis Obispo. B. Carl Lee has served as our Vice President, Finance and Chief Financial Officer since December 1996. From December 1995 to December 1996, Mr. Lee served as Vice President, Corporate Controller at California Microwave, Inc., a telecommunications company. From October 1986 to October 1995, Mr. Lee was a partner with the accounting firm of Ernst & Young LLP. Mr. Lee received a B.S. in Accounting from the University of Wyoming and is a certified public accountant. Kumar Malavalli co-founded Brocade in August 1995 and has served as our Vice President, Technology since October 1995. From July 1993 to October 1995, Mr. Malavalli served as Manager of Architecture and Standards in the Canadian Network Operation at Hewlett-Packard Company. Mr. Malavalli was a member of the industry team that originated the Fibre Channel architecture, has helped guide the technology through the industry standards committees and currently chairs the ANSI T11 Technical Committee, which oversees all standards related to the development of Fibre Channel. From 1993 to 1999, Mr. Malavalli was the chairman of the Fibre Channel Association Technical Committee. Mr. Malavalli received both a B.S. in Physics and Mathematics and a B.S. in Electrical Engineering from the University of Mysore, India. 41

43 Victor M. Rinkle has served as our Vice President, Operations since January 1998. From April 1989 to December 1997, Mr. Rinkle held several managerial positions at Apple Computer, Inc., most recently as Vice President, Global Supply Base Management. Mr. Rinkle received a B.B.A. in Marketing and Production Logistics from the University of Houston. Charles W. Smith has served as our Vice President, Worldwide Sales since February 1997. From June 1996 to February 1997, Mr. Smith served as Director, Corporate Account Sales at IBM. From July 1990 to February 1996, Mr. Smith held various senior sales management positions at Conner Peripherals, Inc., a storage solutions company, most recently as Vice President, US Sales, Western Region. Mr. Smith received an A.S. in Aeronautics and Business from the College of San Mateo and a B.S. in Business Management from San Jose State University. Peter J. Tarrant has served as our Vice President, Marketing and Business Development since December 1997. From October 1994 to December 1997, Mr. Tarrant served as Vice President, Product Management and Vice President, Business Development at Bay Networks, Inc., a computer networking company. From April 1990 to October 1994, Mr. Tarrant held several product management positions at SynOptics, a predecessor of Bay Networks, Inc. most recently as Director, Product Management. Mr. Tarrant received a B.Sc. in Electronic Engineering from the University of Southampton, United Kingdom. Seth D. Neiman has served as Chairman of the board of directors of Brocade since August 1995. Mr. Neiman formerly served as our Chief Executive Officer from August 1995 to June 1996. Since August 1994, Mr. Neiman has held various positions at Crosspoint Venture Partners, a venture capital firm, and has been a partner of Crosspoint since January 1996. From September 1991 to July 1994, Mr. Neiman was Vice President of Engineering at Coactive Networks, a local area networks company. Mr. Neiman also serves on the boards of directors and compensation committees of numerous private companies. Mr. Neiman received a B.A. in Philosophy from Ohio State University. Neal Dempsey has served as a director of Brocade since December 1996. Since May 1989, Mr. Dempsey has been a General Partner of Bay Partners, a venture capital firm. Mr. Dempsey also serves on the boards of directors and compensation committees of numerous private companies. Mr. Dempsey received a B.A. in Business from the University of Washington. Mark Leslie has served as a director of Brocade since January 1999. Mr. Leslie has served as the Chief Executive Officer and a member of the board of directors of VERITAS Software Corporation, a storage management software company, since February 1990. Mr. Leslie also serves on the boards of directors of VERITAS Software Corporation and Versant Object Technology, as well as on the board of directors of a private company. Mr. Leslie received a B.A. in Physics and Mathematics from New York University. Larry W. Sonsini has served as a director of Brocade since January 1999. Mr. Sonsini has been a partner of the law firm of Wilson Sonsini Goodrich & Rosati, P.C., since 1973 and is currently the Chairman of the Executive Committee of the firm. Mr. Sonsini serves on numerous advisory boards and committees, including the SEC's Advisory Committee on Capital Formation and Regulatory Processes, the ABA Committee on Federal Regulation of Securities and the Legal Advisory Committee to the Board of Governors, New York Stock Exchange. Mr. Sonsini serves on the boards of directors of Novell, Inc., Lattice Semiconductor Corporation and Pixar Animation Studios, as well as on the boards of directors of several private companies. Mr. Sonsini received an A.B. from the University of California, Berkeley and an L.L.B. from Boalt Hall School of Law, University of California, Berkeley. 42

44 BOARD OF DIRECTORS Our board of directors currently consists of six authorized members. Upon the completion of this offering, the terms of office of the board of directors will be divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2000; Class II, whose term will expire at the annual meeting of stockholders to be held in 2001; and Class III, whose term will expire at the annual meeting of the stockholders to be held in 2002. The Class I directors will be and , the Class II directors will be and and the Class III directors will be and . At each annual meeting of stockholders after the initial classification, the successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. This classification of the board of directors may have the effect of delaying or preventing a change of control or management of Brocade. See "Risk Factors -- Provisions in Our Charter Documents, Customer Agreements and Delaware Law Could Prevent or Delay a Change of Control of Our Company and May Reduce the Market Price of Our Common Stock." Each officer serves at the discretion of the board of directors. There are no family relationships among any of our directors or officers. Board Committees. Our board of directors currently has two committees: an Audit Committee and a Compensation Committee. The Audit Committee consists of Mr. Neiman and Mr. Dempsey. The Audit Committee makes recommendations to our board of directors regarding the selection of independent auditors, reviews the results and scope of audit and other services provided by our independent auditors and reviews the accounting principles and auditing practices and procedures to be used for the financial statements of Brocade. The Compensation Committee consists of Mr. Leslie and Mr. Dempsey. The Compensation Committee makes recommendations to our board of directors regarding our stock plans and the compensation of officers and other managerial employees. Director Compensation. Directors currently do not receive any cash compensation from Brocade for their services as members of our board of directors, although we are authorized to pay members for attendance at meetings or a salary in addition to reimbursement for expenses in connection with attendance at meetings. Certain non-employee directors have received grants of options to purchase shares of our common stock. See "Principal Stockholders." Upon and following this offering, certain non-employee directors will receive automatic option grants under our 1999 Director Option Plan. See "-- Employee Benefit Plans -- 1999 Director Option Plan." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee is currently or has been, at any time since the formation of Brocade, an officer or employee of Brocade. No member of the Compensation Committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee. LIMITATION OF LIABILITY AND INDEMNIFICATION Pursuant to the Delaware General Corporation Law, we have adopted provisions in our certificate of incorporation and bylaws that limit or eliminate the personal liability of our directors for a breach of their fiduciary duty of care as a director. The duty of care generally requires that, when acting on behalf of the corporation, directors exercise an informed business judgment based on all material information 43

45 reasonably available to them. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for: - any breach of the director's duty of loyalty to us or our stockholders; - acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; or - any transaction from which the director derived an improper personal benefit. Our certificate of incorporation also allows us to indemnify our officers, directors and other agents to the full extent permitted by Delaware law. We have entered into indemnification agreements with each of our directors and officers that will give them additional contractual reassurances regarding the scope of indemnification and that may provide additional procedural protection. The indemnification agreements require actions such as: - indemnifying officers and directors against certain liabilities that may arise because of their status as officers or directors; - advancing expenses, as incurred, to officers and directors in connection with a legal proceeding, subject to certain limited exceptions; or - obtaining directors' and officers' insurance. The limited liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. Moreover, a stockholder's investment in Brocade may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. 44

46 EXECUTIVE COMPENSATION The following table sets forth information for the fiscal year ended October 31, 1998 concerning the compensation paid to our Chief Executive Officer, our former Chief Executive Officer and our four other most highly compensated executive officers whose total salary and bonus for such fiscal year exceeded $100,000, collectively referred to below as the Named Executive Officers: SUMMARY COMPENSATION TABLE <TABLE> <CAPTION> LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES OTHER ---------------------- UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS(#) ($)(2) --------------------------- ---------- --------- ------------ ------------ <S> <C> <C> <C> <C> Gregory L. Reyes President and Chief Executive Officer(1).............. $ 60,606 $ -- 1,535,662 $ 480 Bruce L. Bergman President and Chief Executive Officer(1).............. 225,000 -- -- 1,620 Kumar Malavalli Vice President, Technology............................ 162,840 13,027 -- 1,188 Paul R. Bonderson, Jr. Vice President, Engineering........................... 161,927 12,375 -- 1,188 Victor M. Rinkle Vice President, Operations............................ 115,340 39,375 200,000 990 Charles W. Smith Vice President, Worldwide Sales....................... 118,500 -- 35,000 87,306(3) </TABLE> ------------------------- (1) Mr. Bergman served as our President and Chief Executive Officer until June 1998. Mr. Reyes became our President and Chief Executive Officer effective July 1998 at an annual salary of $200,000. (2) Represents cost of term life insurance. (3) Includes amounts earned by Mr. Smith as commissions. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information for each grant of stock options during the fiscal year ended October 31, 1998 to each of the Named Executive Officers. All of these options granted by us were granted under the 1995 Equity Incentive Plan, the 1998 Equity Incentive Plan or the 1998 Executive Equity Incentive Plan and have a term of 10 years, subject to earlier termination in the event the optionee's services to Brocade cease. See "-- Employee Benefit Plans" for descriptions of the material terms of these options. Each of these options has been exercised in conjunction with a promissory note and a stock pledge agreement. See "Certain Transactions" for descriptions of these exercises. During the fiscal year ended October 31, 1998, we granted options to purchase a total of 3,154,912 shares of common stock under the 1995 Equity Incentive Plan, the 1998 Equity Incentive Plan and the 1998 Executive Equity Incentive Plan. Options were granted at an exercise price equal to the fair market value of our common stock, as determined in good faith by our board of directors. Our board of directors determined the fair market value based on our financial results and prospects, the share price derived for arms-length transactions, and evaluations conducted by valuation experts. Potential realizable values are net of exercise price before taxes, and are based on the assumption that our common stock appreciates at the annual rate shown, compounded annually, from the date of grant until the expiration of the ten-year term and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. These numbers are calculated based on Securities and Exchange Commission 45

47 requirements and do not reflect our projection or estimate of future stock price growth. No stock appreciation rights were granted during the fiscal year. Each of the options listed in the table below has been exercised, but the shares purchased are subject to repurchase by us at the original exercise price upon the optionee's cessation of service prior to vesting of such shares. The repurchase right lapses and the optionee vests as to 25% of the option shares upon completion of one year of service from the date of grant and the balance in a series of equal monthly installments over the next three years of service thereafter. In the event of a termination without cause or constructive termination other than for cause at any time during the first year following a change of control, these options will fully vest. See "-- Change of Control and Severance Arrangements." <TABLE> <CAPTION> INDIVIDUAL GRANTS ------------------------------------------------ POTENTIAL REALIZABLE PERCENT OF VALUE AT ASSUMED NUMBER TOTAL ANNUAL RATES OF OF OPTIONS STOCK PRICE SECURITIES GRANTED TO EXERCISE APPRECIATION FOR UNDERLYING EMPLOYEES PRICE PER OPTION TERM OPTIONS IN FISCAL SHARE EXPIRATION ----------------------- NAME GRANTED 1998 ($/SHARE) DATE 5% 10% ---- ---------- ---------- --------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Gregory L. Reyes........................ 1,535,662 48.7% $2.25 10/08/08 $2,172,982 $5,506,762 Bruce L. Bergman........................ -- -- -- -- -- -- Kumar Malavalli......................... -- -- -- -- -- -- Paul R. Bonderson, Jr................... -- -- -- -- -- -- Victor M. Rinkle........................ 200,000 6.3% 2.25 02/25/08 283,003 717,184 Charles W. Smith........................ 35,000 1.1% 2.25 10/08/08 49,525 125,507 </TABLE> AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the Named Executive Officers concerning exercisable and unexercisable options held as of October 31, 1998. The value of in-the-money options is based on an assumed offering price of $ per share and net of the option exercise price. <TABLE> <CAPTION> NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT OCTOBER 31, IN-THE-MONEY SHARES 1998(1) OPTIONS AT OCTOBER 31, 1998 ACQUIRED ON VALUE ----------------------- ---------------------------- NAME EXERCISE (#) REALIZED ($) VESTED UNVESTED VESTED UNVESTED ---- ------------ ------------ -------- ----------- ---------- -------------- <S> <C> <C> <C> <C> <C> <C> Gregory L. Reyes............... -- -- -- 1,535,662 Bruce L. Bergman............... -- -- -- -- Kumar Malavalli................ -- -- -- -- Paul R. Bonderson, Jr. ........ -- -- -- -- Victor M. Rinkle............... -- -- -- 200,000 Charles W. Smith............... 25,000 $ 30,000(2) 47,917 112,083 </TABLE> ------------------------- (1) The options are immediately exercisable for all of the option shares, but any shares purchased under those options will be subject to repurchase by us, at the original exercise price paid per share, upon the optionee's cessation of service with us, prior to the vesting of such shares. The heading "Vested" refers to shares no longer subject to repurchase; the heading "Unvested" refers to shares subject to repurchase as of October 31, 1998. (2) Based on $1.80 per share, the fair market value of our common stock at January 13, 1998, as determined by our board of directors, minus the exercise price. 46

48 CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS Options granted to certain of our officers and directors under our 1995 Equity Incentive Plan and 1998 Equity Incentive Plan will vest fully in the event that these individuals are terminated without cause or are constructively terminated at any time during the first year following a change of control of Brocade. Mr. Reyes's option agreement under the 1998 Equity Incentive Plan provides that if, during the first year of his employment, he is terminated other than (1) constructively or without cause during the first year following a change of control, or (2) for cause, Mr. Reyes will vest as to 191,958 shares plus a number of shares equal to 31,993 multiplied by the number of full months of his service to us. If Mr. Reyes is terminated any time after the first year of his employment, other than (1) constructively or without cause during the first year following a change of control, or (2) for cause, Mr. Reyes will vest as to 191,958 shares in addition to any shares that have vested under the normal four-year vesting schedule contemplated by the agreement. Moreover, upon a change of control, one-half of Mr. Reyes's unvested shares vest in addition to any shares that have vested under the normal four-year vesting schedule contemplated by the agreement, and if Mr. Reyes is constructively terminated or terminated without cause during the first year following the change of control, then all of his unvested shares subject to this option will vest. Mr. Reyes's option agreement under the 1998 Executive Equity Incentive Plan provides that if he is terminated at any time on or after May 13, 2001, other than (1) constructively or without cause during the first year following a change of control, or (2) for cause, then in addition to any shares that have vested under the normal four-year vesting schedule contemplated by the agreement, 191,958 additional shares will vest, less the number of shares that may vest as a result of his termination under the 1998 Equity Incentive Plan as described above. In addition, upon a change of control, one-half of Mr. Reyes's unvested shares vest in addition to any shares that have vested under the normal four-year vesting schedule contemplated by the agreement, and if Mr. Reyes is constructively terminated or terminated without cause during the first year following the change of control, then, all of his unvested shares subject to this option will vest. In addition, pursuant to a letter agreement, if Mr. Reyes is constructively terminated or terminated without cause upon a change of control, he will receive a severance payment of one year of his base salary plus his expected bonus for the then current fiscal year under the 1999 Key Employee Incentive Program, as described below. 1999 KEY EMPLOYEE INCENTIVE PROGRAM We have adopted the 1999 Key Employee Incentive Program, an executive bonus program, pursuant to which selected key employees of Brocade are eligible for quarterly and annual cash bonuses based upon achieving specified individual and company-wide objectives, including revenue targets. For Mr. Smith, bonuses are not based on the 1999 Key Employee Incentive Program, but rather on the achievement of sales revenue and other specified sales objectives. EMPLOYEE BENEFIT PLANS Upon the completion of this offering, our 1995 Equity Incentive Plan, our 1998 Equity Incentive Plan and our 1998 Executive Equity Incentive Plan will be combined and continue as our 1999 Stock Plan. No additional options will be granted under the 1995 Equity Incentive Plan, the 1998 Equity Incentive Plan or the 1998 Executive Equity Incentive Plan after the completion of this offering. However, the terms and conditions of the options granted previously under these plans will continue to 47

49 govern those outstanding options. Therefore, descriptions of these plans, in addition to a description of the 1999 Stock Plan, are provided below. Amended 1995 Equity Incentive Plan Our Amended 1995 Equity Incentive Plan (the "1995 Plan") was adopted by our board of directors in August 1995 and subsequently approved by our stockholders, and has been amended from time to time. The 1995 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), to employees and for the grant of nonstatutory stock options to employees, non-employee directors and consultants. A total of 3,807,000 shares of common stock has been reserved for issuance under the 1995 Plan. The 1995 Plan is administered by our board of directors or a committee thereof. Subject to the provisions of the 1995 Plan, our board of directors (or committee) has the authority to select the persons to whom options are granted and determine the terms of each option, including: - the number of shares of common stock covered by the option; - when the option becomes exercisable; - the per share option exercise price which, in the case of incentive stock options, must be at least 100% of the fair market value of a share of common stock as of the date of grant; in the case of options granted to persons who own 10% or more of the total combined voting power of Brocade (or any parent or subsidiary of Brocade) (a "10% stockholder"), must be at least 110% of the fair market value of a share of common stock as of the date of grant, and, in the case of nonstatutory stock options, must be at least 85% of the fair market value of a share of common stock as of the date of the grant; and - the duration of the option (which may not exceed 10 years, or five years for incentive stock options granted to 10% stockholders). Generally, options granted under the 1995 Plan vest over four years, and are non-transferable other than by will or the laws of descent and distribution. In the event of certain changes in control of Brocade, the acquiring or successor corporation may assume or substitute for options outstanding under the 1995 Plan, or such options shall terminate. Certain options granted to certain of our officers provide for partial acceleration upon a change of control of Brocade. See "-- Change of Control and Severance Arrangements." 1998 Equity Incentive Plan Our 1998 Equity Incentive Plan (the "1998 Plan") was adopted by our board of directors in February 1998 and subsequently approved by the stockholders. The 1998 Plan provides for the grant of incentive stock options (within the meaning of Section 422 of the Code) to employees and for the grant of nonstatutory stock options to employees, non-employee directors and consultants. A total of 3,200,000 shares of common stock has been reserved for issuance under the 1998 Plan. The 1998 Plan is administered by our board of directors or a committee thereof. Subject to the provisions of the 1998 Plan, our board of directors (or committee) has the authority to select the persons to whom options are granted and determine the terms of each option, including: - the number of shares of common stock covered by the option; - when the option becomes exercisable; 48

50 - the per share option exercise price which, in the case of incentive stock options, must be at least 100% of the fair market value of a share of common stock as of the date of grant; in the case of options granted to 10% stockholders, must be at least 110% of the fair market value of a share of common stock as of the date of grant; and, in the case of nonstatutory stock options, must be at least 85% of the fair market value of a share of common stock as of the date of the grant; and - the duration of the option (which may not exceed 10 years, or five years for incentive stock options granted to 10% stockholders). Generally, options granted under the 1998 Plan vest over four years, and are non-transferable other than by will or the laws of descent and distribution. In the event of certain changes in control of Brocade, the acquiring or successor corporation may assume or substitute for options outstanding under the 1998 Plan, or such options shall terminate. Certain options granted to certain of our officers provide for partial acceleration upon a change of control of Brocade. See "-- Change of Control and Severance Arrangements." 1998 Executive Equity Incentive Plan Our 1998 Executive Equity Incentive Plan (the "1998 Executive Plan") was adopted by our board of directors in October 1998. The 1998 Executive Plan provides for the grant of nonqualified stock options to executives. A total of 300,000 shares of common stock has been reserved for issuance under the 1998 Executive Plan. The 1998 Executive Plan is administered by the board of directors or a committee thereof. Subject to the provisions of the 1998 Executive Plan, the board (or committee) has the authority to select the persons to whom options are granted and determine the terms of each option, including: - the number of shares of common stock covered by the option; - when the option becomes exercisable; - the per share option exercise price, which must be at least 85% of the fair market value of a share of common stock as of the date of grant; and - the duration of the option (which may not exceed 10 years from the date an option is granted). In the event of certain changes in control of Brocade, the acquiring or successor corporation may assume or substitute for options outstanding under the 1998 Executive Plan, or such options shall terminate. Certain options granted to officers of Brocade provide for partial acceleration upon a change in control of Brocade. To date, there has been only one option grant under the 1998 Executive Plan, to Mr. Reyes, for all of the options currently outstanding under the 1998 Executive Plan. Such option vests as to 31,993 shares on November 13, 2001, and as to 31,993 shares upon the expiration of each full month elapsed thereafter. Mr. Reyes's option under the 1998 Executive Plan also provides for partial or full acceleration under certain circumstances. See "-- Change of Control and Severance Arrangements." 1999 Stock Plan Our 1999 Stock Plan (the "1999 Plan") was adopted by our board of directors in March 1999 and will be effective upon the completion of this offering, subject to stockholder approval. The 1999 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code, to employees. The 1999 Plan has provisions for compliance with the $1,000,000 limit set by the Internal Revenue Service. 49

51 Initially, 7,607,000 shares of common stock will be reserved for issuance under the 1999 Plan. These shares consist of the total number of shares currently reserved under the 1995 Plan, the 1998 Plan, the 1998 Executive Plan and 300,000 newly reserved shares. An annual increase will be added on the first day of our fiscal year beginning in 1999 equal to the lesser of 5,000,000 shares, (ii) 5% of the outstanding shares on that date, or (iii) a lesser amount determined by the board of directors. The 1999 Plan will be administered by our board of directors or a committee thereof. Subject to the provisions of the 1999 Plan, the board (or committee) will have the authority to select the persons to whom options are granted and determine the terms of each option, including: - the number of shares of common stock covered by the option; - when the option becomes exercisable; - the per share option exercise price which must be at least 100% of the fair market value of a share of common stock as of the date of grant, and which, in the case of options granted to 10% stockholders, must be at least 110% of the fair market value of a share of common stock as of the date of grant; and - the duration of the option (which may not exceed 10 years, or five years for options granted to 10% stockholders). Generally, options granted under the 1999 Plan will vest over four years, and are non-transferable other than by will or the laws of descent and distribution. In the event of certain changes in control of Brocade, the acquiring or successor corporation may assume or substitute for options outstanding under the 1999 Plan, or such options shall terminate. 1999 Employee Stock Purchase Plan Our 1999 Employee Stock Purchase Plan (the "Purchase Plan") was adopted in March 1999 and will be effective upon the completion of this offering, subject to stockholder approval. Initially, 200,000 shares of common stock will be reserved for issuance under the Purchase Plan. An annual increase will be added on the first day of our fiscal year beginning in 2000 equal to the lesser of (1) 2,500,000 shares, (2) 2.5% of the outstanding shares on that date, or (3) a lesser amount determined by the board of directors. The Purchase Plan, which is intended to qualify under Section 423 of the Code, will be administered by the board of directors or by a committee thereof. Our employees, including officers and directors of Brocade who are also employees, or any subsidiary designated by the board of directors for participation in the Purchase Plan are eligible to participate in the Purchase Plan if they are customarily employed for more than 20 hours per week and more than five months per year. The Purchase Plan will be implemented by consecutive offering periods generally six months in duration. However, the first offering period under the Purchase Plan will commence on the effective date of this offering and terminate on or before November 30. The board of directors may change the dates or duration of one or more offering periods. The Purchase Plan permits our eligible employees to purchase shares of common stock through payroll deductions at 85% of the lower of the fair market value of the common stock on the first day of the offering period or a specified date (the "Exercise Date"). Participants generally may not purchase shares on any Exercise Date or stock, to the extent that, immediately after the grant, the participant would own stock or options to purchase stock totaling 5% or more of the total combined voting power of all stock of Brocade, or greater than $25,000 worth of our stock in any calendar year. In addition, no more than 3,000 shares may be purchased by any participant during any offering period. In the event of a sale 50

52 or merger of Brocade, the board may accelerate the Exercise Date of the current purchase period to a date prior to the change of control, or the acquiring corporation may assume or replace the outstanding purchase rights under the Purchase Plan. 1999 Director Option Plan Our 1999 Director Option Plan (the "Director Plan") was adopted in March 1999 and will be effective upon the completion of this offering, subject to stockholder approval. Initially, a total of 200,000 shares of common stock will be reserved for issuance under the Director Plan. Non-employee directors are entitled to participate in the 1999 Director Option Plan. However, Mr. Leslie and Mr. Sonsini will be excluded from receiving option grants under the Director Plan for three years. The Director Plan provides for the automatic grant of 2,500 shares of common stock to each non-employee director on the date on which such person first becomes a non-employee director. After the first 2,500 share option is granted to the non-employee director, he or she shall automatically be granted an option to purchase 2,500 shares each quarter of each year, provided that he or she shall have served on the board for at least the preceding month. Each option shall have a term of 10 years. Each option granted under the Director Plan will be fully vested and 100% exercisable on the date of grant. The exercise price of all options shall be 100% of the fair market value per share of the common stock, generally determined with reference to the closing price of the common stock as reported on the Nasdaq National Market on the date of grant. In the event of a merger, or the sale of substantially all of the assets, of Brocade and if the option is not assumed or substituted, the option will terminate unless exercised. Options granted under the Director Plan must be exercised within three months of the end of the optionee's tenure as a director of Brocade, or within 12 months after such director's termination by death or disability, but not later than the expiration of the option's ten-year term. 401(k) Plan Brocade provides a tax-qualified employee savings and retirement plan which covers our eligible employees. Pursuant to the 401(k) Plan, employees may elect to reduce their current annual compensation up to the lesser of 20% or the statutorily prescribed limit, which was $10,000 in calendar year 1999, and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan is intended to qualify under Sections 401(a) and 401(k) of the Code, so that contributions by us or our employees to the 401(k) Plan, and income earned on Plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions will be deductible by Brocade when made. The trustee of the 401(k) Plan invests the assets of the 401(k) Plan in the various investment options as directed by the participants. 51

53 CERTAIN TRANSACTIONS Since Brocade's inception in August 1995, there has not been nor is there currently proposed any transaction or series of similar transactions to which Brocade was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of the common stock of Brocade or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest other than (1) compensation agreements and other arrangements, which are described where required in "Management," and (2) the transactions described below. TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS Common Stock. On August 25, 1995, we issued the following shares of common stock at a price of $0.10 per share to our founders, all of which were purchased with promissory notes subsequently forgiven by our board of directors on April 24, 1997. <TABLE> <CAPTION> PURCHASER SHARES OF COMMON STOCK --------- ---------------------- <S> <C> Kumar Malavalli................................... 182,000 Paul R. Bonderson, Jr............................. 227,500 Seth D. Neiman.................................... 113,750 </TABLE> Series A Preferred Stock. On August 28, 1995, Brocade sold 1,425,000 shares of its Series A Preferred Stock for $1.00 per share. The purchasers of the Series A Preferred Stock were: <TABLE> <CAPTION> PURCHASER SHARES OF SERIES A STOCK --------- ------------------------ <S> <C> Crosspoint 1993 Entrepreneurs Fund................. 43,094 Crosspoint Venture Partners 1993................... 1,381,906 </TABLE> Crosspoint 1993 Entrepreneurs Fund and Crosspoint Venture Partners 1993 are affiliated entities and together are considered a greater than 5% stockholder of Brocade. Mr. Neiman, a director of Brocade, is a partner of Crosspoint 1993 Entrepreneurs Fund and Crosspoint Venture Partners 1993. Mr. Neiman disclaims beneficial ownership of the securities held by such entities, except for his proportional interest in the entities. Series B Preferred Stock. On June 17, 1996, Brocade sold 816,250 shares of its Series B Preferred Stock for $4.00 per share. The purchasers of the Series B Preferred Stock included, among others: <TABLE> <CAPTION> PURCHASER SHARES OF SERIES B STOCK --------- ------------------------ <S> <C> Crosspoint Venture Partners 1993................... 56,250 MDV IV Entrepreneurs' Network Fund, L.P. .......... 25,000 Mohr, Davidow Ventures IV.......................... 600,000 TPK Unitrust....................................... 25,000 </TABLE> MDV IV Entrepreneurs' Network Fund, L.P. and Mohr, Davidow Ventures IV are affiliated entities and together are considered a greater than 5% stockholder of Brocade. Andreas V. Bechtolsheim, a greater than 5% stockholder of Brocade, is the trustee of TPK Unitrust. 52

54 Series C Preferred Stock. On December 6, 1996, Brocade sold 3,333,333 shares of its Series C Preferred Stock for $3.00 per share. The purchasers of the Series C Preferred Stock included, among others: <TABLE> <CAPTION> PURCHASER SHARES OF SERIES C STOCK --------- ------------------------ <S> <C> Bay Partners SBIC, L.P. ................................... 666,667 Andreas V. Bechtolsheim.................................... 1,000,000 Crosspoint 1993 Entrepreneurs' Fund........................ 8,854 Crosspoint Venture Partners 1993........................... 283,932 MDV IV Entrepreneurs' Network Fund, L.P. .................. 13,164 Mohr, Davidow Ventures IV, L.P............................. 315,959 TPK Unitrust............................................... 13,164 </TABLE> Mr. Dempsey, a director of Brocade, is a general partner of Bay Partners SBIC, L.P. Mr. Dempsey disclaims beneficial ownership of the securities held by such entity, except for his proportional interest in the entities. Series D Preferred Stock. On September 29, 1997, November 17, 1997 and December 3, 1997, Brocade sold 3,660,900 shares of its Series D Preferred Stock for $5.78 per share. The holders of the Series D Preferred Stock include, among others: <TABLE> <CAPTION> PURCHASER SHARES OF SERIES D STOCK --------- ------------------------ <S> <C> Bay Partners SBIC, L.P. ................................... 129,758 Andreas V. Bechtolsheim.................................... 105,650 Crosspoint Venture Partners LS Fund 1997................... 570,821 Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Bank America Trust & Banking Corporation (Cayman) Limited..... 77,509 Weiss, Peck & Greer Venture Associates IV, L.P. ........... 596,453 WPG Information Sciences Entrepreneur Fund, L.P. .......... 20,762 WPG Enterprise Fund III, L.P. ............................. 537,111 </TABLE> Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Bank America Trust & Banking Corporation (Cayman) Limited, Weiss, Peck & Greer Venture Associates IV, L.P., WPG Information Sciences Entrepreneur Fund, L.P. and WPG Enterprise Fund III, L.P. are affiliated entities and together are considered a greater than 5% stockholder of Brocade. Also on September 29, 1997, in connection with our Series D Preferred Stock financing, we issued the following warrants to purchase our Series D Preferred Stock for $6.78 per share: <TABLE> <CAPTION> WARRANTS TO PURCHASE PURCHASER SERIES D STOCK --------- -------------------- <S> <C> Bay Partners SBIC, L.P. .................................... 11,418 Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Bank America Trust & Banking Corporation (Cayman) Limited...... 7,750 Weiss, Peck & Greer Venture Associates IV, L.P. ............ 59,645 WPG Information Sciences Entrepreneur Fund, L.P. ........... 2,076 WPG Enterprise Fund III, L.P. .............................. 53,711 </TABLE> LOANS TO CERTAIN EXECUTIVE OFFICERS On April 11, 1997, we loaned $30,000 to Charles W. Smith, our Vice President, Worldwide Sales, secured by a stock pledge agreement, in connection with his purchase of 100,000 shares of our common 53

55 stock for $.30 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on February 27, 2001. On January 13, 1998, we loaned $15,000 to Mr. Smith, secured by a stock pledge agreement, in connection with his purchase of 25,000 shares of our common stock for $.60 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on January 13, 2003. On December 26, 1998, we loaned $78,750 to Mr. Smith, secured by a stock pledge agreement, in connection with his purchase of 35,000 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 5% per annum, compounded semi-annually, and is due on January 15, 2003. On January 25, 1999, we loaned $78,750 to Mr. Smith, secured by a stock pledge agreement, in connection with his purchase of 35,000 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 5% per annum, compounded semi-annually, and is due on December 31, 2003. The principal amounts and accrued interest on all notes remain outstanding. On April 11, 1997, we loaned $45,000 to B. Carl Lee, our Vice President, Finance and Chief Financial Officer, secured by a stock pledge agreement, in connection with his purchase of 150,000 shares of our common stock for $0.30 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on December 2, 2001. On December 31, 1998, we loaned $112,500 to Mr. Lee, secured by a stock pledge agreement, in connection with his purchase of 50,000 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on December 31, 2003. The principal amounts and accrued interest on both notes remain outstanding. On January 26, 1998, we loaned $360,000 to Peter J. Tarrant, our Vice President, Marketing and Business Development, secured by a stock pledge agreement, in connection with his purchase of 200,000 shares of our common stock for $1.80 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on January 26, 2003. The principal amount and accrued interest on this note remain outstanding. On December 8, 1998, we loaned $647,853.75 to Gregory L. Reyes, our President and Chief Executive Officer, secured by a stock pledge agreement, in connection with his purchase of 287,935 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 4.47% per annum, compounded semi-annually, and is due one year after the date of this offering. Also on December 8, 1998, we loaned $2,807,385.75 to Mr. Reyes, secured by a stock pledge agreement, in connection with his purchase of 1,247,727 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 4.47% per annum, compounded semi-annually, and is due one year after the date of this offering. The principal amounts and accrued interest on both notes remain outstanding. On December 24, 1998, we loaned $450,000 to Victor M. Rinkle, our Vice President, Operations, secured by a stock pledge agreement, in connection with his purchase of 200,000 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 6.5% per annum, compounded semi-annually, and is due on December 24, 2004. The principal amount and accrued interest on this note remain outstanding. STOCK OPTION GRANTS AND LOAN TO CERTAIN DIRECTORS On January 6, 1999, we granted to Mark Leslie, a director of Brocade, an option to purchase 121,856 shares of our common stock at $2.25 per share that vests over four years. On January 28, 1999, we loaned $274,176 to Mr. Leslie, secured by a stock pledge agreement, in connection with his purchase of 121,856 shares of our common stock for $2.25 per share. This note accrues interest at the rate of 4.59% per annum, compounded semi-annually, and is due on January 28, 2000. The principal amount and accrued interest on this note remain outstanding. 54

56 On January 29, 1999, we granted to Larry W. Sonsini, a director of Brocade, a fully vested stock option to purchase 121,856 shares of our common stock for $5.00 per share. Mr. Sonsini is also a partner of Wilson Sonsini Goodrich & Rosati, P.C., a law firm, to whom we have paid legal fees in connection with this offering. INDEMNIFICATION We have entered into indemnification agreements with each of our directors and officers. Such indemnification agreements will require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. See "-- Limitation of Liability and Indemnification." 55

57 PRINCIPAL STOCKHOLDERS The following table sets forth certain information concerning the beneficial ownership of our common stock as of January 31, 1999, and as adjusted to reflect the sale of the shares of common stock in this offering by: - each person who is known by Brocade to beneficially own more then 5% of our common stock; - each of the Named Executive Officers; - each of our directors; and - all officers and directors as a group. Unless otherwise indicated, the address of each listed stockholder is c/o Brocade Communications Systems, Inc., 1901 Guadalupe Parkway, San Jose, CA 95131. The number and percentage of shares beneficially owned are based on 21,734,900 shares of common stock outstanding as of January 31, 1999, assuming conversion of all outstanding shares of preferred stock into common stock, and shares of common stock outstanding after the completion of this offering, assuming the Underwriters' over-allotment option to purchase shares of common stock is not exercised. Beneficial ownership is determined under the rules and regulations of the Securities and Exchange Commission. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of January 31, 1999 are deemed to be outstanding and beneficially owned by the person holding the options or warrants for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. The shares subject to options or warrants held by a person are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Brocade's common stock shown as beneficially owned by them. Percentage ownership figures after the offering do not include shares that may be purchased by each person in the offering. <TABLE> <CAPTION> PERCENT OF SHARES BENEFICIALLY OWNED ---------------------- NUMBER OF SHARES BENEFICIALLY BEFORE THE AFTER THE NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE THE OFFERING OFFERING OFFERING ------------------------------------ ----------------------------- ---------- --------- <S> <C> <C> <C> NAMED EXECUTIVE OFFICERS AND DIRECTORS Gregory L. Reyes(1)............................... 1,535,662 7.1% Bruce L. Bergman(2)............................... 773,528 3.6 Kumar Malavalli(3)................................ 728,000 3.3 Paul R. Bonderson, Jr.(4)......................... 910,000 4.2 Victor M. Rinkle(5)............................... 200,000 * Charles W. Smith(6)............................... 195,000 * Neal Dempsey(7)................................... 807,843 3.7 c/o Bay Partners Inc. 10600 N. De Anza Blvd., Suite 100 Cupertino, CA 95054 Mark Leslie(8).................................... 121,856 * Seth D. Neiman(9)................................. 7,131,107 32.8 Larry W. Sonsini(10).............................. 121,856 * Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304 </TABLE> 56

58 <TABLE> <CAPTION> PERCENT OF SHARES BENEFICIALLY OWNED ---------------------- NUMBER OF SHARES BENEFICIALLY BEFORE THE AFTER THE NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE THE OFFERING OFFERING OFFERING ------------------------------------ ----------------------------- ---------- --------- <S> <C> <C> <C> 5% STOCKHOLDERS Crosspoint Venture Partners(11)................... 6,676,107 30.7 2925 Woodside Road Woodside, CA 94062 Mohr, Davidow Ventures IV(12)..................... 1,579,123 7.3 2774 Sand Hill Road Building 1, Suite 240 Menlo Park, CA 94028 Weiss, Peck & Greer(13)........................... 1,355,017 6.2 555 California Street, Suite 3130 San Francisco, CA 94104 Andreas V. Bechtolsheim(14)....................... 1,168,814 5.4 1140 Hamilton Avenue Palo Alto, CA 94301 All Executive Officers and Directors as a group (12 persons)(15)..................... 12,924,852 59.1 </TABLE> ------------------------- * Less than 1% (1) Includes 1,535,662 shares subject to a right of repurchase in favor of Brocade which lapses over time. Includes 1,500,110 shares held by Gregory Reyes and Penny Reyes as Community Property. Also includes 17,776 shares held by Gregorio Reyes, Trustee of the Rebecca Mary Reyes 1997 Trust UTA Dated August 15, 1997 and 17,776 shares held by Gregorio Reyes, Trustee of the Gregory Louis Reyes, Jr. 1996 Trust UTA Dated April 30, 1996. (2) All shares listed are held by The Bergman Family Trust. (3) Includes 106,167 shares subject to a right of repurchase in favor of Brocade which lapses over time. (4) All shares listed are held by The Bonderson Family Living Trust Dated June 28, 1994. Includes 132,708 shares subject to a right of repurchase in favor of Brocade which lapses over time. (5) Includes 150,000 shares subject to a right of repurchase in favor of Brocade which lapses over time. (6) Includes 139,271 shares subject to a right of repurchase in favor of Brocade which lapses over time. (7) Mr. Dempsey is a general partner of Bay Partners SBIC, L.P. and is a director of Brocade. Includes 796,425 shares held by Bay Partners SBIC, L.P. and 11,418 shares subject to warrants held by Bay Partners SBIC, L.P., which are exercisable within 60 days of January 31, 1999. Mr. Dempsey disclaims beneficial ownership of shares held by this entity, except to the extent of his proportional interest arising from his partnership interest in Bay Partners SBIC, L.P. (8) Represents 121,856 shares subject to a right to repurchase in favor of Brocade which lapses over time. Includes 8,888 shares held directly by Seth Leslie and 8,888 shares held directly by Joshua Leslie, of which Mr. Leslie disclaims beneficial ownership. (9) Mr. Neiman is a partner of Crosspoint Venture Partners and the Chairman of the board of directors of Brocade. Includes 25,289 shares subject to a right of repurchase in favor of Brocade which lapses over time. Includes 20,000 shares held by The Alexandra Grace Speeth Neiman 1996 Trust and 20,000 shares held by The Morgan Olivia Speeth Neiman 1996 Trust, of which 57

59 Mr. Neiman disclaims beneficial ownership. Also includes 5,811,556 shares held by Crosspoint Venture Partners 1993, 570,821 shares held by Crosspoint Venture Partners LS Fund 1997 and 293,730 shares held by Crosspoint 1993 Entrepreneurs Fund. Mr. Neiman disclaims beneficial ownership of shares held by these entities, except for his proportional interest arising from his partnership interest in Crosspoint Venture Partners. (10) Represents 121,856 shares issuable upon exercise of an option held by Mr. Sonsini exercisable within 60 days of January 31, 1999. (11) Represents 5,811,556 shares held by Crosspoint Venture Partners 1993, 570,821 shares held by Crosspoint Venture Partners LS Fund 1997 and 293,730 shares held by Crosspoint 1993 Entrepreneurs Fund. (12) Represents 1,515,959 shares held by Mohr, Davidow Ventures IV and 63,164 shares held by MDV IV Entrepreneurs' Network Fund, L.P. (13) Includes 596,453 shares held by Weiss, Peck & Greer Venture Associates IV, L.P., 537,111 shares held by WPG Enterprise Fund III, L.P., 85,259 shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Bank America Trust & Banking Corporation (Cayman) Limited and 20,762 shares held by WPG Information Sciences Entrepreneur Fund, L.P. Also includes 59,645 shares subject to warrants held by Weiss, Peck & Greer Venture Associates IV, L.P., 53,711 shares subject to warrants held by WPG Enterprise Fund III, L.P., 7,750 shares subject to warrants held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P. Bank America Trust & Banking Corporation (Cayman) Limited and 2,076 shares subject to warrants held by WPG Information Sciences Entrepreneur Fund, L.P., each of which is exercisable within 60 days of January 31, 1999. (14) Includes 63,164 shares held by TPK Unitrust, of which Mr. Bechtolsheim is the trustee. (15) Includes 20,762 shares subject to a right of repurchase in favor of Brocade which lapses over time. Also includes 11,418 shares subject to a warrant and 121,856 shares subject to an option, each of which is exercisable within 60 days of January 31, 1999. 58

60 DESCRIPTION OF CAPITAL STOCK Upon consummation of this offering, our authorized capital stock will consist of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. The following is a summary of the material provisions of the common stock and the preferred stock contained in Brocade's certificate of incorporation and bylaws. COMMON STOCK As of January 31, 1999, there were 7,408,167 shares of common stock outstanding held of record by 112 stockholders. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled the following rights: - to receive dividends out of assets legally available therefor at such times and in such amounts as the board of directors from time to time may determine; - one vote for each share held on all matters submitted to a vote of stockholders; and - upon liquidation, dissolution or winding-up of Brocade, to share ratably in all assets remaining after payment of liabilities and the liquidation of any preferred stock. Cumulative voting for the election of directors is not authorized by our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, upon payment therefor, duly and validly issued, fully paid and nonassessable. PREFERRED STOCK The board of directors is authorized, without action by the stockholders, to designate and issue preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions thereon. The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of Brocade. We have no current plans to issue any shares of preferred stock. WARRANTS In December 1995, we issued a warrant to an equipment lease financing company to purchase 35,444 shares of our Series A Preferred Stock with an exercise price of $1.00 per share, in consideration for equipment leases and a loan. In October 1996, we issued a warrant to the same equipment lease financing company to purchase 15,753 shares of our Series A Preferred Stock with an exercise price of $4.50 per share, also in consideration for equipment leases and a loan. In September 1996, we issued a warrant to the same equipment lease financing company to purchase 17,500 shares of our Series B Preferred Stock at an exercise price of $4.00 per share. These warrants will remain outstanding after the completion of this offering and will become exercisable for our common stock. 59

61 In August 1996, we issued a warrant to a real property lessor to purchase 3,000 shares of our Series C Preferred Stock with an exercise price of $3.00 per share. This warrant will remain outstanding after the completion of this offering and will become exercisable for our common stock. In April 1997, we issued a warrant to a sublessor of real property to purchase 20,000 shares of our Series C Preferred Stock with an exercise price of $3.00 per share. This warrant will remain outstanding after the completion of this offering and will become exercisable for our common stock. In May 1997, we issued a warrant to a bank to purchase 25,000 shares of our Series C Preferred Stock with an exercise price of $3.00 per share. This warrant will remain outstanding after the completion of this offering and will become exercisable for our common stock. In September 1997, we issued warrants to certain investors in our Series D Preferred Stock financing to purchase that number of shares equal to 10% of the number of shares purchased by each respective investor in the financing, for a total of 296,881 shares, at an exercise price of $6.78 per share. These warrants terminate upon our initial public offering, and will all be exercised prior to the effective date. REGISTRATION RIGHTS OF CERTAIN HOLDERS After this offering, the holders of approximately 14,623,614 shares of common stock and warrants to acquire 264,788 shares of common stock will be entitled to rights with respect to the registration of such shares under the Securities Act. Under the terms of the agreements between us and the holders of such registrable securities, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such common stock therein. Additionally, certain of such holders are also entitled to certain demand registration rights pursuant to which they may require us on up to two occasions to file a registration statement under the Securities Act at our expense with respect to our shares of common stock, and we are required to use our best efforts to effect such registration. Moreover, holders may require us to file an unlimited number of additional registration statements on Form S-3 at our expense. All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and our right not to effect a requested registration within six months following an offering of our securities, including the offering made here. In addition, the holders of registration rights have agreed not to exercise such rights for at least 180 days after the offering without the prior written consent of Morgan Stanley & Co. Incorporated. DELAWARE LAW AND CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS Certain provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of Brocade by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and directors. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of Brocade to first negotiate with us. We believe that the benefits of increased protection of Brocade's potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure Brocade outweighs the disadvantages of discouraging such proposals, including proposals that are priced above the then current market value of our common stock, because, among other things, negotiation of such proposals could result in an improvement of their terms. We are subject to section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested 60

62 stockholder for a period of three years following the date such stockholder became an interested stockholder, unless: - prior to such date the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: - any merger or consolidation involving the corporation and the interested stockholder; - any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; - subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; - any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or - the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Our certificate of incorporation and bylaws require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of our stockholders may be called only by the board of directors or certain of our officers. Our certificate of incorporation and bylaws also provide that, beginning upon the closing of the offering, our board of directors will be divided into three classes, with each class serving staggered three-year terms and that certain amendments of the certificate of incorporation and of the bylaws require the approval of holders of at least 66 2/3% of the voting power of all outstanding stock. These provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of Brocade. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for our common stock is Norwest Bank Minnesota, N.A. Its address is 161 North Concord Exchange, South St. Paul, Minnesota 55075-0738, and its telephone number at this location is (651) 450-4189. 61

63 SHARES ELIGIBLE FOR FUTURE SALE Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect the market price of the common stock. Upon completion of this offering, we will have outstanding shares of common stock, assuming the issuance of shares of common stock offered hereby and no exercise of options after . Of these shares, the shares sold in the offering will be freely tradable without restriction or further registration under the Securities Act, provided, however, that if shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act, their sales of shares would be subject to certain limitations and restrictions that are described below. The remaining shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Of these shares, shares will be subject to "lock-up" agreements described below on the effective date of the offering. On the effective date of the offering, shares not subject to the lock-up agreements described below will be eligible for sale pursuant to Rule 144(k). Upon expiration of the lock-up agreements 180 days after the effective date of the offering, shares will become eligible for sale, subject in most cases to the limitations of Rule 144. In addition, holders of stock options could exercise such options and sell certain of the shares issued upon exercise as described below. <TABLE> <CAPTION> DAYS AFTER DATE OF APPROXIMATE SHARES THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT ------------------ ------------------------ ------- <S> <C> <C> On Effectiveness Shares sold in the offering 90 Days Shares saleable under Rule 144 180 Days Lock-up released; shares salable under Rules 144 and 701 </TABLE> As of January 31, 1999, there were a total of 984,190 shares of common stock subject to outstanding options under our 1995 Equity Incentive Plan, 87,068 of which were vested. As of January 31, 1999, there were a total of 1,098,281 shares of common stock subject to outstanding options under our 1998 Equity Incentive Plan, 130,515 of which were vested. As of January 31, 1999, no shares of common stock were subject to outstanding options under our 1998 Executive Equity Incentive Plan. However, all of these shares are subject to lock-up agreements. Immediately after the completion of the offering, Brocade intends to file registration statements on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for future issuance under our 1999 Stock Plan, 1999 Director Option Plan and 1999 Employee Stock Purchase Plan. On the date 180 days after the effective date of the offering, a total of shares of common stock subject to outstanding options will be vested. After the effective dates of the registration statements on Form S-8, shares purchased upon exercise of options granted pursuant to the 1999 Stock Plan, 1999 Director Option Plan and 1999 Employee Stock Purchase Plan generally would be available for resale in the public market. Our officers, directors and stockholders have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of the offering. Morgan Stanley & Co. Incorporated, however, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. 62

64 RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of - 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or - the average weekly trading volume of the common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain other requirements regarding the manner of sale, notice filing and the availability of current public information about us. RULE 144(k) Under Rule 144(k), a person who is not deemed to have been one of Brocade's "affiliates" at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an "affiliate," is entitled to sell such shares without complying with the manner of sale, notice filing, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering. RULE 701 In general, under Rule 701, any Brocade employee, director, officer, consultant or advisor who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of the offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with certain restrictions, including the holding period, contained in Rule 144. The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of such options (including exercises after the date of this prospectus). Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than "affiliates," as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by "affiliates" under Rule 144 without compliance with its one year minimum holding period requirement. 63

65 UNDERWRITERS Under the terms and subject to the conditions contained in the underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are acting as representatives, have severally agreed to purchase, and Brocade has agreed to sell to them, severally, the respective number of shares of common stock set forth opposite the names of the underwriters below: <TABLE> <CAPTION> NUMBER OF NAME SHARES ---- --------- <S> <C> Morgan Stanley & Co. Incorporated........................... BT Alex. Brown Incorporated................................. Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.............................................. ------ Total..................................................... ====== </TABLE> The underwriters are offering the shares subject to their acceptance of the shares from Brocade and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus, other than those covered by the over-allotment option described below, if any such shares are taken. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and the dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives of the underwriters. Brocade has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by the prospectus. To the extent this option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of additional shares of common stock as the number set forth next to each underwriter's name in the preceding table bears to the total number of shares of common stock set forth next to the names of all underwriters in the preceding table. At the request of Brocade, the underwriters have reserved up to five percent of the shares of common stock to be issued by Brocade and offered hereby for sale, at the initial public offering price, to directors, officers, employees, business associates and related persons of Brocade. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. 64

66 Each of Brocade and the officers, directors and stockholders of Brocade has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, or otherwise during the period ending 180 days after the date of this prospectus, it will not (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The foregoing restrictions shall not apply to (1) the sale of any shares to the underwriters pursuant to the underwriting agreement, or (2) transactions relating to shares of common stock or other securities acquired in open market transactions after the date of this prospectus. The underwriters have informed Brocade that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. Approval of the common stock has been sought for quotation on the Nasdaq National Market under the symbol "BRCD." In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering if the syndicate repurchases previously distributed shares of common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time. Brocade and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the shares of common stock. Consequently, the initial public offering price for the shares of common stock will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our record of operations, our current financial position and future prospects, the experience of our management, the economics of the SAN industry in general, the general condition of the equity securities markets, sales, earnings and certain other financial and operating information of Brocade in recent periods, the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of Brocade. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. 65

67 LEGAL MATTERS The validity of the shares of common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation. Larry W. Sonsini, a director of Brocade and a partner of Wilson Sonsini Goodrich & Rosati, beneficially owns 121,856 shares of our common stock. Certain legal matters in connection with this offering will be passed upon for the underwriters by Gray Cary Ware & Freidenrich LLP. EXPERTS The financial statements and schedule included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. CHANGE IN INDEPENDENT ACCOUNTANTS AND FISCAL YEAR END Effective October 1997, Arthur Andersen LLP was engaged as our independent accountants and replaced PricewaterhouseCoopers LLP who was dismissed as our independent accountants. Also at that time, we changed our fiscal year from December 31 to October 31. The decision to change independent accountants was approved by our board of directors. Prior to October 1997, PricewaterhouseCoopers LLP issued a report on the periods from inception through December 31, 1996. This report contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with the audit for the periods ended December 31, 1996, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference thereto in their report on the financial statements for such periods. PricewaterhouseCoopers LLP has not audited or reported on any of the financial statements or information included in this prospectus. Prior to October 1997, we had not consulted with Arthur Andersen LLP on items that involved our accounting principles or the form of audit opinion to be issued on our financial statements. 66

68 WHERE YOU MAY FIND ADDITIONAL INFORMATION We filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act for the shares of common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to Brocade and our common stock, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedule that were filed with the registration statement may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. The Securities and Exchange Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is http://www.sec.gov. Upon completion of this offering, Brocade will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance with the requirements of the Securities Exchange Act of 1934, will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. These periodic reports, proxy statements and other information will be available for inspection and copying at the regional offices, public reference facilities and web site of the Securities and Exchange Commission referred to above. 67

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70 BROCADE COMMUNICATIONS SYSTEMS, INC. INDEX TO FINANCIAL STATEMENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Report of Independent Public Accountants.................... F-2 Balance Sheets.............................................. F-3 Statements of Operations.................................... F-4 Statements of Redeemable Convertible Preferred Stock and Shareholders' Equity (Deficit)............................ F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 </TABLE> F-1

71 After the reincorporation discussed in Note 10 to Brocade Communications Systems, Inc. financial statements, we expect to be in a position to render the following audit report: ARTHUR ANDERSEN LLP San Jose, California November 24, 1998 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Brocade Communications Systems, Inc.: We have audited the accompanying balance sheets of Brocade Communications Systems, Inc. (a California corporation) as of October 31, 1998 and 1997 and the related statements of operations, redeemable convertible preferred stock and shareholders' equity (deficit) and cash flows for each of the three years in the period ended October 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brocade Communications Systems, Inc. as of October 31, 1998 and 1997 and the results of its operations and its cashflows for each of the three years in the period ended October 31, 1998 in conformity with generally accepted accounting principles. San Jose, California November 24, 1998 (except with respect to the matters discussed in Note 10, as to which the date is March , 1999) F-2

72 BROCADE COMMUNICATIONS SYSTEMS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) <TABLE> <CAPTION> JANUARY 31, 1999 OCTOBER 31, PRO FORMA ------------------- JANUARY 31, SHAREHOLDERS' 1997 1998 1999 EQUITY (NOTE 6) -------- -------- ----------- --------------- (UNAUDITED) <S> <C> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents................................. $ 2,552 $ 10,420 $ 10,137 Short-term investments.................................... 15,920 -- -- Accounts receivable, net of allowance for doubtful accounts of $100, $285 and $260, respectively........... 2,646 3,430 6,028 Inventories............................................... 471 1,744 2,528 Prepaid expenses and other current assets................. 342 220 491 -------- -------- -------- Total current assets........................................ 21,931 15,814 19,184 Property and equipment, net................................. 3,922 5,323 5,248 Other assets................................................ 247 164 144 -------- -------- -------- $ 26,100 $ 21,301 $ 24,576 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Borrowings under line of credit........................... $ 500 $ 1,672 $ 1,700 Current portion of debt................................... 367 1,231 1,231 Current portion of capital lease obligations.............. 679 784 713 Accounts payable.......................................... 3,292 3,247 4,863 Accrued liabilities....................................... 1,759 3,604 6,177 -------- -------- -------- Total current liabilities.......................... 6,597 10,538 14,684 -------- -------- -------- Long-term liabilities: Long-term portion of debt................................. 694 1,731 1,443 Long-term portion of capital lease obligations............ 1,260 478 365 Commitments and contingencies (Note 4) Redeemable convertible preferred stock, no par value, aggregate liquidation preference of $35,850: Authorized -- 9,791,280 shares at January 31, 1999 and pro forma Issued and outstanding (Series A, B, C and D) -- 8,370,431 shares at October 31, 1997; and 9,235,483 shares at October 31, 1998 and January 31, 1999; no shares issued and outstanding pro forma...... 30,359 35,261 35,261 Warrants to purchase redeemable convertible preferred stock................................................... 648 648 648 -------- -------- -------- Total long term liabilities........................ 32,961 38,118 37,717 -------- -------- -------- Shareholders' equity (deficit): Common stock, no par value: Authorized -- 30,000,000 shares at January 31, 1999 and pro forma Issued and outstanding -- 4,913,383 shares at October 31, 1997; 5,194,765 shares at October 31, 1998; 7,408,167 shares at January 31, 1999; and 22,031,781 shares outstanding pro forma.......................... 424 2,225 10,309 $ 47,907 Deferred compensation....................................... (88) (300) (2,566) (2,566) Notes receivable from shareholders.......................... (75) (450) (4,899) (4,899) Accumulated deficit......................................... (13,719) (28,830) (30,669) (30,669) -------- -------- -------- -------- Total shareholders' equity (deficit)............... (13,458) (27,355) (27,825) $ 9,773 -------- -------- -------- -------- $ 26,100 $ 21,301 $ 24,576 ======== ======== ======== </TABLE> See accompanying notes. F-3

73 BROCADE COMMUNICATIONS SYSTEMS, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, ---------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- -------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Revenues: Product revenue............................. $ -- $ 8,482 $ 22,414 $ 7,824 $ 6,429 License revenue............................. -- -- 1,832 26 1,578 ------- ------- -------- ------- ------- Total revenues......................... -- 8,482 24,246 7,850 8,007 Cost of revenues............................ -- 6,682 15,759 4,697 3,321 ------- ------- -------- ------- ------- Gross profit........................... -- 1,800 8,487 3,153 4,686 ------- ------- -------- ------- ------- Operating expenses: General and administrative.................. 575 1,464 3,813 639 741 Sales and marketing......................... 152 2,112 5,154 1,074 1,729 Research and development.................... 3,091 7,666 14,744 2,838 2,905 Amortization of deferred compensation....... -- -- 7 -- 1,157 ------- ------- -------- ------- ------- Total operating expenses............... 3,818 11,242 23,718 4,551 6,532 ------- ------- -------- ------- ------- Loss from operations........................ (3,818) (9,442) (15,231) (1,398) (1,846) Other income (expense)...................... (116) (177) 120 43 7 ------- ------- -------- ------- ------- Net loss.................................... $(3,934) $(9,619) $(15,111) $(1,355) $(1,839) ======= ======= ======== ======= ======= Basic net loss per share.................... $ (9.50) $ (4.82) $ (4.44) $ (.53) $ (.42) ======= ======= ======== ======= ======= Shares used in computing basic net loss per share..................................... 414 1,997 3,400 2,570 4,349 ======= ======= ======== ======= ======= Pro forma basic net loss per share (unaudited)............................... $ (.84) $ (.10) ======== ======= Shares used in computing pro forma basic net loss per share (unaudited)................ 17,915 18,973 ======== ======= </TABLE> See accompanying notes. F-4

74 BROCADE COMMUNICATIONS SYSTEMS, INC. STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS) <TABLE> <CAPTION> REDEEMABLE CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK DEFERRED RECEIVABLE --------------------------- ---------------- STOCK FROM ACCUMULATED SHARES AMOUNT WARRANTS SHARES AMOUNT COMPENSATION SHAREHOLDERS DEFICIT ------ ------- -------- ------ ------- ------------ ------------ ----------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Balances at October 31, 1995........... 1,425 $ 1,411 -- 2,093 $ 52 $ -- $ (52) $ (166) Issuance of warrants related to leases............................... -- -- 188 -- -- -- -- -- Exercise of options.................... -- -- -- 1,562 48 -- -- -- Issuance of Series B Redeemable Convertible Preferred Stock, net of issuance costs of $63................ 816 3,202 -- -- -- -- -- -- Forgiveness of notes receivable from founders............................. -- -- -- -- -- -- 52 -- Stock in exchange for services......... -- -- -- 66 13 -- -- -- Issuance of common stock to officer.... -- -- -- 773 151 (132) -- -- Deferred compensation.................. -- -- -- -- -- 11 -- -- Net loss............................... -- -- -- -- -- -- -- (3,934) ----- ------- ---- ----- ------- ------- ------- -------- Balances at October 31, 1996........... 2,241 4,613 188 4,494 264 (121) -- (4,100) Exercise of options.................... -- -- -- 384 90 -- -- -- Issuance of stock for notes receivable from shareholders.................... -- -- -- 250 75 -- (75) -- Repurchase of common stock............. -- -- -- (215) (5) -- -- -- Issuance of Series C Redeemable Convertible Preferred Stock, net of issuance costs of $49................ 3,333 9,952 -- -- -- -- -- -- Issuance of Series D Redeemable Convertible Preferred Stock, net of issuance costs of $42................ 2,796 15,794 -- -- -- -- -- -- Issuance of warrants related to leases and notes payable.................... -- -- 135 -- -- -- -- -- Issuance of warrants................... -- -- 325 -- -- -- -- -- Deferred compensation.................. -- -- -- -- -- 33 -- -- Net loss............................... -- -- -- -- -- -- -- (9,619) ----- ------- ---- ----- ------- ------- ------- -------- Balances at October 31, 1997........... 8,370 30,359 648 4,913 424 (88) (75) (13,719) Exercise of options.................... -- -- -- 201 55 -- -- -- Compensation charges................... -- -- -- -- 1,067 88 -- -- Deferred compensation.................. -- -- -- -- 307 (307) -- -- Amortization of deferred compensation......................... -- -- -- -- -- 7 -- -- Issuance of Series D Redeemable Convertible Preferred Stock, net of issuance costs of $98................ 865 4,902 -- -- -- -- -- -- Issuance of stock for notes receivable from shareholders.................... -- -- -- 225 375 -- (375) -- Stock in exchange for services......... -- -- -- 18 41 -- -- -- Repurchase of common stock............. -- -- -- (162) (44) -- -- -- Net loss............................... -- -- -- -- -- -- -- (15,111) ----- ------- ---- ----- ------- ------- ------- -------- Balances at October 31, 1998........... 9,235 35,261 648 5,195 2,225 (300) (450) (28,830) Exercise of options (unaudited)........ -- -- -- 236 135 -- -- -- Issuance of stock for notes receivable from shareholders (unaudited)........ -- -- -- 1,977 4,449 -- (4,449) -- Compensation charges (unaudited)....... -- -- -- -- 77 -- -- -- Deferred compensation (unaudited)...... -- -- -- -- 3,423 (3,423) -- -- Amortization of deferred compensation (unaudited).......................... -- -- -- -- -- 1,157 -- -- Net loss (unaudited)................... -- -- -- -- -- -- -- (1,839) ----- ------- ---- ----- ------- ------- ------- -------- Balances at January 31, 1999 (unaudited).......................... 9,235 $35,261 $648 7,408 $10,309 $(2,566) $(4,899) $(30,669) ===== ======= ==== ===== ======= ======= ======= ======== <CAPTION> TOTAL SHAREHOLDERS EQUITY (DEFICIT) ------------ <S> <C> Balances at October 31, 1995........... $ (166) Issuance of warrants related to leases............................... -- Exercise of options.................... 48 Issuance of Series B Redeemable Convertible Preferred Stock, net of issuance costs of $63................ -- Forgiveness of notes receivable from founders............................. 52 Stock in exchange for services......... 13 Issuance of common stock to officer.... 19 Deferred compensation.................. 11 Net loss............................... (3,934) -------- Balances at October 31, 1996........... (3,957) Exercise of options.................... 90 Issuance of stock for notes receivable from shareholders.................... -- Repurchase of common stock............. (5) Issuance of Series C Redeemable Convertible Preferred Stock, net of issuance costs of $49................ -- Issuance of Series D Redeemable Convertible Preferred Stock, net of issuance costs of $42................ -- Issuance of warrants related to leases and notes payable.................... -- Issuance of warrants................... -- Deferred compensation.................. 33 Net loss............................... (9,619) -------- Balances at October 31, 1997........... (13,458) Exercise of options.................... 55 Compensation charges................... 1,155 Deferred compensation.................. -- Amortization of deferred compensation......................... 7 Issuance of Series D Redeemable Convertible Preferred Stock, net of issuance costs of $98................ -- Issuance of stock for notes receivable from shareholders.................... -- Stock in exchange for services......... 41 Repurchase of common stock............. (44) Net loss............................... (15,111) -------- Balances at October 31, 1998........... (27,355) Exercise of options (unaudited)........ 135 Issuance of stock for notes receivable from shareholders (unaudited)........ -- Compensation charges (unaudited)....... 77 Deferred compensation (unaudited)...... -- Amortization of deferred compensation (unaudited).......................... 1,157 Net loss (unaudited)................... (1,839) -------- Balances at January 31, 1999 (unaudited).......................... $(27,825) ======== </TABLE> See accompanying notes. F-5

75 BROCADE COMMUNICATIONS SYSTEMS, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED OCTOBER 31, JANUARY 31, ----------------------------- ----------------- 1996 1997 1998 1998 1999 ------- -------- -------- ------- ------- (UNAUDITED) <S> <C> <C> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(3,934) $ (9,619) $(15,111) $(1,355) $(1,839) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................. 246 1,020 2,374 494 427 Loss on disposition of equipment.......................... -- 73 -- -- -- Noncash compensation expense.............................. 11 33 1,202 71 1,234 Forgiveness of founders' notes receivable................. 52 -- -- -- -- Changes in assets and liabilities Accounts receivable..................................... -- (2,646) (784) 587 (2,598) Inventories............................................. -- (471) (1,273) (993) 894 Prepaid expenses and other assets....................... (40) (140) 205 (51) (1,929) Accounts payable........................................ 12 3,023 (45) (46) 1,616 Accrued liabilities..................................... 260 1,452 1,845 340 2,573 ------- -------- -------- ------- ------- Net cash provided by (used in) operating activities... (3,393) (7,275) (11,587) (953) 378 ------- -------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment....................... (1,518) (3,423) (3,775) (1,624) (352) Proceeds from disposition (purchases) of short-term investments............................................. -- (15,920) 15,920 15,920 -- ------- -------- -------- ------- ------- Net cash provided by (used in) investing activities... (1,518) (19,343) 12,145 14,296 (352) ------- -------- -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit borrowings................................. -- 500 1,672 -- 28 Line of credit repayments................................. -- -- (500) -- -- Payments on capitalized lease obligations................. (155) (504) (677) (169) (184) Proceeds from capital lease financing..................... 1,340 1,258 -- -- -- Proceeds from notes payable............................... -- 1,091 2,594 -- -- Repayments of notes payable............................... -- (30) (693) (92) (288) Proceeds from issuance of redeemable convertible preferred stock and warrants...................................... 3,202 26,070 4,902 4,911 -- Proceeds from issuance of common stock.................... 56 90 56 12 135 Repurchase of common shares............................... -- (5) (44) -- -- ------- -------- -------- ------- ------- Net cash provided by (used in) financing activities... 4,443 28,470 7,310 4,662 (309) ------- -------- -------- ------- ------- Net increase (decrease) in cash and cash equivalents........ (468) 1,852 7,868 18,005 (283) Cash and cash equivalents, beginning of period.............. 1,168 700 2,552 2,552 10,420 ------- -------- -------- ------- ------- Cash and cash equivalents, end of period.................... $ 700 $ 2,552 $ 10,420 $20,557 $10,137 ======= ======== ======== ======= ======= Supplemental disclosure of cash flow information Cash paid for interest.................................... $ 109 $ 351 $ 557 $ 112 $ 136 ======= ======== ======== ======= ======= </TABLE> See accompanying notes. F-6

76 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND OPERATIONS OF BROCADE Brocade Communications Systems, Inc. (Brocade) was incorporated on August 24, 1995 and provides network switches for deployment in storage area networks (SANs). Brocade's primary product line, SilkWorm(R), operates at gigabit speeds and is based on the Fibre Channel protocol. A SAN provides a networking environment for connecting a data center's servers and storage systems. During fiscal 1997 and 1998, Brocade sold its products and services to original equipment manufacturers located in the United States. Brocade is subject to a number of business risks including, but not limited to, ability to obtain adequate financing to support growth, dependence on key individuals, key suppliers of integral component parts, competition from substitute products and larger companies and the need for the continued successful development, manufacturing, marketing and selling of its SAN switching products. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Data The unaudited interim financial statements for the three months ended January 31, 1999 and 1998 have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all normal recurring adjustments necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash, Cash Equivalents and Short-term Investments For purposes of the statements of cash flows, cash and cash equivalents consist of investments with original maturities of less than three months, primarily commercial paper. During 1997, Brocade classified its short-term investments as held-to-maturity and carried them at amortized cost. At October 31, 1997, the fair value of Brocade's investments approximated amortized cost and, as such, unrealized holding gains and losses were insignificant. The fair value of Brocade's investments was determined based on quoted market prices at the reporting date for those instruments. Concentrations of Credit Risk Financial instruments that potentially subject Brocade to a concentration of credit risk principally consist of accounts receivable. Brocade generally does not require collateral on accounts receivable, as the majority of Brocade's customers are large, well established companies. Brocade provides reserves for credit losses and product sales returns. F-7

77 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) At October 31, 1997 and 1998 and January 31, 1999, approximately 99%, 76% and 53%, respectively, of accounts receivable was concentrated with four customers, as follows: <TABLE> <CAPTION> OCTOBER 31, ------------ JANUARY 31, 1997 1998 1999 ---- ---- ----------- (UNAUDITED) <S> <C> <C> <C> Customer A............................................ 83% 45% 21% Customer B............................................ 1% 11% 5% Customer C............................................ 15% 20% 4% Customer D............................................ -- -- 23% </TABLE> Inventories Inventories are stated at the lower of cost or market, using the first in, first out method. Inventory costs include material, labor and overhead. Inventories consisted of the following, (in thousands): <TABLE> <CAPTION> OCTOBER 31, -------------- JANUARY 31, 1997 1998 1999 ---- ------ ----------- (UNAUDITED) <S> <C> <C> <C> Raw materials...................................... $158 $1,203 $ 238 Work-in-process.................................... 75 6 10 Finished goods..................................... 238 535 2,280 ---- ------ ------ $471 $1,744 $2,528 ==== ====== ====== </TABLE> Property and Equipment Property and equipment are stated at cost. Depreciation for all property and equipment is computed using the straight-line method over the estimated useful lives of the assets, generally three to four years. Leasehold improvements are depreciated over the shorter of their useful lives or the term of the lease. Property and equipment consisted of the following, (in thousands): <TABLE> <CAPTION> OCTOBER 31, ------------------ JANUARY 31, 1997 1998 1999 ------- ------- ----------- (UNAUDITED) <S> <C> <C> <C> Computers and equipment................................. $ 4,617 $ 8,186 $ 8,514 Leasehold improvements.................................. 196 345 369 Furniture and fixtures.................................. 377 434 434 Less: Accumulated depreciation and amortization......... (1,268) (3,642) (4,069) ------- ------- ------- $ 3,922 $ 5,323 $ 5,248 ======= ======= ======= </TABLE> Included in property and equipment are assets acquired under capital lease obligations with a cost and related accumulated amortization of approximately $2.6 million and $2.0 million, respectively, at January 31, 1999, and approximately $2.6 million and $1.8 million, respectively, at October 31, 1998. F-8

78 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Software Development Costs In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," Brocade capitalizes eligible computer software development costs upon the establishment of technological feasibility, which it has defined as completion of designing, coding and testing activities. For the years ended October 31, 1997 and October 31, 1998, and the three-month periods ended January 31, 1998 and 1999, the amount of costs eligible for capitalization, after consideration of factors such as realizable value, were not material and, accordingly, all software development costs have been charged to research and development expense in the accompanying statements of operations. Accrued Liabilities Accrued liabilities consisted of the following, (in thousands): <TABLE> <CAPTION> OCTOBER 31, ---------------- JANUARY 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) <S> <C> <C> <C> Accrued warranty.................................. $ 750 $1,350 $1,220 Payroll, bonus, vacation.......................... 474 628 930 Deferred revenue.................................. 293 543 3,391 Accrued restructuring (see Note 5)................ -- 421 77 Sales tax......................................... -- 125 14 Other............................................. 242 537 545 ------ ------ ------ $1,759 $3,604 $6,177 ====== ====== ====== </TABLE> Stock-Based Compensation The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), in October 1995. This accounting standard permits the use of either a fair value based method or the method defined in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25") to account for stock-based compensation arrangements. Companies that elect to employ the valuation method provided in APB 25 are required to disclose the pro forma net income (loss) that would have resulted from the use of the fair value based method. Brocade has elected to continue to determine the value of stock-based compensation arrangements under the provisions of APB 25, and accordingly, it has included the pro forma disclosures required under SFAS No. 123 in Note 7. Revenue Recognition Product revenue is generally recognized when products are shipped, with the exception of shipments to some customers where product returns cannot be reasonably estimated or significant support services are required to successfully launch the customer's product. Allowances for warranty costs, credit losses and estimated future returns are provided for upon shipment. License revenue is recognized when F-9

79 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) collection is reasonably assured. Deferred revenues for the quarter ended January 31, 1999 were approximately $3.4 million. During fiscal 1997 and 1998, and the three month periods ended January 31, 1998 and 1999, approximately 91%, 89%, 98% and 76%, respectively, of Brocade's total revenues were derived from sales of its SilkWorm(R) product. The percentage of sales to significant customers is as follows: <TABLE> <CAPTION> YEAR ENDED OCTOBER 31, ----------- THREE MONTHS ENDED JANUARY 31, 1997 1998 1998 1999 ---- ---- -------------- -------------- (UNAUDITED) <S> <C> <C> <C> <C> Customer A....................................... 67% 72% 92% 37% Customer B....................................... 27% 11% 3% 33% </TABLE> Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share Basic net loss per common share and diluted net loss per common share are presented in conformity with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," ("SFAS No. 128") for all periods presented. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of the initial public offering must be included in the calculation of basic and diluted net loss per common share as if such stock had been outstanding for all periods presented. To date, Brocade has not had any issuances or grants for nominal consideration. In accordance with SFAS No. 128, basic net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares subject to repurchase. Basic pro forma net loss per common share, as presented in the statements of operations, has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of the convertible preferred stock (using the if-converted method) from the original date of issuance. F-10

80 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED OCTOBER 31, ------------------------- -------------------------------- JANUARY 31, JANUARY 31, 1996 1997 1998 1998 1999 ------- ----------- -------- ----------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> <C> Net loss.................................... $(3,934) $(9,619) $(15,111) $(1,355) $(1,839) ------- ------- -------- ------- ------- Basic and diluted: Weighted average shares of common stock outstanding............................... 3,169 4,594 5,174 4,973 6,189 Less: Weighted average shares subject to repurchase................................ (2,755) (2,597) (1,774) (2,403) (1,840) ------- ------- -------- ------- ------- Weighted average shares used in computing basic and diluted net loss per common share..................................... 414 1,997 3,400 2,570 4,349 ======= ======= ======== ======= ======= Basic and diluted net loss per common share..................................... $ (9.50) $ (4.82) $ (4.44) $ (.53) $ (.42) ======= ======= ======== ======= ======= Pro forma: Net loss.................................. $(15,111) $(1,839) ======== ======= Shares used above......................... 3,400 4,349 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock (unaudited)............................ 14,218 14,327 -------- ------- Pro forma adjustment to reflect assumed exercise and conversion of preferred stock warrants to purchase 296,881 common shares at an exercise price of $6.78 per share (unaudited)............ 297 297 -------- ------- Shares used in computing pro forma basic and diluted net loss per common share (unaudited)............................ 17,915 18,973 ======== ======= Pro forma basic and diluted net loss per common share (unaudited)............... $ (.84) $ (.10) ======== ======= </TABLE> Brocade has excluded all convertible preferred stock, warrants for convertible preferred stock, outstanding stock options and shares subject to repurchase from the calculation of diluted net loss per common share because all such securities are antidilutive for all periods presented. The total number of shares excluded from the calculations of diluted net loss per common share were 10,895,629, 17,561,773, 19,506,313, 18,370,231, and 19,582,674 for the years ended October 31, 1996, 1997 and 1998 and the three months ended January 31, 1998 and 1999, respectively. See Notes 6 and 7 for further information on these securities. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," ("SFAS No. 130"). SFAS No. 130 was adopted by Brocade beginning on November 1, 1997. This standard defines comprehensive income as the changes in equity of an enterprise except those resulting from stockholder transactions. Comprehensive loss for each of the three years F-11

81 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ended October 31, 1998 and the three month periods ended January 31, 1998 and 1999 approximated net loss. In June 1997, the Financial Accounting Standards Board also issued SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." ("SFAS No. 131"). SFAS No. 131 was adopted by Brocade beginning on November 1, 1997. SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. Brocade is organized and operates as one operating segment, the design, development manufacturing, marketing and selling of SAN security products. Service revenues to date have not been significant. Brocade operates in one geographic area, the United States. Major customers are discussed above. In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP No. 98-1"). SOP No. 98-1 requires entities to capitalize certain costs related to internal-use software once certain criteria have been met. Brocade adopted SOP 98-1 beginning on November 1, 1998. The adoption did not have a material impact on Brocade's financial position or results of operations. In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions," ("SOP 98-9"). SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. Brocade has not had significant software sales to date and management does not expect the adoption of SOP 98-9 to have a significant effect on our financial condition or results of operations. 3. LINE OF CREDIT AND DEBT In June 1997, Brocade entered into a revolving line of credit agreement with a bank under which it can borrow up to $4,000,000. The line of credit bears interest at the bank's prime rate (7.8% at January 31, 1999) and expires in August 1999. At January 31, 1999 there were borrowings of $1,700,000 outstanding under the line of credit agreement. The line of credit agreement is secured by accounts receivable and inventory and contains certain financial covenants measured on a monthly basis. As of January 31, 1999, Brocade had borrowed $2,674,000 from the same bank under an equipment loan agreement. The equipment loan agreement provides for borrowings of up to $5,000,000. Borrowings are secured by the related capital equipment, bear interest at the bank's prime rate plus 1.0% (8.8% at January 31, 1999) and are payable through June 30, 2002. As of January 31, 1999, principal payments of approximately $587,000, $783,000, $783,000 and $521,000, respectively, were due in fiscal years ending October 31, 1999, 2000, 2001 and 2002. F-12

82 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. LINE OF CREDIT AND DEBT (CONTINUED) Notes payable as of October 31, 1997 and 1998 and the three-month period ended January 31, 1999 consisted of the following, (in thousands): <TABLE> <CAPTION> OCTOBER 31, --------------- JANUARY 31, 1997 1998 1999 ------ ------ ----------- (UNAUDITED) <S> <C> <C> <C> Note payable to bank........................................ $1,061 $2,962 $2,674 Less: Current portion....................................... 367 1,231 1,231 ------ ------ ------ Long-term portion........................................... $ 694 $1,731 $1,443 ====== ====== ====== </TABLE> 4. COMMITMENTS AND CONTINGENCIES Brocade leases its facilities under operating lease agreements expiring through November 2000. The leases require that Brocade pay all costs of maintenance, utilities, insurance and taxes. Rent expense for the years ended October 31, 1996, 1997 and 1998, and the three-month period ended January 31, 1999 was $110,509, $495,475, $804,057 and $191,584 respectively. Brocade leases computers, office equipment and furniture under long-term lease agreements that are classified as capital leases. The leases expire through January 2001 and require a final buyout payment at the end of the lease term. Future minimum lease payments, including the buyout payments, at January 31, 1999 were as follows: <TABLE> <CAPTION> OPERATING CAPITAL YEAR ENDED OCTOBER 31, LEASES LEASES ---------------------- --------- ------- (IN THOUSANDS) <S> <C> <C> 1999........................................................ $ 589 $ 694 2000........................................................ 847 476 2001........................................................ -- 42 ------ ------ Total minimum lease payments................................ $1,436 1,212 ====== ====== Less imputed interest (15.27% -- 17.65%).................... (134) Present value of payments under capital leases.............. 1,078 Less current portion........................................ (713) ------ Long-term lease obligations................................. $ 365 ====== </TABLE> Brocade's former contract manufacturer has filed suit against Brocade, alleging that Brocade is liable for breaching certain contracts with the contract manufacturer. The suit claims damages in excess of $3.0 million plus interest, an unspecified amount of consequential and incidental damages, costs and attorneys' fees. Brocade has filed a cross complaint against the contract manufacturer for various credits Brocade claims on its account with the contract manufacturer. It is management's opinion that any liability on Brocade's account is limited to accrued and unpaid invoices totaling approximately $1,400,000 and that this $1,400,000 is subject to the various offsets Brocade claims in its cross-complaint. F-13

83 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. COMMITMENTS AND CONTINGENCIES (CONTINUED) Brocade is subject to various claims which arise in the normal course of business. In the opinion of management, the ultimate disposition of these claims will not have a material adverse effect on the financial position of Brocade. 5. RESTRUCTURING OF OPERATIONS In the third quarter of 1998, Brocade initiated a plan to restructure its operations to reduce its break even revenue level. In connection with this plan, Brocade recorded a $3.2 million charge to operating expenses as follows: $1.3 million is included in costs of revenue, $700,000 is included in research and development expense and $1.2 million is included in general and administrative expense in the 1998 statement of operations. The restructuring charge includes $1.7 million of employee related expenses for 20 employee terminations, $1.2 million for the write-off of excess equipment and inventory and $300,000 for write-offs of other tangible and intangible assets related to cancelled development and simulation projects. As of January 31, 1999, Brocade had incurred costs totaling $3.1 million related to the restructuring. The remaining actions are expected to be completed within one year from the date the restructuring plan was initiated. Accrued liabilities at January 31, 1999 include $77,000 in remaining but unpaid employee related expenses. 6. PREFERRED STOCK Redeemable Convertible Preferred Stock In August 1995, Brocade issued 1,425,000 shares of its Series A Redeemable Convertible Preferred Stock (Series A). In June 1996, Brocade issued 816,250 shares of its Series B Redeemable Convertible Preferred Stock (Series B). In December 1996, Brocade issued 3,333,333 shares of its Series C Redeemable Convertible Preferred Stock (Series C). In fiscal years 1997 and 1998, Brocade issued 2,795,848 shares and 865,052 shares, respectively, of its Series D Redeemable Convertible Preferred Stock (Series D). The rights with respect to Series A, Series B, Series C and Series D are as follows: Redemption. At the request of the holders of the majority of voting power of the then outstanding preferred stock any time after August 28, 2002, Brocade shall, to the extent funds are legally available, redeem the preferred stock in increments over a three-year period. In such event, Brocade shall pay $1.00 per share for Series A, $4.00 per share for Series B, $3.00 per share for Series C and $5.78 for Series D plus any declared but unpaid dividends. Voting. Each share of Series A, Series B, Series C and Series D has voting rights equal to an equivalent number of shares of common stock into which it is convertible. Dividends. Holders of Series A, Series B, Series C and Series D are entitled to receive noncumulative dividends when and as declared by the Board of Directors at a rate of $0.08, $0.32, $0.24 and $0.46 per share, respectively, per annum. After payment of such dividends, any additional dividends declared will be paid to the holders of common stock and preferred stock in such amount as they would be entitled to receive if their shares had been converted into shares of common stock. No dividends have been declared. Liquidation. In the event of any liquidation, dissolution or winding up of Brocade, including a merger or sale of all or substantially all of the assets, the holders of Series A, Series B, Series C and F-14

84 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. PREFERRED STOCK (CONTINUED) Series D are entitled to receive pari passu a distribution of $1.00, $4.00, $3.00 and $5.78 per share, respectively, plus any declared but unpaid dividends prior to and in preference to any distribution to the holders of common stock. The remaining assets, if any, shall be distributed ratably among the holders of the common stock, Series A, Series B, Series C and Series D, based on the number of shares held (assuming conversion of the Series A, Series B, Series C and Series D). Conversion. Each share of Series A, Series B, Series C and Series D is convertible into common stock, at the holder's option or upon the consent of the holders of a majority of the then outstanding Series A, Series B, Series C and Series D shares voting as a single class. The Series A, Series B, Series C and Series D shares are initially convertible into common stock at a ratio of four for one, two for one, one for one and one for one, respectively. The conversion rates are protected by certain anti-dilution provisions. No adjustment in the future conversion price of Series A, Series B, Series C or Series D shall be made for the issuance of additional shares of common stock other than for a common stock split, dividend, or distribution unless at the time of issuance of the common stock the price per share for additional shares of common stock issued is less than the conversion price in effect for the Series A, Series B, Series C and Series D, respectively. The Series A, Series B, Series C and Series D shares will automatically convert into common stock upon the closing of a public offering having an aggregate public offering price of at least $10,000,000. Warrants Since inception, Brocade has issued warrants to purchase an aggregate of 51,197, 17,500 and 48,000 shares of Series A, Series B and Series C, respectively. These warrants were issued in connection with equipment and facilities lease agreements. Exercise prices range from $1.00 to $4.50 per share. The warrants are exercisable at various dates through 2002. In connection with the initial sale and issuance of Series D, investors were issued warrants to purchase 10% of the number of Series D shares purchased by each investor at an exercise price of $6.78 per share. The total number of shares of Series D purchasable upon exercise of these warrants was 296,881. Pro Forma Shareholders' Deficit In January 1999, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission to register shares of its common stock in connection with a proposed initial public offering ("IPO"). If the IPO is consummated under the terms presently anticipated, (1) all of the currently outstanding preferred stock will be converted into 14,326,733 shares of common stock upon the closing of the IPO and (2) warrants to purchase 296,881 shares of Series D with an exercise price of $6.78 per share will be exercised and converted into 296,881 shares of common stock prior to the effective date of the IPO. The effect of the conversion and exercise of warrants has been reflected as unaudited pro forma shareholders' equity in the accompanying balance sheet as of January 31, 1999. F-15

85 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. COMMON STOCK At January 31, 1999, Brocade had reserved the following shares of authorized but unissued shares of common stock for future issuance: <TABLE> <S> <C> Conversion of outstanding Series A.......................... 5,700,000 Conversion of outstanding Series B.......................... 1,632,500 Conversion of outstanding Series C.......................... 3,333,333 Conversion of outstanding Series D.......................... 3,660,900 Conversion of warrants outstanding.......................... 584,669 Stock option plan........................................... 2,548,987 ---------- 17,460,389 ========== </TABLE> Deferred Compensation In connection with the grant of certain stock options to employees during the year ended October 31, 1998 and the three months ended January 31, 1999, Brocade recorded deferred compensation of $307,266 and $3,423,145, respectively, representing the difference between the deemed value of the common stock for accounting purposes and the option exercise price of such options at the date of grant. Such amount is presented as a reduction of stockholders' equity and amortized ratably over the vesting period of the applicable options. Approximately $7,000 and $1.2 million was expensed during the year ended October 31, 1998 and the three months ended January 31, 1999, respectively, and the balance will be expensed ratably over the period the options vest. Compensation expense is decreased in the period of forfeiture for any accrued but unvested compensation arising from the early termination of an option holder's services. No compensation expense related to any other periods presented has been recorded. Stock Options Brocade, under various stock option plans (the "Plans"), grants stock options for shares of common stock to employees, directors and consultants of Brocade. In accordance with the Plans, the stated exercise price shall not be less than 85% of the estimated fair market value of common stock on the date of grant. Incentive Stock Options ("ISOs") may not be granted at less than 100% of the estimated fair market value of the common stock and stock options granted to a person owning more than 10% of the combined voting power of all classes of stock of Brocade must be issued at 110% of the fair market value of the stock on the date of grant. The Plans provide that the options shall be exercisable over a period not to exceed ten years, and the options generally vest over a period of four years. The options typically vest 25% one year after the date of grant and the remaining shares vest in equal monthly amounts over the following 36 months. At January 31, 1999, an aggregate of 466,516 shares were available for future option grants under all of the Plans. F-16

86 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. COMMON STOCK (CONTINUED) Brocade accounts for the Plans under APB No. 25 whereby the difference between the exercise price and the fair value at the date of grant is recognized as compensation expense. Had compensation expense for the stock option plans been determined consistent with SFAS No. 123, net losses would have increased to the following pro forma amounts, (in thousands except per share data): <TABLE> <CAPTION> THREE MONTHS YEAR ENDED OCTOBER 31, ENDED ------------------------------ JANUARY 31, 1996 1997 1998 1999 ------- ------- -------- ----------- (UNAUDITED) <S> <C> <C> <C> <C> Net loss as reported........................ $(3,934) $(9,619) $(15,111) $(1,839) Net loss Pro Forma.......................... $(3,945) $(9,666) $(15,522) $(2,068) Net loss per share as reported.............. $ (4.44) $ (.42) Net loss per share Pro Forma................ $ (4.57) $ (.48) </TABLE> The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998, 1997, 1996 and the three month period ended January 31, 1999, respectively: risk-free interest rate of 5.58 to 5.86, 5.71 to 6.63, 5.54 to 6.50 and 4.38 to 5.00 percent; expected dividend yields of zero percent for all four periods; expected life of .5 years beyond vesting for all four periods; and expected volatility of zero percent for all periods except the three months ended January 31, 1999, for which a volatility factor of 60% was used. The following table summarizes stock option plan activity under all of the Plans: <TABLE> <CAPTION> THREE MONTHS ENDED YEAR ENDED JANUARY 31, 1999 OCTOBER 31, 1998 ---------------------------- --------------------------- (UNAUDITED) WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------- -------------- ---------- -------------- <S> <C> <C> <C> <C> Outstanding at beginning of year....... 3,501,622 $1.85 1,075,167 $ .33 Granted.............................. 854,512 $2.64 3,134,912 $2.19 Exercised............................ (2,213,402) $2.07 (425,570) $1.04 Cancelled............................ (60,261) $1.20 (282,887) $1.14 ----------- ---------- Outstanding at period end.............. 2,082,471 $1.95 3,501,622 $1.85 =========== ========== Exercisable at end of period........... 189,227 $3.68 465,807 $1.52 Weighted fair value per share.......... $ .7842 $ .3023 =========== ========== </TABLE> F-17

87 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. COMMON STOCK (CONTINUED) <TABLE> <CAPTION> YEAR ENDED YEAR ENDED OCTOBER 31, 1997 OCTOBER 31, 1996 ---------------------------- --------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ----------- -------------- ---------- -------------- <S> <C> <C> <C> <C> Outstanding at beginning of year....... 584,000 $ .19 -- -- Granted.............................. 1,335,500 $ .34 2,149,400 $ .09 Exercised............................ (630,666) $ .26 (1,565,400) $ .03 Cancelled............................ (213,667) $ .22 -- -- ----------- ---------- Outstanding at year end................ 1,075,167 $ .33 584,000 $ .19 =========== ========== Exercisable at end of year............. 36,234 $ .22 -- -- Weighted fair value per share.......... $ .0522 $ .0100 =========== ========== </TABLE> <TABLE> <CAPTION> OPTIONS OUTSTANDING -------------------------------------------------------------------------- OPTIONS EXERCISABLE WEIGHTED ------------------------ AVERAGE WEIGHTED WEIGHTED JANUARY 31, 1999 REMAINING AVERAGE AVERAGE RANGE OF EXERCISE PRICES NUMBER YEARS EXERCISE PRICE NUMBER EXERCISE PRICE ---------------------------------- --------- --------- -------------- ------- -------------- <S> <C> <C> <C> <C> <C> $0.20 - $1.80..................... 619,690 7.82 $ .71 52,715 $1.02 $2.25 - $5.00..................... 1,462,781 9.57 $2.48 136,512 $4.71 --------- ------- $0.20 - $5.00..................... 2,082,471 9.05 $1.95 189,227 $3.68 ========= ======= </TABLE> At January 31, 1999, 2,324,679 shares issued upon exercise of stock options with a weighted average exercise price of $1.86 and 264,122 shares issued to founders with a weighted average exercise price of $.025 were subject to repurchase by Brocade. F-18

88 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. INCOME TAXES Brocade accounts for income taxes pursuant to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", ("SFAS No. 109"). A valuation allowance has been recorded for the total deferred tax assets as a result of uncertainties regarding realization of the assets based upon the limited operating history of Brocade, the lack of profitability to date and the uncertainty of future profitability. The components of net deferred tax assets are as follows, (in thousands): <TABLE> <CAPTION> OCTOBER 31, ------------------- JANUARY 31 1997 1998 1999 ------- -------- ---------- <S> <C> <C> <C> Net operating loss carryforwards....................... $ 4,600 $ 8,100 $ 7,300 Tax credit carryforwards............................... 700 1,400 1,500 Capitalized startup costs.............................. 300 300 300 Reserves and accruals.................................. 300 2,200 3,100 Capitalized research expenditures...................... -- 700 800 ------- -------- ------- Total deferred tax assets.................... 5,900 12,700 13,000 Valuation allowance.................................... (5,900) (12,700) (13,000) ------- -------- ------- Net deferred tax assets.............................. $ -- $ -- $ -- ======= ======== ======= </TABLE> As of January 31, 1999, Brocade had federal net operating loss carryforwards of approximately $20.5 million and state net operating loss carryforwards of approximately $6.5 million. The federal net operating loss and other tax credit carryforwards expire on various dates beginning on 2010 through 2018. The state net operating loss carryforwards will expire beginning in 2003. Under current tax law, net operating loss and credit carryforwards available to offset future income in any given year may be limited upon the occurrence of certain events, including significant changes in ownership interests. 9. RELATED PARTY TRANSACTIONS In April 1997, Brocade sold 250,000 shares of its common stock to officers of Brocade in consideration for full recourse promissory notes in the amount of $75,000. Should the officers terminate employment, these shares are subject to a right of repurchase by Brocade. The right of repurchase lapses over a four year period. The notes bear interest at 6.5% and mature at various dates through December 2001. In January 1998, Brocade sold 225,000 shares of its common stock to officers of Brocade in consideration for full recourse promissory notes in the amount of $375,000. Should the officers terminate employment, these shares are subject to a right of repurchase by Brocade. The right of repurchase lapses over a four year period. The notes bear interest at 6.5% and mature at various dates through December 2002. F-19

89 BROCADE COMMUNICATIONS SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. SUBSEQUENT EVENT Reincorporation, Amendment to the Articles of Incorporation In March 1999, Brocade's Board of Directors authorized the reincorporation of the Company in the State of Delaware. This reincorporation is to be effective prior to Brocade's initial public offering. Upon reincorporation, Brocade will be authorized to issue 50,000,000 shares of common stock, $.001 par value and 5,000,000 shares of undesignated preferred stock, $.001 par value. 1999 Stock Plan In March 1999, the Board of Directors approved Brocade's 1999 Stock Plan (the "1999 Plan"), subject to shareholder approval. The 1999 Plan provides for the grant of incentive stock options to employees. A total of 300,000 shares of common stock have been reserved for issuance under the 1999 Plan. 1999 Employee Stock Purchase Plan In March 1999, the Board of Directors approved the adoption of Brocade's 1999 Employee Stock Purchase Plan (the "Purchase Plan"), subject to shareholder approval. A total of 200,000 shares of common stock have been reserved for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase shares of common stock through payroll deductions at 85% of the fair market value of the common stock, as defined in the Purchase Plan. 1999 Director Option Plan In March 1999, the Board of Directors approved the 1999 Director Option Plan (the "Director Plan"), subject to shareholder approval. The Director Plan provides for the grant of common stock to non-employee directors. A total of 200,000 shares of common stock have been reserved for issuance under the Director Plan. Existing Stock Option Plans In March 1999, the Board of Directors approved 300,000 additional shares of common stock to be reserved for issuance under the 1998 Equity Incentive Plan. Brocade granted approximately 182,000 options to purchase common stock under various stock option plans during the period from February 1, 1999 to March 10, 1999. F-20

90 APPENDIX -- DESCRIPTION OF GRAPHICS GATEFOLD Graphic: Illustration of the Brocade Fabric. Caption: Current problem: Bottleneck in One-to-One Storage and Server Connectivity. Caption: The Brocade Solution: The BROCADE Fibre Channel Switched Fabric enables Any-to-Any Storage and Server Area Networking (SAN) Credits: Logos of the following companies: Compaq, Dell, StorageTek, McDATA, Cravel, Sequent

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92 [BROCADE LOGO]

93 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses to be paid by the Registrant, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the registration fee and the NASD filing fee. <TABLE> <CAPTION> AMOUNT TO BE PAID --------- <S> <C> SEC registration fee........................................ $ 11,510 NASD filing fee............................................. 4,640 Nasdaq National Market listing fee.......................... 5,000 Blue sky qualification fees and expenses.................... Printing and engraving expenses............................. Legal fees and expenses..................................... Accounting fees and expenses................................ Director and officer liability insurance.................... Transfer agent and registrar fees........................... Miscellaneous expenses...................................... -------- $ ======== </TABLE> ------------------------- * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to officers, directors and other corporate agents under certain circumstances and subject to certain limitations. The Registrant's Certificate of Incorporation and Bylaws provide that the Registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by the Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Registrant intends to enter into separate indemnification agreements with its directors, officers and certain employees which would require the Registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status as directors, officers or certain other employees. The Registrant also intends to maintain director and officer liability insurance, if available on reasonable terms. These indemnification provisions and the indemnification agreement to be entered into between the Registrant and its officers and directors may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act. The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise. II-1

94 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since inception, we have issued and sold and issued the following unregistered securities: 1. On August 25, 1995, we sold 523,250 shares of our common stock to Kumar Malavalli, Paul R. Bonderson, Jr. and Seth D. Neiman, the founders of the Company, for an aggregate purchase price of $52,325. 2. From inception through March 10, 1999, we granted stock options to purchase an aggregate of 7,656,468 shares of our common stock at exercise prices ranging from $.025 to $5.00 per share to employees, consultants, directors and other service providers pursuant to our 1995 Equity Incentive Plan, our 1998 Equity Incentive Plan and our 1998 Executive Equity Incentive Plan. 3. From inception through March 10, 1999, we issued and sold an aggregate of 4,887,825 shares of our common stock to employees, consultants, directors and other service providers for aggregate consideration of approximately $5,384,992 pursuant to exercise of options granted under our 1995 Equity Incentive Plan, our 1998 Equity Incentive Plan and our 1998 Executive Equity Incentive Plan. 4. On August 28, 1995, we sold 1,425,000 shares of Series A Preferred Stock for $1.00 per share to a group of private investors for an aggregate purchase price of $1,425,000. 5. On December 26, 1995, we issued two warrants to an equipment lease financing company to purchase 15,753 and 35,444 shares of our Series A Preferred Stock at exercise prices of $4.50 and $1.00 per share, respectively. 6. On June 5, 1996, we sold 386,764 shares of our common stock, for $.05 per share to Bruce L. Bergman, the former President and Chief Executive Officer of Brocade, for an aggregate purchase price of $19,338.20. 7. On June 17, 1996, we sold 816,250 shares of our Series B Preferred Stock for $4.00 per share to a group of private investors for an aggregate purchase price of $3,265,000. 8. On July 16, 1996, we issued 32,813 shares of Common Stock at $.05 per share to a then-current officer of Brocade as partial commission in connection with the Series B Preferred Stock financing. 9. On September 11, 1996, we issued a warrant to an equipment lease financing company to purchase 17,500 shares of our Series B Preferred Stock at an exercise price of $4.00 per share. 10. On August 26, 1996, in connection with the lease of office space, we issued a warrant to a real property lessor to purchase 3,000 shares of our Series C Preferred Stock at an exercise price of $3.00 per share. 11. On December 6, 1996, we sold 3,333,333 shares of our Series C Preferred Stock at $3.00 per share to a group of private investors for an aggregate purchase price of $9,999,999. 12. On May 6, 1997, in connection with a sublease agreement, we issued a warrant to a sublessor of real property to purchase 20,000 shares of our Series C Preferred Stock at an exercise price of $3.00 per share. 13. On June 13, 1997, in connection with a combined line of credit and equipment lease, we issued a warrant to a bank to purchase 25,000 shares of our Series C Preferred Stock at an exercise price of $3.00 per share. II-2

95 14. On September 29, 1997, November 17, 1997 and December 3, 1997, we sold 3,660,900 shares of our Series D Preferred Stock for $5.78 per share to a group of private investors for an aggregate purchase price of $21,160,002. In addition, in connection with the Series D financing, we issued warrants to purchase an aggregate of 296,881 shares of our Series D Preferred Stock at an exercise price of $6.78 per share. 15. On July 13, 1998, we issued 18,000 shares of Common Stock at $2.25 per share as partial compensation for the recruitment of the Company's new president. For additional information concerning these equity investment transactions, reference is made to the information contained under the caption "Certain Transactions" in the form of prospectus included herein. The sales of the above securities were deemed to be exempt from registration in reliance on Rule 701 promulgated under Section 3(b) under the Securities Act as transactions pursuant to a compensatory benefit plan or a written contract relating to compensation, or in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about Brocade or had access, through employment or other relationships, to such information. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS. <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- <C> <S> 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Articles of Incorporation of the Registrant. 3.2 Form of Amended and Restated Certificate of Incorporation to be effective on the closing of the offering made pursuant to this Registration Statement. 3.3 Bylaws of the Registrant. 3.4 Bylaws of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 4.1* Form of Registrant's Common Stock certificate. 4.2 Warrant to purchase shares of Series A Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.3 First Amended and Restated Warrant to purchase shares of Series A Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.4 Warrant to purchase shares of Series B Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.5 Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Mason Calle De Luna L.P. 4.6 Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Symmetricom, Inc. 4.7* Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Imperial Bank. 4.8 Seventh Amended and Restated Investors' Rights Agreement dated December 3, 1997. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation. </TABLE> II-3

96 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- <C> <S> 10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of its directors and executive officers. 10.2 1995 Equity Incentive Plan and forms of agreements thereunder. 10.3 1998 Equity Incentive Plan and forms of agreements thereunder. 10.4 1998 Executive Equity Incentive Plan and forms of agreements thereunder. 10.5 1999 Employee Stock Purchase Plan. 10.6* 1999 Director Option Plan and forms of agreements thereunder. 10.7* 1999 Stock Plan and forms of agreements thereunder. 10.8 Sublease between Symmetricom, Inc. and the Registrant dated May 6, 1997. 10.9 Security and Loan Agreement between the Registrant and Imperial Bank dated June 19, 1997. 10.10 Amendment to Loan Documents between the Registrant and Imperial Bank dated January 30, 1998. 10.11 Second Amendment to Loan Documents between the Registrant and Imperial Bank dated August 17, 1998. 10.12 Third Amendment to Loan Documents between the Registrant and Imperial Bank dated December 15, 1998. 10.13 Master Equipment Lease Agreement between Venture Lending & Leasing, Inc. and the Registrant dated September 5, 1996. 10.14* Master Purchase Agreement between Dell Products L.P. and the Registrant dated November 1, 1998. 10.15* Purchase Agreement between Sequent Computer Systems, Inc. and the Registrant. 10.16* Supplement No. 1 to Purchase Agreement between Sequent Computer Systems, Inc. and the Registrant dated September 26, 1997. 10.17* OEM Agreement between Storage Technology Corporation and the Registrant dated March 1, 1998. 16.1 Letter of PricewaterhouseCoopers LLP, Independent Accountants. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 23.2* Consent of Counsel (included in Exhibit 5.1.). 24.1 Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule. </TABLE> ------------------------- * To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES. <TABLE> <S> <C> Schedule II -- Valuation and Qualifiying Accounts...... S-2 </TABLE> Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above or otherwise, the Registrant has been advised that in the opinion of the II-4

97 Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-5

98 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, County of Santa Clara, State of California, on the 19th day of March 1999. BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ GREGORY L. REYES ------------------------------------ Gregory L. Reyes President and Chief Executive Officer (Principal Executive Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Gregory L. Reyes and B. Carl Lee, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <C> <S> <C> /s/ SETH D. NEIMAN Chairman of the Board March 19, 1999 ------------------------------------------ Seth D. Neiman /s/ GREGORY L. REYES President and Chief Executive March 19, 1999 ------------------------------------------ Officer (Principal Executive Gregory L. Reyes Officer) /s/ B. CARL LEE Vice President, Finance and Chief March 19, 1999 ------------------------------------------ Financial Officer (Principal B. Carl Lee Financial and Accounting Officer) Director March , 1999 ------------------------------------------ Neal Dempsey </TABLE> II-6

99 <TABLE> <CAPTION> SIGNATURE TITLE DATE --------- ----- ---- <C> <S> <C> /s/ MARK LESLIE Director March 19, 1999 ------------------------------------------ Mark Leslie /s/ LARRY W. SONSINI Director March 19, 1999 ------------------------------------------ Larry W. Sonsini </TABLE> II-7

100 After the reincorporation discussed in Note 10 to Brocade Communications Systems, Inc.'s financial statements, we expect to be in a position to render the following audit report: ARTHUR ANDERSEN LLP San Jose, California November 24, 1998 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To the Board of Directors and Shareholders of Brocade Communications Systems, Inc. We have audited, in accordance with generally accepted auditing standards, the financial statements of Brocade Communications Systems, Inc. included in this Registration Statement and have issued our report thereon dated November 24, 1998. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California November 24, 1998 S-1

101 BROCADE COMMUNICATIONS SYSTEMS, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS <TABLE> <CAPTION> COLUMN B COLUMN C COLUMN D COLUMN E ----------- ---------- ---------- --------- COLUMN A BALANCE AT CHARGED TO BALANCE -------------------------------------------- BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD -------------------------------------------- ----------- ---------- ---------- --------- <S> <C> <C> <C> <C> Year ended October 31, 1996: Allowance for returns and doubtful accounts.................................. $ -- $ -- $ -- $ -- Year ended October 31, 1997: Allowance for returns and doubtful accounts.................................. $ -- $ 100,000 $ -- $100,000 Year ended October 31, 1998: Allowance for returns and doubtful accounts.................................. $100,000 $ 185,000 $ -- $285,000 Three-Month Period Ended January 31, 1999: Allowance for returns and doubtful accounts.................................. $285,000 $ -- $ 25,000 $260,000 Year ended October 31, 1998: Restructuring Accrual....................... $ -- $3,200,000 $2,779,000(1) $421,000 Three-Month Period ended January 31, 1999: Restructuring accrual....................... $421,000 $ -- $ 344,000(1) $ 77,000 </TABLE> ------------------------- (1) These amounts include $700,000 in cash severance payments, $1,000,000 in non cash compensation charges related to stock severance arrangements and $1,400,000 in asset writeoffs. S-2

102 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- <C> <S> 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Articles of Incorporation of the Registrant. 3.2 Form of Amended and Restated Certificate of Incorporation to be effective on the closing of the offering made pursuant to this Registration Statement. 3.3 Bylaws of the Registrant. 3.4 Bylaws of the Registrant to be effective upon the closing of the offering made pursuant to this Registration Statement. 4.1* Form of Registrant's Common Stock certificate. 4.2 Warrant to purchase shares of Series A Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.3 First Amended and Restated Warrant to purchase shares of Series A Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.4 Warrant to purchase shares of Series B Preferred Stock of the Registrant issued to Venture Lending & Leasing, Inc. 4.5 Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Mason Calle De Luna L.P. 4.6 Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Symmetricom, Inc. 4.7* Warrant to purchase shares of Series C Preferred Stock of the Registrant issued to Imperial Bank. 4.8 Seventh Amended and Restated Investors' Rights Agreement dated December 3, 1997. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation. 10.1 Form of Indemnification Agreement to be entered into by the Registrant with each of its directors and executive officers. 10.2 1995 Equity Incentive Plan and forms of agreements thereunder. 10.3 1998 Equity Incentive Plan and forms of agreements thereunder. 10.4 1998 Executive Equity Incentive Plan and forms of agreements thereunder. 10.5 1999 Employee Stock Purchase Plan. 10.6* 1999 Director Option Plan and forms of agreements thereunder. 10.7* 1999 Stock Plan and forms of agreements thereunder. 10.8 Sublease between Symmetricom, Inc. and the Registrant dated May 6, 1997. 10.9 Security and Loan Agreement between the Registrant and Imperial Bank dated June 19, 1997. 10.10 Amendment to Loan Documents between the Registrant and Imperial Bank dated January 30, 1998. 10.11 Second Amendment to Loan Documents between the Registrant and Imperial Bank dated August 17, 1998. 10.12 Third Amendment to Loan Documents between the Registrant and Imperial Bank dated December 15, 1998. 10.13 Master Equipment Lease Agreement between Venture Lending & Leasing, Inc. and the Registrant dated September 5, 1996. 10.14* Master Purchase Agreement between Dell Products L.P. and the Registrant dated November 1, 1998. 10.15* Purchase Agreement between Sequent Computer Systems, Inc. and the Registrant. </TABLE>

103 <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- <C> <S> 10.16* Supplement No. 1 to Purchase Agreement between Sequent Computer Systems, Inc. and the Registrant dated September 26, 1997. 10.17* OEM Agreement between Storage Technology Corporation and the Registrant dated March 1, 1998. 16.1 Letter of PricewaterhouseCoopers LLP, Independent Accountants. 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 23.2* Consent of Counsel (included in Exhibit 5.1.). 24.1 Power of Attorney (see page II-6 of the Registration Statement). 27.1 Financial Data Schedule. </TABLE> ------------------------- * To be filed by amendment.

1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BROCADE COMMUNICATIONS SYSTEMS, INC. Bruce J. Bergman and Dennis R. DeBroeck certify that: 1. They are the President and Secretary, respectively, of Brocade Communications Systems, Inc., a California corporation. 2. The Articles of Incorporation of the corporation, as amended to the date of the filing of this certificate, including amendments set forth herein but not separately filed (and with the omissions required by Section 910 of the California Corporations Code), are restated to read in their entirety as set forth in Exhibit "1" attached hereto and made a part hereof by this reference. 3. The Restated Articles of Incorporation set forth herein have been duly approved by the Board of Directors of the corporation. 4. The amendments to the Articles of Incorporation included in the Restated Articles of Incorporation set forth herein (other than omissions required by Section 910 of the Corporations Code) have been duly approved by the required vote of the shareholders of the corporation in accordance with Sections 902 and 903 of the California Corporations Code. The corporation has two classes of stock, and the number of outstanding shares is 4,913,383 shares of Common Stock, 1,425,000 shares of Series A Preferred Stock, 816,250 of Series B Preferred Stock, 3,333,333 Shares of Series C Preferred Stock and 2,795,848 shares of Series D Preferred Stock. The number of shares voting in favor of the amendment to the Amended and Restated Articles of Incorporation set forth herein equaled or exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares of Common Stock, more than 66 2/3% of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as a single class, more than 50% of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together, and more than 50% of the outstanding shares of Series D Preferred Stock. (THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK)

2 The undersigned further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our knowledge. Dated: November 25, 1997 /s/ BRUCE J. BERGMAN ---------------------------------- Bruce J. Bergman, President /s/ DENNIS R. DEBROECK ---------------------------------- Dennis R. DeBroeck, Secretary 2

3 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF BROCADE COMMUNICATIONS SYSTEMS, INC. ARTICLE I The name of the corporation is Brocade Communications Systems, Inc. ARTICLE II The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. Unless applicable law otherwise provides, any amendment, repeal or modification of this Article III shall not adversely affect any right of any director under this Article III that existed at or prior to the time of such amendment, repeal or modification. ARTICLE IV The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Unless applicable law otherwise provides, any amendment, repeal or modification of any provision of this Article IV shall not adversely affect any contract or other right to indemnification of an agent of the corporation that existed at or prior to the time of such amendment, repeal or modification. ARTICLE V The corporation is authorized to issue two classes of stock, designated, respectively, "Common Stock" and "Preferred Stock," both of which shall have no par value. The number of shares of Common Stock the corporation is authorized to issue is 30,000,000 shares. The number of shares of Preferred Stock the corporation is authorized to issue is 9,791,280 shares, 1,476,197 of which are designated as "Series A Preferred Stock," 833,750 of which are

4 designated as "Series B Preferred Stock", 3,381,333 of which are designated "Series C Preferred Stock" and 4,100,000 of which are designated "Series D Preferred Stock". ARTICLE VI The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock and the Common Stock are as follows: 1. DEFINITIONS. For purposes of this Article VI, the following definitions shall apply: 1.1 "Board" shall mean the Board of Directors of the Company. 1.2 "Company" shall mean this corporation. 1.3 "Common Stock" shall mean the Common Stock, no par value, of the Company. 1.4 "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. 1.5 "Dividend Rate" shall mean $0.08 per share per annum for each share of the Series A Preferred Stock, $0.32 per share per annum for each share of the Series B Preferred Stock, $0.24 per share per annum for each share of the Series C Preferred Stock and $0.4624 per share per annum for each share of the Series D Preferred Stock, as appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization, consolidation or the like with respect to such shares. 1.6 "Original Issue Date" shall mean, with respect to the Preferred Stock (as defined hereinafter), the date immediately following the effective date of the filing of these Amended and Restated Articles of Incorporation. 1.7 "Original Issue Price" shall mean $1.00 per share for each share of the Series A Preferred Stock, $4.00 per share for each share of the Series B Preferred Stock, $3.00 per share for each share of the Series C Preferred Stock and $5.78 per share for each share of the Series D Preferred Stock, as appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization, consolidation or the like with respect to such shares. 1.8 "Permitted Repurchases" shall mean the repurchase by the Company of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Company or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Company has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Company's exercise of a right of first refusal to repurchase such shares. 1.9 "Preferred Stock" shall mean the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, collectively. 2

5 1.10 "Series A Preferred Stock" shall mean the Series A Preferred Stock, without par value, of the Company. 1.11 "Series B Preferred Stock" shall mean the Series B Preferred Stock, without par value, of the Company. 1.12 "Series C Preferred Stock" shall mean the Series C Preferred Stock, without par value, of the Company. 1.13 "Series D Preferred Stock" shall mean the Series D Preferred Stock, without par value, of the Company. 1.14 "Subsidiary" shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Company or by one or more of such subsidiary corporations. 2. DIVIDEND RIGHTS. 2.1 Dividend Preferences. In each calendar year, the holders of the then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Company legally available therefor, noncumulative dividends at the annual Dividend Rate for each such series of Preferred Stock, respectively, prior and in preference to the payment of any dividends on the Common Stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid with respect to the Common Stock during any calendar year unless dividends in the total amount of the annual Dividend Rate for the Series A Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series A Preferred Stock, dividends in the total amount of the annual Dividend Rate for the Series B Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series B Preferred Stock, dividends in the total amount of the annual Dividend Rate for the Series C Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series C Preferred Stock, and dividends in the total amount of the annual Dividend Rate for the Series D Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series D Preferred Stock, respectively, during that calendar year; provided, however, that this restriction shall not apply to Permitted Repurchases. Payments of any dividends to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock shall be paid pro rata, on an equal priority, pari passu basis according to their respective dividend preferences as set forth herein. Dividends on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock by reason of the fact that the Company shall fail to declare or pay dividends on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock in the amount of the annual Dividend Rate for each such series or in any other amount in any calendar year or any fiscal year of the Company, whether or not the earnings of the 3

6 Company in any calendar year or fiscal year were sufficient to pay such dividends in whole or in part. 2.2 Participation Rights. If, after dividends in the full preferential amounts specified in this Section 2 for the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock have been paid or declared and set apart in any calendar year of the Company, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared among the holders of the then outstanding Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock pro rata according to the number of shares of Common Stock held by such holders (where each holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock is to be treated for this purpose as holding (in lieu of such shares of Preferred Stock) the greatest whole number of shares of Common Stock then issuable upon conversion in full of, respectively, such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock pursuant to Section 6). 2.3 Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board. 3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the funds and assets of the Company that may be legally distributed to the Company's shareholders (the "Available Funds and Assets") shall be distributed to shareholders in the following manner: 3.1 Preferred Stock. The holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets on any shares of Common Stock, an amount per share equal to the Original Issue Price for each such series of Preferred Stock plus all declared but unpaid dividends thereon. If upon any liquidation, dissolution or winding up of the Company, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of their full preferential amount described in this subsection, then all of the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock pro rata, on an equal priority, pari passu basis, according to their respective liquidation preferences set forth herein. 3.2 Participation Rights. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof (where, for this purpose, holders of shares of Series A Preferred Stock, 4

7 Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock will be deemed to hold (in lieu such shares of Preferred Stock) the greatest whole number of shares of Common Stock then issuable upon conversion in full of such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock pursuant to Section 6). 3.3 Merger or Sale of Assets. A (i) consolidation or merger of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger; or (ii) a sale of all or substantially all of the assets of the Company, shall each be deemed to be a liquidation, dissolution or winding up of the Company as those terms are used in this Section 3. 3.4 Non-Cash Consideration. If any assets of the Company distributed to shareholders in connection with any liquidation, dissolution, or winding up of the Company are other than cash, then the value of such assets shall be their fair market value as determined by the Board, except that any securities to be distributed to shareholders in a liquidation, dissolution, or winding up of the Company shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the Nasdaq National Market (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the distribution; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Company. (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subparagraphs (a)(i),(ii) or (iii) of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board. 4. REDEMPTION. 4.1 Mandatory Redemption. Subject to the terms and conditions of this subsection, the Company shall, upon receiving at any time after August 28, 2002, a written request for the redemption of all the Preferred Stock under this Section 4.1 signed by the holders of a majority of the voting power of 5

8 the then outstanding shares of Preferred Stock (determined on an as-converted basis): (a) provided there are outstanding shares of Preferred Stock on the date that is the first day of the first calendar quarter commencing at least one (1) month following its receipt of such written redemption request (the "First Redemption Date"), on such First Redemption Date, redeem a number of shares of Preferred Stock equal to 25% of the shares of Series A Preferred Stock, 25% of the Series B Preferred Stock, 25% of the shares of Series C Preferred Stock and 25% of the shares of Series D Preferred Stock outstanding on the First Redemption Date; (b) provided there are outstanding shares of Preferred Stock on the first anniversary of the First Redemption Date, then on such first anniversary, redeem a number of shares of Preferred Stock equal to 33% of the shares of Series A Preferred Stock, 33% of the Series B Preferred Stock, 33% of the shares of Series C Preferred Stock and 33% of the shares of Series D Preferred Stock outstanding on the first anniversary of the First Redemption Date; (c) provided there are outstanding shares of Preferred Stock on the second anniversary of the First Redemption Date, on such second anniversary, redeem a number of shares of Preferred Stock equal to 50% of the shares of Series A Preferred Stock, 50% of the Series B Preferred Stock, 50% of the shares of Series C Preferred Stock and 50% of the shares of Series D Preferred Stock outstanding on the second anniversary of the First Redemption Date; and (d) provided there are outstanding shares of Preferred Stock on the third anniversary of the First Redemption Date, on such third anniversary, redeem all of the shares of Preferred Stock outstanding on the third anniversary of the First Redemption Date; from any source of funds legally available therefor at the redemption prices therefor described in this subsection, until all outstanding shares of Preferred Stock have been redeemed or converted to Common Stock as provided in Section 6; provided, however, that the Company, at its sole option and discretion, may redeem greater numbers (including all) of the outstanding shares of Preferred Stock, at the redemption price set forth in this subsection at any time on or after such seventh anniversary (provided that the Company has received such a request to redeem) to the extent permitted by law. The redemption price for each share of Preferred Stock shall be an amount equal to the Original Issue Price for the applicable series of Preferred Stock plus the amount of all declared and unpaid dividends thereon. If upon any redemption date scheduled under this subsection for the redemption of Preferred Stock, the funds and assets of the Company legally available to redeem such stock shall be insufficient to redeem all shares of Preferred Stock then scheduled to be redeemed, then any such unredeemed shares shall be carried forward and shall be redeemed (together with any other shares of Preferred Stock then scheduled to be redeemed) at the next such scheduled redemption date to the full extent of legally available funds of the Company at such time, and any such unredeemed shares shall continue to be so carried forward until redeemed. Shares of Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets of the Company shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, preferences, privileges and restrictions of the Preferred Stock respectively until such shares have been converted or redeemed. 4.2 Partial Redemption. No redemption shall be made under this Section 4 of only a part of the then outstanding Preferred Stock which is to be redeemed hereunder unless the Company shall first, as between the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, redeem an equal percentage of the outstanding shares of each such series of Preferred Stock and then as between holders of the same series of Preferred Stock effect such redemption pro rata among all holders of each such series of 6

9 outstanding Preferred Stock which are to be redeemed hereunder according to the number of shares held by each holder thereof on the applicable Redemption Date. 4.3 Redemption Notice. At least twenty (20) but no more than sixty (60) days prior to the date fixed for any redemption of Preferred Stock (the "Redemption Date"), written notice shall be mailed by the Company, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Preferred Stock to be redeemed, at the address last shown on the records of the Company for such holder or given by the holder to the Company for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Company is located, notifying such holder of the redemption to be effected, specifying the subsection hereof under which such redemption is being effected, the Redemption Date, the applicable redemption price, the number of such holder's shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be redeemed, the place at which payment may be obtained and the date on which such holder's conversion rights (as set forth in Section 6) as to such shares terminate (which date shall in no event be earlier than the close of business on the third business day prior to the Redemption Date) and calling upon such holder to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Notwithstanding the foregoing, only one Redemption Notice need be given for a redemption effected pursuant to subsection 4.1, provided such redemption notice identifies all scheduled redemption dates and provided that each new transferee who acquires shares of Preferred Stock after such shares are first to be redeemed under subsection 4.1 shall be given a similar Redemption Notice before redemption of any such holder's shares of Preferred Stock under subsection 4.1. 4.4 Surrender of Certificates. On or before each designated Redemption Date, each holder of Preferred Stock to be redeemed shall (unless such holder has previously exercised his right to convert such shares of Preferred Stock into Common Stock as provided in Section 6 below), surrender the certificate(s) representing such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be redeemed to the Company, in the manner and at the place designated in the Redemption Notice, and thereupon the redemption price for such shares shall be payable to the order of the person whose name appears on such certificate(s) as the owner thereof, and each surrendered certificate shall be canceled and retired. If less than all of the shares represented by such certificate are redeemed, then the Company shall promptly issue a new certificate representing the unredeemed shares. 4.5 Effect of Redemption. If the Redemption Notice shall have been duly given, and if on the Redemption Date the redemption price is either paid or made available for payment through the deposit arrangements specified in subsection 4.6 below, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, all dividends with respect to such shares shall cease to accrue after the Redemption Date, such shares shall not thereafter be transferred on the Company's books and all of the rights of the holders of such shares with respect to such shares shall terminate after the Redemption Date, except only the right of the holders to receive the redemption price without interest upon surrender of their certificate(s) therefor. 7

10 4.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company may, at its option, deposit with a bank or trust company in San Francisco, California having a capital and surplus of at least $100,000,000, as a trust fund, a sum equal to the aggregate redemption price for all shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock called for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay, on or after the Redemption Date, the redemption price to the respective holders upon the surrender of their share certificates. From and after the date of such deposit, the shares so called for redemption shall be redeemed. The deposit shall constitute full payment of the shares to their holders, and from and after the date of the deposit, the shares shall be deemed to be no longer outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares, without interest, upon surrender of their certificates therefor, and the right to convert such shares as provided in Section 6 below. Any funds so deposited and unclaimed at the end of one (1) year from the Redemption Date shall be released or repaid to the Company, after which time the holders of shares called for redemption who have not claimed such funds shall be entitled to receive payment of the redemption price only from the Company. 5. VOTING RIGHTS. 5.1 Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held. 5.2 Preferred Stock. Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to the provisions of Section 6 below at the record date for the determination of the shareholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of shareholders is solicited. 5.3 General. Subject to the foregoing provisions of this Section 5, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any shareholders' meeting in accordance with the by laws of the Company (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as may be otherwise provided by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. 5.4 Board of Directors Election and Removal. (a) Election. So long as at least 500,000 shares (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock) of Preferred Stock are outstanding, the holders of Series A Preferred Stock, Series B Preferred 8

11 Stock and Series C Preferred Stock, voting together as a single block, shall be entitled to elect two (2) directors of the Company; (ii) the holders of the Common Stock, voting together as a single class, shall be entitled to elect one (1) director of the Company; (iii) the holders of Series D Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the Company provided that the outstanding shares of Preferred Stock include 750,000 shares of Series D Preferred Stock (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series D Preferred Stock or dividends declared in shares of such stock); and (iv) the holders of the Preferred Stock and the Common Stock, voting together as a single class, shall be entitled to elect the remaining directors of the Company. After such time as at least 500,000 shares (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock) of Preferred Stock are no longer outstanding, then the holders of the Preferred Stock and the Common Stock, voting together as a single class, shall be entitled to elect all of the directors of the Company. (b) Quorum; Required Vote. (i) Quorum. At any meeting held for the purpose of electing directors, the presence in person or by proxy of the holders of a majority of the voting power of the shares of the Preferred Stock or Common Stock then outstanding, respectively, shall constitute a quorum of the Preferred Stock or Common Stock, as the case may be, for the election of directors to be elected solely by the holders of the Preferred Stock or Common Stock, respectively. The holders of Preferred Stock and Common Stock representing a majority of the voting power of all the then outstanding shares of Preferred Stock and Common Stock shall constitute a quorum for the election of the director to be elected jointly by the holders of the Preferred Stock and the Common Stock. (ii) Required Vote. With respect to the election of any director or directors by the holders of the outstanding shares of a specified class or classes of stock given the right to elect such director pursuant to subsection 5.4(a) above ("Specified Stock"), that candidate or those candidates (as applicable) shall be elected who either: (i) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock; or (ii) in the case of any such vote taken by written consent without a meeting, are elected by the unanimous written consent of the holders of outstanding shares of such Specified Stock. (c) Vacancy. If there shall be any vacancy in the office of a director elected by the holders of any Specified Stock pursuant to subsection 5.4(a), then, other than a vacancy created by removal of a director, a successor to hold office for the unexpired term of such director may be elected by either: (i) the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock, by the unanimous written consent of such directors, the affirmative vote of a majority of such directors, whether or not less than a quorum, or by the sole remaining director elected by the holders of such Specified Stock if there be but one, or (ii) the affirmative vote of holders of the outstanding shares of such Specified Stock that are entitled to elect such director under subsection 5.4(a) or in the case of any such 9

12 vote is taken by written consent without a meeting, by the consent of the holders of a majority of outstanding shares of such Specified Stock. (d) Removal. Subject to Section 303 of the California Corporations Code, any director who shall have been elected to the Board by the holders of any Specified Stock pursuant to subsection 5.4(a) or 5.4(c) or by any director or directors elected by holders of any Specified Stock as provided in subsection 5.4(c), may be removed during his or her term of office, either with or without cause, by, and only by, the affirmative vote of shares representing a majority of the voting power of all the outstanding shares of such Specified Stock entitled to vote, given either at a meeting of such shareholders duly called for that purpose or pursuant to a written consent of shareholders without a meeting. Any vacancy created by such removal may be filled only in the manner provided in subsection 5.4(b). (e) Procedures. Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this subsection 5.4, shall be held in accordance with the procedures and provisions of the Company's Bylaws, the California Corporations Code and applicable law regarding shareholder meetings and shareholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote). (f) Termination. Notwithstanding anything in this subsection 5.4 to the contrary, the provisions of this subsection 5.4 shall cease to be of any further force or effect upon the earlier to occur of: (i) the first date on which the total number of outstanding shares of Preferred Stock is less than 500,000 shares (such number of shares being subject to proportional adjustment to reflect combination or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock); or (ii) upon the merger or consolidation of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger, if such consolidation or merger is approved by the shareholders of the Company in compliance with applicable law and the Articles of Incorporation and Bylaws of the Company; or (iii) a sale of all or substantially all of the Company's assets. 6. CONVERSION RIGHTS. The outstanding shares of Preferred Stock shall be convertible into Common Stock as follows: 6.1 Optional Conversion. (a) At the option of the holder thereof, each share of Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the third business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein. (b) Each holder of Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at 10

13 the office of the Company or any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. 6.2 Automatic Conversion. (a) Each share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $10,000,000; or (ii) upon the Company's receipt of the written consent of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single block, to the conversion of all then outstanding Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock under this Section 6. (b) Each share of Series D Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $10,000,000 and the public offering price per share of which equals or exceeds $8.00 per share (such price per share of Common Stock to be appropriately adjusted to reflect Common Stock Events (as defined in Subsection 6.4); or (ii) upon the Company's receipt of the written consent of the holders of not less than two-thirds (2/3) of the then outstanding shares of Series D Preferred Stock to the conversion of all then outstanding Series D Preferred Stock under this Section 6. (c) Upon the occurrence of any event specified in subparagraph 6.2(a) and/or 6.2(b) above, the outstanding shares of (i) Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, if the event fulfills one of the conditions set forth in subparagraph 6.2(a), and/or (ii) the Series D Preferred Stock, if the event fulfills one of the conditions set forth in subparagraph 6.2(b), shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such 11

14 shares of such Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of such Preferred Stock, the holders of the Preferred Stock shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. 6.3 Conversion Price. Each share of Preferred Stock shall be convertible in accordance with subsection 6.1 or subsection 6.2 above into the number of shares of Common Stock which results from dividing the Original Issue Price for such series of Preferred Stock by the conversion price for such series of Preferred Stock that is in effect at the time of conversion (the "Conversion Price"). After giving effect to the filing of these Amended and Restated Articles of Incorporation, the Conversion Price for the Series A Preferred Stock shall be $0.25, the Conversion Price for the Series B Preferred Stock shall be $2.00, the Conversion Price for the Series C Preferred Stock shall be $3.00 and the Conversion Price for the Series D Preferred Stock shall be $5.78. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as provided below. 6.4 Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined) on or after the Original Issue Date, the Conversion Price of such series of Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of such series of Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for such series of Preferred Stock. The Conversion Price for a series of Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term "Common Stock Event" shall mean (i) the issue by the Company of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock. 6.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Company pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Company other than shares of Common Stock, then in each such event provision shall be made so that the holders of the applicable series of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Company which they would have received had their applicable series of Preferred Stock 12

15 been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the holders of the applicable series of Preferred Stock or with respect to such other securities by their terms. 6.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the applicable series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 6), then in any such event each holder of such shares of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of such shares of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 6.7 Sale of Shares Below Conversion Price. (a) Adjustment Formula. If at any time or from time to time on or after the Original Issue Date the Company issues or sells, or is deemed by the provisions of this subsection 6.7 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), otherwise than in connection with a Common Stock Event as provided in subsection 6.4, a dividend or distribution as provided in subsection 6.5 or a recapitalization, reclassification or other change as provided in subsection 6.6, for an Effective Price (as hereinafter defined) that is less than the Conversion Price for a series of Preferred Stock in effect immediately prior to such issue or sale, then, and in each such case, the Conversion Price for such series of Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold). 13

16 (b) Certain Definitions. For the purpose of making any adjustment required under this subsection 6.7: (i) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company, whether or not subsequently reacquired or retired by the Company, other than: (A) shares of Common Stock issued or issuable upon conversion of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock; (B) shares of Series A Preferred Stock or Common Stock issued or issuable with respect to or upon exercise of warrants to purchase 51,197 shares of Series A Preferred Stock, 17,500 shares of Series B Preferred Stock or 48,000 shares of Series C Preferred Stock and (C) shares of Common Stock (or options, warrants or rights therefor) issued to employees, officers, or directors of, or contractors, consultants or advisers to, the Company or any Subsidiary pursuant to stock purchase or stock option plans, stock bonuses or awards, warrants, contracts, agreements or other arrangements that are approved by the Board; (ii) The "Aggregate Consideration Received" by the Company for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options. (iii) "Common Stock Equivalents Outstanding" shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock of the Company that are outstanding at the time in question, plus (B) all shares of Common Stock of the Company issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that are outstanding at the time in question, plus (C) all shares of Common Stock of the Company that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock. (iv) "Convertible Securities" shall mean stock or other securities convertible into or exchangeable for shares of Common Stock. (v) The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Company under this subsection 6.7, into the Aggregate Consideration Received, or deemed to have been 14

17 received, by the Company under this subsection 6.7, for the issue of such Additional Shares of Common Stock. (vi) "Rights or Options" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (c) Deemed Issuances. For the purpose of making any adjustment to the Conversion Price of any series of the Preferred Stock required under this subsection 6.7, if the Company issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for a series of Preferred Stock, then the Company shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that: (i) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (ii) if the minimum amount of consideration payable to the Company upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and (iii) if the minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of 15

18 any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, that there actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock. 6.8 Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for a series of Preferred Stock, the Company, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Preferred Stock at the holder's address as shown in the Company's books. 6.9 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock's fair market value as determined in good faith by the Board as of the date of conversion. 6.10 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 6.11 Notices. Any notice required by the provisions of this Section 6 to be given to the holders of shares of the Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Company. 6.12 No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the 16

19 Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. 7. RESTRICTIONS AND LIMITATIONS. 7.1 Protective Provisions. So long as 400,000 shares of Preferred Stock remain outstanding, the Company shall not, without the approval, by vote or written consent, of the holders of two-thirds of the Preferred Stock then outstanding, voting as a single class: (1) amend its Articles of Incorporation in any manner that would alter or change any of the rights, preferences, privileges or restrictions of any series of the Preferred Stock; (2) purchase or redeem any shares of Preferred Stock otherwise than pursuant to Section 4 hereof; (3) permit any subsidiary of the Company in which the Company holds a controlling voting interest to sell or issue stock to any party other than the Company; (4) amend its Articles of Incorporation to increase or decrease the authorized number of shares of Common Stock or Preferred Stock; (5) authorize any other stock having rights or preferences senior to or on a parity with any series of Preferred Stock; (6) merge or consolidate with or into any corporation if such merger or consolidation would result in the shareholders of the Company immediately prior to such merger or consolidation holding less than majority of the voting power of the stock of the surviving corporation immediately after such merger or consolidation; (7) sell all or substantially all the Company's assets in a single transaction or series of related transactions; (8) liquidate, dissolve or wind up the Company; (9) Declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution (other than Permitted Repurchases; provided that such repurchases do not exceed $25,000 in any twelve-month period without the consent of the Company's Board of Directors), directly or indirectly, on account of any shares of Common Stock now or hereafter outstanding; or (10) Amend the Company's Bylaws to change the range of the authorized number of members of its Board of Directors. 17

20 8. MISCELLANEOUS. 8.1 No Reissuance of Preferred Stock. No share or shares of Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. 8.2 Consent to Certain Transactions. Each holder of shares of Preferred Stock shall, by virtue of its acceptance of a stock certificate evidencing such Preferred Stock, be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Corporations Code, to all Permitted Repurchases. 18

1 EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BROCADE COMMUNICATIONS SYSTEMS, INC. Brocade Communications Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Brocade Communications Systems, Inc. The corporation was originally incorporated under the same name and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on February 11, 1999. B. This Certificate of Incorporation has been duly adopted in accordance with the provisions of the General Corporation Law of the State of Delaware by the Board of Directors and the Stockholders of the corporation. C. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation. D. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows:

2 ARTICLE I The name of the corporation is Brocade Communications Systems, Inc. ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted by the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV 1. Authorized Capital. The corporation is authorized to issue two classes of stock, designated, respectively, "Common Stock" and "Preferred Stock," both of which shall have a par value of $.001 per share. The number of shares of Common Stock the corporation is authorized to issue is 30,000,000 shares. The number of shares of Preferred Stock the corporation is authorized to issue is 9,791,280 shares, 1,476,197 of which are designated as "Series A Preferred Stock," 833,750 of which are designated as "Series B Preferred Stock", 3,381,333 of which are designated "Series C Preferred Stock" and 4,100,000 of which are designated "Series D Preferred Stock". 2. Authorized Capital Following Automatic Conversion Event. Upon the automatic conversion of all outstanding shares of Preferred in accordance with the provisions of Article V, Section 6.2 of this Certificate of Incorporation (the "Automatic Conversion Event"), the Company shall immediately thereafter be authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares of Common Stock which the Company shall have the authority to issue shall be 50,000,000, $.001 par value, and the total number of shares of Preferred Stock the Company shall have the authority to issue shall be 5,000,000, $.001 par value. Immediately following any Automatic Conversion Event, the Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the

3 number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding), the number of shares of any series subsequent to the issue of shares of that series. 3. Restatement of Certificate of Incorporation. Immediately following any Automatic Conversion Event, the Board of Directors of the Company is authorized, without the further consent or approval of the stockholders of the Company to amend and restate this Certificate of Incorporation to show the authorized classes of capital stock as set forth in the preceding paragraph and to eliminate all references in this Certificate of Incorporation to the rights, preferences, privileges and restrictions of the series of Preferred Stock including those set forth in Article IV, section 1 above and Article V below (and, in connection with any such amendment and restatement, to renumber the remaining Articles). ARTICLE V The rights, preferences, privileges and restrictions granted to and imposed on the Preferred Stock and the Common Stock are as follows: 1. DEFINITIONS. For purposes of this Article V, the following definitions shall apply: 1.1 "Board" shall mean the Board of Directors of the Company. 1.2 "Company" shall mean this corporation. 1.3 "Common Stock" shall mean the Common Stock, par value $.001 per share, of the Company. 1.4 "Common Stock Dividend" shall mean a stock dividend declared and paid on the Common Stock that is payable in shares of Common Stock. 1.5 "Dividend Rate" shall mean $0.08 per share per annum for each share of the Series A Preferred Stock, $0.32 per share per annum for each share of the Series B Preferred Stock, $0.24 per share per annum for each share of the Series C Preferred Stock and $0.4624 per share per annum for each share of the Series D Preferred Stock, as appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization, consolidation or the like with respect to such shares. 1.6 "Original Issue Date" shall mean, with respect to the Preferred Stock (as defined hereinafter), the date immediately following the effective date of the filing of this Certificate of Incorporation. 1.7 "Original Issue Price" shall mean $1.00 per share for each share of the Series A Preferred Stock, $4.00 per share for each share of the Series B Preferred Stock, $3.00 per share for each share of the Series C Preferred Stock and $5.78 per share for each share of the Series D

4 Preferred Stock, as appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization, consolidation or the like with respect to such shares. 1.8 "Remitted Repurchases" shall mean the repurchase by the Company of shares of Common Stock held by employees, officers, directors, consultants, independent contractors, advisors, or other persons performing services for the Company or a subsidiary that are subject to restricted stock purchase agreements or stock option exercise agreements under which the Company has the option to repurchase such shares: (i) at cost, upon the occurrence of certain events, such as the termination of employment or services; or (ii) at any price pursuant to the Company's exercise of a right of first refusal to repurchase such shares. 1.9 "Preferred Stock" shall mean the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, collectively. 1.10 "Series A Preferred Stock" shall mean the Series A Preferred Stock, par value $.001 per share, of the Company. 1.11 "Series B Preferred Stock" shall mean the Series B Preferred Stock, par value $.001 per share, of the Company. 1.12 "Series C Preferred Stock" shall mean the Series C Preferred Stock, par value $.001 per share, of the Company. 1.13 "Series D Preferred Stock" shall mean the Series D Preferred Stock, par value $.001 per share, of the Company. 1.14 "Subsidiary" shall mean any corporation of which at least fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Company or by one or more of such subsidiary corporations. 2. DIVIDEND RIGHTS. 2.1 Dividend Preferences. In each calendar year, the holders of the then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of any funds and assets of the Company legally available therefor, noncumulative dividends at the annual Dividend Rate for each such series of Preferred Stock, respectively, prior and in preference to the payment of any dividends on the Common Stock in such calendar year (other than a Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid with respect to the Common Stock during any calendar year unless dividends in the total amount of the annual Dividend Rate for the Series A Preferred Stock shall have first been paid or declared and set apart for payment

5 to the holders of the Series A Preferred Stock, dividends in the total amount of the annual Dividend Rate for the Series B Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series B Preferred Stock, dividends in the total amount of the annual Dividend Rate for the Series C Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series C Preferred Stock, and dividends in the total amount of the annual Dividend Rate for the Series D Preferred Stock shall have first been paid or declared and set apart for payment to the holders of the Series D Preferred Stock, respectively, during that calendar year; provided, however, that this restriction shall not apply to Permitted Repurchases. Payments of any dividends to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock shall be paid pro rata, on an equal priority, pari passu basis according to their respective dividend preferences as set forth herein. Dividends on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock shall not be mandatory or cumulative, and no rights or interest shall accrue to the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock by reason of the fact that the Company shall fail to declare or pay dividends on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or the Series D Preferred Stock in the amount of the annual Dividend Rate for each such series or in any other amount in any calendar year or any fiscal year of the Company, whether or not the earnings of the Company in any calendar year or fiscal year were sufficient to pay such dividends in whole or in part. 2.2 Participation Rights. If, after dividends in the full preferential amounts specified in this Section 2 for the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock have been paid or declared and set apart in any calendar year of the Company, the Board shall declare additional dividends out of funds legally available therefor in that calendar year, then such additional dividends shall be declared among the holders of the then outstanding Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock and the Series D Preferred Stock pro rata according to the number of shares of Common Stock held by such holders (where each holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock is to be treated for this purpose as holding (in lieu of such shares of Preferred Stock) the greatest whole number of shares of Common Stock then issuable upon conversion in full of, respectively, such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock pursuant to Section 6). 2.3 Non-Cash Dividends. Whenever a dividend provided for in this Section 2 shall be payable in property other than cash, the value of such dividend shall be deemed to be the fair market value of such property as determined in good faith by the Board. 3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the funds and assets of the Company that may be legally distributed to the Company's stockholders (the "Available Funds and Assets") shall be distributed to stockholders in the following manner: 3.1 Preferred Stock. The holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock then outstanding shall be entitled to be paid, out of the Available Funds and Assets, and prior and in preference to any payment or distribution (or any setting apart of any payment or distribution) of any Available Funds and Assets

6 on any shares of Common Stock, an amount per share equal to the Original Issue Price for each such series of Preferred Stock plus all declared but unpaid dividends thereon. If upon any liquidation, dissolution or winding up of the Company, the Available Funds and Assets shall be insufficient to permit the payment to holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of their full preferential amount described in this subsection, then all of the remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock pro rata, on an equal priority, pari passu basis, according to their respective liquidation preferences set forth herein. 3.2 Participation Rights. If there are any Available Funds and Assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above in this Section 3, then all such remaining Available Funds and Assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof (where, for this purpose, holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock will be deemed to hold (in lieu such shares of Preferred Stock) the greatest whole number of shares of Common Stock then issuable upon conversion in full of such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock pursuant to Section 6). 3.3 Merger or Sale of Assets. A (i) consolidation or merger of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger; or (ii) a sale of all or substantially all of the assets of the Company, shall each be deemed to be a liquidation, dissolution or winding up of the Company as those terms are used in this Section 3. 3.4 Non-Cash Consideration. If any assets of the Company distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Company are other than cash, then the value of such assets shall be their fair market value as determined by the Board, except that any securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Company shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows: (i) if the securities are then traded on a national securities exchange or the Nasdaq National Market (or a similar national quotation system), then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the distribution; and

7 (ii) if actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the distribution; and (iii) if there is no active public market, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Company. (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subparagraphs; (a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market value thereof, as determined in good faith by the Board. 4. REDEMPTION. 4.1 Mandatory Redemption. Subject to the terms and conditions of this subsection, the Company shall, upon receiving at any time after August 28, 2002, a written request for the redemption of all the Preferred Stock under this Section 4 signed by the holders of a majority of the voting power of the then outstanding shares of Preferred Stock (determined on an as-converted basis): (a) provided there are outstanding shares of Preferred Stock on the date that is the first day of the first calendar quarter commencing at least one (1) month following its receipt of such written redemption request (the "First Redemption Date"), on such First Redemption Date, redeem a number of shares of Preferred Stock equal to 25% of the shares of Series A Preferred Stock, 25% of the Series B Preferred Stock, 25% of the shares of Series C Preferred Stock and 25% of the shares of Series D Preferred Stock outstanding on the First Redemption Date; (b) provided there are outstanding shares of Preferred Stock on the first anniversary of the First Redemption Date, then on such first anniversary, redeem a number of shares of Preferred Stock equal to 33% of the shares of Series A Preferred Stock, 33% of the Series B Preferred Stock, 33% of the shares of Series C Preferred Stock and 33% of the shares of Series D Preferred Stock outstanding on the first anniversary of the First Redemption Date; (c) provided there are outstanding shares of Preferred Stock on the second anniversary of the First Redemption Date, on such second anniversary, redeem a number of shares of Preferred Stock equal to 50% of the shares of Series A Preferred Stock, 50% of the Series B Preferred Stock, 50% of the shares of Series C Preferred Stock and 50% of the shares of Series D Preferred Stock outstanding on the second anniversary of the First Redemption Date; and (d) provided there are outstanding shares of Preferred Stock on the third anniversary of the First Redemption Date, on such third anniversary, redeem all of the shares of Preferred Stock outstanding on the third anniversary of the First Redemption Date; from any source of funds legally available therefor at the redemption prices therefor described in this subsection, until all outstanding shares of Preferred Stock have been redeemed or converted to Common Stock as provided in Section 6; provided, however, that the Company, at its sole option and discretion, may redeem greater numbers (including all) of the outstanding shares of Preferred Stock, at the redemption price set forth in this subsection at any time on or after such seventh anniversary (provided that the Company has received such a request to redeem) to the extent permitted by law. The redemption price for each share of Preferred Stock shall be an amount equal to the Original Issue Price for the applicable series of Preferred Stock plus the amount of all declared and unpaid dividends thereon. If upon any

8 redemption date scheduled under this subsection for the redemption of Preferred Stock, the funds and assets of the Company legally available to redeem such stock shall be insufficient to redeem all shares of Preferred Stock then scheduled to be redeemed, then any such unredeemed shares shall be carried forward and shall be redeemed (together with any other shares of Preferred Stock then scheduled to be redeemed) at the next such scheduled redemption date to the full extent of legally available funds of the Company at such time, and any such unredeemed shares shall continue to be so carried forward until redeemed. Shares of Preferred Stock which are subject to redemption hereunder but which have not been redeemed due to insufficient legally available funds and assets of the Company shall continue to be outstanding and entitled to all dividend, liquidation, conversion and other rights, preferences, privileges and restrictions of the Preferred Stock respectively until such shares have been converted or redeemed. 4.2 Partial Redemption. No redemption shall be made under this Section 4 of only a part of the then outstanding Preferred Stock which is to be redeemed hereunder unless the Company shall first, as between the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, redeem an equal percentage of the outstanding shares of each such series of Preferred Stock and then as between holders of the same series of Preferred Stock effect such redemption pro rata among all holders of each such series of outstanding Preferred Stock which are to be redeemed hereunder according to the number of shares held by each holder thereof on the applicable Redemption Date. 4.3 Redemption Notice. At least twenty (20) but no more than sixty (60) days prior to the date fixed for any redemption of Preferred Stock (the "Redemption Date"), written notice shall be mailed by the Company, postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Preferred Stock to be redeemed, at the address last shown on the records of the Company for such holder or given by the holder to the Company for the purpose of notice or, if no such address appears or is given, at the place where the principal executive office of the Company is located, notifying such holder of the redemption to be effected, specifying the subsection hereof under which such redemption is being effected, the Redemption Date, the applicable redemption price, the number of such holder's shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be redeemed, the place at which payment may be obtained and the date on which such holder's conversion rights (as set forth in Section 6) as to such shares terminate (which date shall in no event be earlier than the close of business on the third business day prior to the Redemption Date) and calling upon such holder to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Notwithstanding the foregoing, only one Redemption Notice need be given for a redemption effected pursuant to subsection 4.1, provided such redemption notice identifies all scheduled redemption dates and provided that each new transferee who acquires shares of Preferred Stock after such shares are first to be redeemed under subsection 4.1 shall be given a similar Redemption Notice before redemption of any such holder's shares of Preferred Stock under subsection 4.1.

9 4.4 Surrender of Certificates. On or before each designated Redemption Date, each holder of Preferred Stock to be redeemed shall (unless such holder has previously exercised his right to convert such shares of Preferred Stock into Common Stock as provided in Section 6 below), surrender the certificate(s) representing such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be redeemed to the Company, in the manner and at the place designated in the Redemption Notice, and thereupon the redemption price for such shares shall be payable to the order of the person whose name appears on such certificate(s) as the owner thereof, and each surrendered certificate shall be canceled and retired. If less than all of the shares represented by such certificate are redeemed, then the Company shall promptly issue a new certificate representing the unredeemed shares. 4.5 Effect of Redemption. If the Redemption Notice shall have been duly given, and if on the Redemption Date the redemption price is either paid or made available for payment through the deposit arrangements specified in subsection 4.6 below, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, all dividends with respect to such shares shall cease to accrue after the Redemption Date, such shares shall not thereafter be transferred on the Company's books and all of the rights of the holders of such shares with respect to such shares shall terminate after the Redemption Date, except only the right of the holders to receive the redemption price without interest upon surrender of their certificate(s) therefor. 4.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company may, at its option, deposit with a bank or trust company in San Francisco, California having a capital and surplus of at least $100,000,000, as a trust fund, a sum equal to the aggregate redemption price for all shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock called for redemption and not yet redeemed, with irrevocable instructions and authority to the bank or trust company to pay, on or after the Redemption Date, the redemption price to the respective holders upon the surrender of their share certificates. From and after the date of such deposit, the shares so called for redemption shall be redeemed. The deposit shall constitute full payment of the shares to their holders, and from and after the date of the deposit, the shares shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares, without interest, upon surrender of their certificates therefor, and the right to convert such shares as provided in Section 6 below. Any funds so deposited and unclaimed at the end of one (1) year from the Redemption Date shall be released or repaid to the Company, after which time the holders of shares called for redemption who have not claimed such funds shall be entitled to receive payment of the redemption price only from the Company. 5. VOTING RIGHTS. 5.1 Common Stock. Each holder of shares of Common Stock shall be entitled to one (1) vote for each share thereof held.

10 5.2 Preferred Stock. Each holder of shares of Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Preferred Stock could be converted pursuant to the provisions of Section 6 below at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited. 5.3 General. Subject to the foregoing provisions of this Section 5, each holder of Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company (as in effect at the time in question) and applicable law, and shall be entitled to vote, together with the holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, except as may be otherwise provided by applicable law. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. 5.4 Board of Directors Election and Removal. (a) Election. So long as at least 500,000 shares (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock) of Preferred Stock are outstanding, the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single block, shall be entitled to elect two (2) directors of the Company; (ii) the holders of the Common Stock, voting together as a single class, shall be entitled to elect one (1) director of the Company; (iii) the holders of Series D Preferred Stock, voting as a separate series, shall be entitled to elect one (1) director of the Company provided that the outstanding shares of Preferred Stock include 750,000 shares of Series D Preferred Stock (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series D Preferred Stock or dividends declared in shares of such stock); and (iv) the holders of the Preferred Stock and the Common Stock, voting together as a single class, shall be entitled to elect the remaining directors of the Company. After such time as at least 500,000 shares (such number of shares being subject to proportional adjustment to reflect combinations or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock) of Preferred Stock are no longer outstanding, then the holders of the Preferred Stock and the Common Stock, voting together as a single class, shall be entitled to elect all of the directors of the Company. (b) Quorum; Required Vote. (i) Quorum. At any meeting held for the purpose of electing directors, the presence in person or by proxy of the holders of a majority of the voting power of the shares of the Preferred Stock or Common Stock then outstanding, respectively, shall constitute a quorum of the Preferred Stock or Common Stock, as the case may be, for the election of directors to be elected solely by the holders of the Preferred Stock or Common Stock, respectively. The holders of Preferred Stock and Common Stock representing a majority of the voting power of all the then

11 outstanding shares of Preferred Stock and Common Stock shall constitute a quorum for the election of the director to be elected jointly by the holders of the Preferred Stock and the Common Stock. (ii) Required Vote. With respect to the election of any director or directors by the holders of the outstanding shares of a specified class or classes of stock given the right to elect such director pursuant to subsection 5.4(a) above ("Specified Stock"), that candidate or those candidates (as applicable) shall be elected who either: (i) in the case of any such vote conducted at a meeting of the holders of such Specified Stock, receive the highest number of affirmative votes of the outstanding shares of such Specified Stock, up to the number of directors to be elected by such Specified Stock; or (ii) in the case of any such vote taken by written consent without a meeting, are elected by the unanimous written consent of the holders of outstanding shares of such Specified Stock. (iii) Vacancy. If there shall be any vacancy in the office of a director elected by the holders of any Specified Stock pursuant to subsection 5.4(a), then, other than a vacancy created by removal of a director, a successor to hold office for the unexpired term of such director may be elected by either: (i) the remaining director or directors (if any) in office that were so elected by the holders of such Specified Stock, by the unanimous written consent of such directors, the affirmative vote of a majority of such directors, whether or not less than a quorum, or by the sole remaining director elected by the holders of such Specified Stock if there be but one, or (ii) the affirmative vote of holders of the outstanding shares of such Specified Stock that are entitled to elect such director under subsection 5.4(a) or in the case of any such vote is taken by written consent without a meeting, by the consent of the holders of a majority of outstanding shares of such Specified Stock. (iv) Removal. Subject to Section 303 of the Delaware General Corporation Law, any director who shall have been elected to the Board by the holders of any Specified Stock pursuant to subsection 5.4(a) or 5.4(c) or by any director or directors elected by holders of any Specified Stock as provided in subsection 5.4(c), may be removed during his or her term of office, either with or without cause, by, and only by, the affirmative vote of shares representing a majority of the voting power of all the outstanding shares of such Specified Stock entitled to vote, given either at a meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders without a meeting. Any vacancy created by such removal may be filled only in the manner provided in subsection 5.4(b). (v) Procedures. Any meeting of the holders of any Specified Stock, and any action taken by the holders of any Specified Stock by written consent without a meeting, in order to elect or remove a director under this subsection 5.4, shall be held in accordance with the procedures and provisions of the Company's Bylaws, the Delaware General Corporation Law and applicable law regarding stockholder meetings and stockholder actions by written consent, as such are then in effect (including but not limited to procedures and provisions for determining the record date for shares entitled to vote).

12 (vi) Termination. Notwithstanding anything in this subsection 5.4 to the contrary, the provisions of this subsection 5.4 shall cease to be of any further force or effect upon the earlier to occur of: (i) the first date on which the total number of outstanding shares of Preferred Stock is less than 500,000 shares (such number of shares being subject to proportional adjustment to reflect combination or subdivisions of such Series A, Series B, Series C or Series D Preferred Stock or dividends declared in shares of such stock); or (ii) upon the merger or consolidation of the Company with or into any other corporation or corporations in which the holders of the Company's outstanding shares immediately before such consolidation or merger do not, immediately after such consolidation or merger, retain stock representing a majority of the voting power of the surviving corporation of such consolidation or merger, if such consolidation or merger is approved by the stockholders of the Company in compliance with applicable law and the Articles of Incorporation and Bylaws of the Company; or (iii) a sale of all or substantially all of the Company's assets. 6. CONVERSION RIGHTS. The outstanding shares of Preferred Stock shall be convertible into Common Stock as follows: 6.1 Optional Conversion. (a) At the option of the holder thereof, each share of Preferred Stock shall be convertible, at any time or from time to time prior to the close of business on the third business day before any date fixed for redemption of such share, into fully paid and nonassessable shares of Common Stock as provided herein. (b) Each holder of Preferred Stock who elects to convert the same into shares of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Preferred Stock or Common Stock, and shall give written notice to the Company at such office that such holder elects to convert the same and shall state therein the number of shares of Preferred Stock being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled upon such conversion, Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates representing the shares of Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. 6.2 Automatic Conversion. (a) Each share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which the aggregate public offering price (before deduction of underwriters' discounts

13 and commissions) equals or exceeds $10,000,000; or (ii) upon the Company's receipt of the written consent of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single block, to the conversion of all then outstanding Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock under this Section 6. (b) Each share of Series D Preferred Stock shall automatically be converted into fully paid and nonassessable shares of Common Stock, as provided herein (i) immediately prior to the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which the aggregate public offering price (before deduction of underwriters' discounts and commissions) equals or exceeds $10,000,000 and the public offering price per share of which equals or exceeds $8.00 per share (such price per share of Common Stock to be appropriately adjusted to reflect Common Stock Events (as defined in Subsection 6.4); or (ii) upon the Company's receipt of the written consent of the holders of not less than two-thirds (2/3) of the then outstanding shares of Series D Preferred Stock to the conversion of all then outstanding Series D Preferred Stock under this Section 6. (c) Upon the occurrence of any event specified in subparagraph 6.2(a) and/or 6.2(b) above, the outstanding shares of (i) Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, if the event fulfills one of the conditions set forth in subparagraph 6.2(a), and/or (ii) the Series D Preferred Stock, if the event fulfills one of the conditions set forth in subparagraph 6.2(b), shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of such Preferred Stock are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of such Preferred Stock, the holders of the Preferred Stock shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. 6.3 Conversion Price. Each share of Preferred Stock shall be convertible in accordance with subsection 6.1 or subsection 6.2 above into the number of shares of Common Stock which results from dividing the Original Issue Price for such series of Preferred Stock by the conversion price for such series of Preferred Stock that is in effect at the time of conversion (the "Conversion Price"). After giving effect to the filing of these Amended and Restated Articles of Incorporation, the Conversion Price for the Series A Preferred Stock shall be $0.25, the Conversion

14 Price for the Series B Preferred Stock shall be $2.00, the Conversion Price for the Series C Preferred Stock shall be $3.00 and the Conversion Price for the Series D Preferred Stock shall be $5.78. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as provided below. 6.4 Adjustment Upon Common Stock Event. Upon the happening of a Common Stock Event (as hereinafter defined) on or after the Original Issue Date, the Conversion Price of such series of Preferred Stock shall, simultaneously with the happening of such Common Stock Event, be adjusted by multiplying the Conversion Price of such series of Preferred Stock in effect immediately prior to such Common Stock Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Common Stock Event, and (ii) the denominator of which shall be the number of shares of Common Stock issued and outstanding immediately after such Common Stock Event, and the product so obtained shall thereafter be the Conversion Price for such series of Preferred Stock. The Conversion Price for a series of Preferred Stock shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term "Common Stock Event" shall mean (i) the issue by the Company of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, or (iii) a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock. 6.5 Adjustments for Other Dividends and Distributions. If at any time or from time to time after the Original Issue Date the Company pays a dividend or makes another distribution to the holders of the Common Stock payable in securities of the Company other than shares of Common Stock, then in each such event provision shall be made so that the holders of the applicable series of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable upon conversion thereof, the amount of securities of the Company which they would have received had their applicable series of Preferred Stock been converted into Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the applicable series of Preferred Stock or with respect to such other securities by their terms. 6.6 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date the Common Stock issuable upon the conversion of the applicable series of Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 6), then in any such event each holder of such shares of Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of such shares

15 of Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 6.7 Sale of Shares Below Conversion Price. (a) Adjustment Formula. If at any time or from time to time on or after the Original Issue Date the Company issues or sells, or is deemed by the provisions of this subsection 6.7 to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), otherwise than in connection with a Common Stock Event as provided in subsection 6.4, a dividend or distribution as provided in subsection 6.5 or a recapitalization, reclassification or other change as provided in subsection 6.6, for an Effective Price (as hereinafter defined) that is less than the Conversion Price for a series of Preferred Stock in effect immediately prior to such issue or sale, then, and in each such case, the Conversion Price for such series of Preferred Stock shall be reduced, as of the close of business on the date of such issue or sale, to the price obtained by multiplying such Conversion Price by a fraction: (i) The numerator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior to such issue or sale of Additional Shares of Common Stock plus (B) the quotient obtained by dividing the Aggregate Consideration Received (as hereinafter defined) by the Company for the total number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold) by the Conversion Price for such series of Preferred Stock in effect immediately prior to such issue or sale; and (ii) The denominator of which shall be the sum of (A) the number of Common Stock Equivalents Outstanding immediately prior to such issue or sale plus (B) the number of Additional Shares of Common Stock so issued or sold (or deemed so issued and sold). (b) Certain Definitions. For the purpose of making any adjustment required under this subsection 6.7: (i) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company, whether or not subsequently reacquired or retired by the Company, other than: (A) shares of Common Stock issued or issuable upon conversion of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock; (B) shares of Series A Preferred Stock or Common Stock issued or issuable with respect to or upon exercise of warrants to purchase 51,197 shares of Series A Preferred Stock, 17,500 shares of Series B Preferred Stock or 48,000 shares of Series C Preferred Stock and (C) shares of Common Stock (or options, warrants or rights therefor) issued to employees, officers. or directors of, or contractors, consultants or advisers to, the Company or any Subsidiary pursuant to stock purchase or stock option plans, stock bonuses or awards, warrants, contracts, agreements or other arrangements that are approved by the Board;

16 (ii) The "Aggregate Consideration Received" by the Company for any issue or sale (or deemed issue or sale) of securities shall (A) to the extent it consists of cash, be computed at the gross amount of cash received by the Company before deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale and without deduction of any expenses payable by the Company; (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board; and (C) if Additional Shares of Common Stock, Convertible Securities or Rights or Options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares of Common Stock, Convertible Securities or Rights or Options. (iii) "Common Stock Equivalents Outstanding" shall mean the number of shares of Common Stock that is equal to the sum of (A) all shares of Common Stock of the Company that are outstanding at the time in question, plus (B) all shares of Common Stock of the Company issuable upon conversion of all shares of Preferred Stock or other Convertible Securities that are outstanding at the time in question, plus (C) all shares of Common Stock of the Company that are issuable upon the exercise of Rights or Options that are outstanding at the time in question assuming the full conversion or exchange into Common Stock of all such Rights or Options that are Rights or Options to purchase or acquire Convertible Securities into or for Common Stock. (iv) "Convertible Securities" shall mean stock or other securities convertible into or exchangeable for shares of Common Stock. (v) The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold, by the Company under this subsection 6.7, into the Aggregate Consideration Received, or deemed to have been received, by the Company under this subsection 6.7, for the issue of such Additional Shares of Common Stock. (vi) "Rights or Options" shall mean warrants, options or other rights to purchase or acquire shares of Common Stock or Convertible Securities. (c) Deemed Issuances. For the purpose of making any adjustment to the Conversion Price of any series of the Preferred Stock required under this subsection 6.7, if the Company issues or sells any Rights or Options or Convertible Securities and if the Effective Price of the shares of Common Stock issuable upon exercise of such Rights or Options and/or the conversion or exchange of Convertible Securities (computed without reference to any additional or similar protective or antidilution clauses) is less than the Conversion Price then in effect for a series of Preferred Stock, then the Company shall be deemed to have issued, at the time of the issuance of such Rights, Options or Convertible Securities, that number of Additional Shares of Common Stock that is equal to the maximum number of shares of Common Stock issuable upon exercise or conversion of such Rights, Options or Convertible Securities upon their issuance and to have

17 received, as the Aggregate Consideration Received for the issuance of such shares, an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such Rights or Options or Convertible Securities, plus, in the case of such Rights or Options, the minimum amounts of consideration, if any, payable to the Company upon the exercise in full of such Rights or Options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof; provided that: (i) if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, then the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (ii) if the minimum amount of consideration payable to the Company upon the exercise of Rights or Options or the conversion or exchange of Convertible Securities is reduced over time or upon the occurrence or non-occurrence of specified events other than by reason of antidilution or similar protective adjustments, then the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and (iii) if the minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of Convertible Securities is subsequently increased, then the Effective Price shall again be recalculated using the increased minimum amount of consideration payable to the Company upon the exercise of such Rights or Options or the conversion or exchange of such Convertible Securities. No further adjustment of the Conversion Price, adjusted upon the issuance of such Rights or Options or Convertible Securities, shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such Rights or Options or the conversion or exchange of any such Convertible Securities. If any such Rights or Options or the conversion rights represented by any such Convertible Securities shall expire without having been fully exercised, then the Conversion Price as adjusted upon the issuance of such Rights or Options or Convertible Securities shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only shares of Common Stock so issued were the shares of Common Stock, if any, that there actually issued or sold on the exercise of such Rights or Options or rights of conversion or exchange of such Convertible Securities, and such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such Rights or Options, whether or not exercised, plus the consideration received for issuing or selling all such Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Preferred Stock.

18 6.8 Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price for a series of Preferred Stock, the Company, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Preferred Stock at the holder's address as shown in the Company's books. 6.9 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock's fair market value as determined in good faith by the Board as of the date of conversion. 6.10 Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 6.11 Notices. Any notice required by the provisions of this Section 6 to be given to the holders of shares of the Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Company. 6.12 No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. 7. RESTRICTIONS AND LIMITATIONS. 7.1 Protective Provisions. (a) So long as 400,000 shares of Preferred Stock remain outstanding, the Company shall not, without the approval, by vote or written consent, of the holders of two-thirds of the Preferred Stock then outstanding, voting as a single class:

19 (i) amend its Articles of Incorporation in any manner that would alter or change any of the rights, preferences, privileges or restrictions of any series of the Preferred Stock; (ii) purchase or redeem any shares of Preferred Stock otherwise than pursuant to Section 4 hereof; (iii) permit any subsidiary of the Company in which the Company holds a controlling voting interest to sell or issue stock to any party other than the Company; (iv) amend its Articles of Incorporation to increase or decrease the authorized number of shares of Common Stock or Preferred Stock; (v) authorize any other stock having rights or preferences senior to or on a parity with any series of Preferred Stock; (vi) merge or consolidate with or into any corporation if such merger or consolidation would result in the stockholders of the Company immediately prior to such merger or consolidation holding less than majority of the voting power of the stock of the surviving corporation immediately after such merger or consolidation; (vii) sell all or substantially all the Company's assets in a single transaction or series of related transactions; (viii) liquidate, dissolve or wind up the Company; (ix) declare or pay any dividends (other than dividends payable solely in shares of its own Common Stock) on or declare or make any other distribution (other than Permitted Repurchases; provided that such repurchases do not exceed $25,000 in any twelve-month period without the consent of the Company's Board of Directors), directly or indirectly, on account of any shares of Common Stock now or hereafter outstanding; or (x) amend the Company's Bylaws to change the range of the authorized number of members of its Board of Directors. 8. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Company shall be authorized to issue. ARTICLE VI The Corporation is to have perpetual existence.

20 ARTICLE VII Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the corporation shall so provide. ARTICLE VIII 1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which constitute the whole Board of Directors of the corporation shall be designated in the Bylaws of the corporation. 2. At such time as a Registration Statement regarding the sale of the corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, the Board of Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. 3. Notwithstanding the foregoing provisions of this Article, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 4. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors ("Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.

21 5. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required for the adoption, amendment or repeal of the following sections of the corporation's Bylaws by the stockholders of this corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting). 6. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws. 7. Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. ARTICLE IX Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Certificate of Incorporation or any Preferred Stock Designation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal ARTICLE VIII or this ARTICLE IX. ARTICLE X The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in ARTICLE IX of this Certificate, and all rights conferred upon the stockholders herein are granted subject to this right. ARTICLE XI In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. ARTICLE XII 1. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall be indemnified by the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

22 2. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. 3. Neither any amendment nor repeal of this Article XII, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article XII, shall eliminate or reduce the effect of this Article XII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article XII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE XIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XIV Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. ARTICLE XV Until a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, stockholders shall be entitled to cumulative voting rights as set forth in this Article XV and the Bylaws of the Corporation. At all elections of directors of the Corporation, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such stockholder would be entitled to cast for the election of directors with respect to such stockholder's shares of stock multiplied by the number of directors to be elected, and such stockholder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such stockholder may see fit. As of the date that a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, this Article XV shall no longer be effective and may be deleted herefrom upon any restatement of this Certificate of Incorporation. IN WITNESS WHEREOF, the Company has caused this Certificate of Incorporation to be signed by Gregory L. Reyes, its Chief Executive Officer, effective as of ________ __, 1999.

23 BROCADE COMMUNICATIONS SYSTEMS, INC. By: ------------------------------------- Gregory L. Reyes President and Chief Executive Officer

1 Exhibit 3.3 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. (A CALIFORNIA CORPORATION) (AS ADOPTED AUGUST 24, 1995) (AS AMENDED NOVEMBER 25, 1996 AND SEPTEMBER 19, 1997)

2 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. A California Corporation TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> Article I OFFICES ................................................... 1 Section 1.1: Principal Office ............................... 1 Section 1.2: Other Offices .................................. 1 Article II DIRECTORS ................................................ 1 Section 2.1: Exercise of Corporate Powers ................... 1 Section 2.2: Number ......................................... 1 Section 2.3: Need Not Be Shareholders ....................... 2 Section 2.4: Compensation ................................... 2 Section 2.5: Election and Term of Office .................... 2 Section 2.6: Vacancies ...................................... 2 Section 2.7: Removal ........................................ 3 Section 2.8: Powers and Duties .............................. 3 Article III MEETINGS OF DIRECTORS ................................... 5 Section 3.1: Place of Meetings .............................. 5 Section 3.2: Regular Meetings ............................... 5 Section 3.3: Special Meetings ............................... 6 Section 3.4: Notice of Special Meetings ..................... 6 Section 3.5: Quorum ......................................... 6 Section 3.6: Conference Telephone ........................... 6 </TABLE> - i -

3 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. A California Corporation TABLE OF CONTENTS (CONT'D) <TABLE> <CAPTION> PAGE ---- <S> <C> Section 3.7: Waiver of Notice and Consent .................. 6 Section 3.8: Action Without a Meeting ...................... 6 Section 3.9: Committees .................................... 7 Article IV COMMITTEES .............................................. 7 Section 4.1: Appointment and Procedure ..................... 7 Section 4.2: Executive Committee Powers .................... 7 Section 4.3: Powers of Other Committees .................... 7 Section 4.4: Limitations on Powers of Committees ........... 7 Article V OFFICERS ................................................. 8 Section 5.1: Election and Qualifications ................... 8 Section 5.2: Term of Office and Compensation ............... 8 Section 5.3: Chief Executive Officer ....................... 8 Section 5.4: Chairman of the Board ......................... 9 Section 5.5: President ..................................... 9 Section 5.6: President Pro Term ............................ 9 Section 5.7: Vice President ................................ 9 Section 5.8: Secretary ..................................... 9 Section 5.9: Chief Financial Officer ....................... 10 Section 5.10: Instruments in Writing ....................... 11 </TABLE> - ii -

4 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. A California Corporation TABLE OF CONTENTS (CONT'D) <TABLE> <CAPTION> PAGE ---- <S> <C> Article VI INDEMNIFICATION ......................................... 11 Section 6.1: Indemnification of Directors and Officers ..... 11 Section 6.2: Advancement of Expenses ....................... 12 Section 6.3: Non-Exclusivity of Rights ..................... 12 Section 6.4: Indemnification Contracts ..................... 12 Section 6.5: Effect of Amendment ........................... 12 Article VII MEETINGS OF, AND REPORTS TO, SHAREHOLDERS .............. 12 Section 7.1: Place of Meetings ............................. 12 Section 7.2: Annual Meetings ............................... 13 Section 7.3: Special Meetings .............................. 13 Section 7.4: Notice of Meetings ............................ 13 Section 7.5: Consent to Shareholders' Meetings ............. 14 Section 7.6: Quorum ........................................ 14 Section 7.7: Adjourned Meetings ............................ 15 Section 7.8: Voting Rights ................................. 15 Section 7.9: Action by Written Consents .................... 15 Section 7.10: Election of Directors ........................ 16 Section 7.11: Proxies ...................................... 16 Section 7.12: Inspectors of Election ....................... 17 </TABLE> - iii -

5 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. A California Corporation TABLE OF CONTENTS (CONT'D) <TABLE> <CAPTION> PAGE ---- <S> <C> Section 7.13: Annual Reports ............................... 17 Article VIII SHARES AND SHARE CERTIFICATES ......................... 18 Section 8.1: Shares Held By the Company .................... 18 Section 8.2: Certificates for Shares ....................... 18 Section 8.3: Lost Certificates ............................. 18 Section 8.4: Restrictions on Transfer of Shares ............ 18 Section 8.5: Termination of Article VIII ................... 19 Article IX CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW ............................................... 19 Section 9.1: Bylaw Provisions Construed as Additional and Supplemental to Provisions of Law ............. 19 Section 9.2: Bylaw Provisions Contrary to or Inconsistent with Provisions of Law ........................ 19 Article X CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS ... 19 Section 10.1: By Shareholders .............................. 19 Section 10.2: By the Board of Directors .................... 20 Section 10.3: Certification and Inspection of Bylaws ....... 20 </TABLE> - iv -

6 BYLAWS OF Brocade Communications Systems, Inc. (a California corporation) As Adopted August 24, 1995 As Amended November 25, 1996 and September 19, 1997 Article I OFFICES Section 1.1: Principal Office. The principal executive office for the transaction of the business of this corporation (the "Company") shall be located at such place as the Board of Directors may from time to time decide. The Board of Directors is hereby granted full power and authority to change the location of the principal executive office from one location to another. Section 1.2: Other Offices. One or more branch or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or outside the State of California as it deems appropriate. Article II DIRECTORS Section 2.1: Exercise of Corporate Powers. Except as otherwise provided by these Bylaws, by the Articles of Incorporation of the Company or by the laws of the State of California now or hereafter in force, the business and affairs of the Company shall be managed and all corporate powers shall be exercised by or under the ultimate direction of a board of directors (the "Board of Directors"). Section 2.2: Number. The authorized number of directors of the Company shall be five (5). The authorized number of directors may be varied from time to time by resolution of the

7 Board of Directors, provided that the authorized number shall not be fewer than four (4) nor more than seven (7). The authorized numbers of directors of the Company shall be variable by the Board of Directors within such range until changed by an amendment of this Section by the shareholders of the Company. Any amendment to these Bylaws reducing the minimum number of authorized directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3% of the outstanding shares entitled to vote. Section 2.3: Need Not Be Shareholders. The directors of the Company need not be shareholders of this Company. Section 2.4: Compensation. Directors and members of committees may receive such compensation, if any, for their services as may be fixed or determined by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor. Section 2.5: Election and Term of Office. The directors shall be elected annually by the shareholders at the annual meeting of the shareholders. The term of office of the directors shall begin immediately after their election and shall continue until the next annual meeting of the shareholders and until their respective successors are elected. A reduction of the authorized number of directors shall not shorten the term of any incumbent director or remove any incumbent director prior to the expiration of such director's term of office. Section 2.6: Vacancies. A vacancy or vacancies on the Board of Directors shall exist: (a) in the case of the death of any director; or (b) in the case of the resignation or removal of any director; or (c) if the authorized number of directors is increased; or (d) if the shareholders fail, at any annual meeting of shareholders at which any director is elected, to elect the full authorized number of directors at that meeting. The Board of Directors may declare vacant the office of a director if he or she is declared of unsound mind by an order of court or convicted of a felony or if, within 60 days after notice of his or her election, he or she does not accept the office. Any vacancy, except for a vacancy created by removal of a director as provided in Section 2.7 hereof, may be filled by a person selected by a majority of the remaining directors then in office, whether or not less than a quorum, or by a sole remaining director. Vacancies occurring in the Board of Directors by reason of removal of directors shall be filled only by approval of shareholders. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by the written consent of shareholders, other than to fill a vacancy created by removal, requires the consent of shareholders holding a majority of the outstanding shares entitled to vote. If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, any holder or -2-

8 holders of an aggregate of 5% or more of the total number of shares at that time having the right to vote for such directors may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director then in office shall terminate upon the election of such director's successor. Any director may resign effective upon giving written notice to the Chairman of the Board, if any, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. After the notice is given and if the resignation is effective at a future time, a successor may be elected or appointed to take office when the resignation becomes effective. Section 2.7: Removal. The entire Board of Directors or any individual director may be removed from office without cause by an affirmative vote of shareholders holding a majority of the outstanding shares entitled to vote. If the entire Board of Directors is not removed, however, then no individual director shall be removed if the votes cast against removal of that director, plus the votes not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively in an election at which the following were true: (a) the same total number of votes were cast, or, if such action is taken by written consent, all shares entitled to vote were voted; and (b) the entire number of directors authorized at the time of the director's most recent election were then being elected. If any or all directors are so removed, new directors may be elected at the same meeting or at a subsequent meeting. If at any time a class or series of shares is entitled to elect one or more directors under authority granted by the Articles of Incorporation, the provisions of this Section 2.7 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole. Section 2.8: Powers and Duties. Without limiting the generality or extent of the general corporate powers to be exercised by the Board of Directors pursuant to Section 2.1 of these Bylaws, it is hereby provided that the Board of Directors shall have full power with respect to the following matters: (a) To purchase, lease and acquire any and all kinds of property, real, personal or mixed, and at its discretion to pay therefor in money, in property and/or in stocks, bonds, debentures or other securities of the Company. (b) To enter into any and all contracts and agreements which in its judgment may be beneficial to the interests and purposes of the Company. (c) To fix and determine and to vary from time to time the amount or amounts to be set aside or retained as reserve funds or as working capital of the Company or for maintenance, repairs, replacements or enlargements of its properties. -3-

9 (d) To declare and pay dividends in cash, shares and/or property out of any funds of the Company at the time legally available for the declaration and payment of dividends on its shares. (e) To adopt such rules and regulations for the conduct of its meetings and the management of the affairs of the Company as it may deem proper. (f) To prescribe the manner in which and the person or persons by whom any or all of the checks, drafts, notes, bills of exchange, contracts and other corporate instruments shall be executed. (g) To accept resignations of directors; to declare vacant the office of a director as provided in Section 2.6 hereof; and, in case of vacancy in the office of directors, to fill the same to the extent provided in Section 2.6 hereof. (h) To create offices in addition to those for which provision is made by law or these Bylaws; to elect and remove at pleasure all officers of the Company, fix their terms of office, prescribe their titles, powers and duties, limit their authority and fix their salaries in any way it may deem advisable that is not contrary to law or these Bylaws. (i) To designate one or more persons to perform the duties and exercise the powers of any officer of the Company during the temporary absence or disability of such officer. (j) To appoint or employ and to remove at pleasure such agents and employees as it may see fit, to prescribe their titles, powers and duties, limit their authority and fix their salaries in any way it may deem advisable that is not contrary to law or these Bylaws. (k) To fix a time in the future, which shall not be more than 60 days nor less than 10 days prior to the date of the meeting nor more than 60 days prior to any other action for which it is fixed, as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting, or entitled to receive any payment of any dividend or other distribution, or allotment of any rights, or entitled to exercise any rights in respect of any other lawful action; and in such case only shareholders of record on the date so fixed shall be entitled to notice of and to vote at the meeting or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Company after any record date fixed as aforesaid. The Board of Directors may close the books of the Company against transfers of shares during the whole or any part of such period. (l) To fix and locate from time to time the principal office for the transaction of the business of the Company and one or more branch or other subordinate offices of the Company within or without the State of California; to designate any place within or without the State of California for the holding of any meeting or meetings of the shareholders or the Board of Directors, as provided in Sections 3.1 and 7.1 hereof; to adopt, make and use a corporate seal, and to prescribe the forms of certificates for shares and to alter the form of such seal and of such certificates from time to time as in its judgment it may deem best, provided such seal and such certificates shall at all times comply with the provisions of law now or hereafter in effect. -4-

10 (m) To authorize the issuance of shares of stock of the Company in accordance with the laws of the State of California and the Articles of Incorporation. (n) Subject to the limitation provided in Section 10.2 hereof, to adopt, amend or repeal from time to time and at any time these Bylaws and any and all amendments thereof. (o) To borrow money, make guarantees of indebtedness or other obligations of third parties and incur indebtedness on behalf of the Company, including the power and authority to borrow money from any of the shareholders, directors or officers of the Company; and to cause to be executed and delivered therefor in the corporate name promissory notes, bonds, debentures, deeds of trust, mortgages, pledges (or other transfers of property as security or collateral for a debt), or other evidences of debt and securities therefor; and the note or other obligation given for any indebtedness of the Company, signed officially by any officer or officers thereunto duly authorized by the Board of Directors, shall be binding on the Company. (p) To approve a loan of money or property to any officer or director of the Company or any parent or subsidiary company, guarantee the obligation of any such officer or director, or approve an employee benefit plan authorizing such a loan or guaranty to any such officer or director; provided that, on the date of approval of such loan or guaranty, the Company has outstanding shares held of record by 100 or more persons. Such approval shall require a determination by the Board of Directors that the loan or guaranty may reasonably be expected to benefit the Company and must be by vote sufficient without counting the vote of any interested director. (q) Generally to do and perform every act and thing whatsoever that may pertain to the office of a director or to a board of directors. Article III MEETINGS OF DIRECTORS Section 3.1: Place of Meetings. Meetings (whether regular, special or adjourned) of the Board of Directors of the Company shall be held at the principal executive office of the Company or at any other place within or outside the State of California which may be designated from time to time by resolution of the Board of Directors or which is designated in the notice of the meeting. Section 3.2: Regular Meetings. Regular meetings of the Board of Directors shall be held after the adjournment of each annual meeting of the shareholders (which regular directors' meeting shall be designated the "Regular Annual Meeting") and at such other times as may be designated from time to time by resolution of the Board of Directors. Notice of the time and place of all regular meetings shall be given in the same manner as for special meetings, except that no such notice need be given if (a) the time and place of such meetings are fixed by the Board of Directors or (b) the Regular Annual Meeting is held at the principal executive office of this Corporation and on the date specified by the Board of Directors. -5-

11 Section 3.3: Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, if any, or the President, or any Vice President, or the Secretary or by any two or more directors. Section 3.4: Notice of Special Meetings. Special meetings of the Board of Directors shall be held upon no less than 4 days' notice by mail or 48 hours' notice delivered personally or by telephone or telegraph to each director. Notice need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the home or office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. A notice or waiver of notice need not specify the purpose of any meeting of the Board of Directors. If the address of a director is not shown on the records of the Company and is not readily ascertainable, notice shall be addressed to him or her at the city or place in which meetings of the directors are regularly held. If a meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to all directors not present at the time of adjournment. Section 3.5: Quorum. A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors subject to provisions of law relating to interested directors and indemnification of agents of the Company. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 3.6: Conference Telephone. Members of the Board of Directors may participate in a meeting through use of conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear one another. Participation in a meeting pursuant to this Section constitutes presence in person at such meeting. Section 3.7: Waiver of Notice and Consent. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present, and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 3.8: Action Without a Meeting. Any action required or permitted by law to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of -6-

12 Directors shall individually or collectively consent in writing to the taking of such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of such directors at a duly held meeting. Section 3.9: Committees. The provisions of this Article apply also to committees of the Board of Directors and action by such committees. Article IV COMMITTEES Section 4.1: Appointment and Procedure. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, appoint from among its members one or more committees, including without limitation an executive committee, an audit committee and a compensation committee, of two or more directors. Each committee may make its own rules of procedure subject to Section 3.9 hereof, and shall meet as provided by such rules or by a resolution adopted by the Board of Directors (which resolution shall take precedence). A majority of the members of the committee shall constitute a quorum, and in every case the affirmative vote of a majority of all members of the committee shall be necessary to the adoption of any resolution. Section 4.2: Executive Committee Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee, if any, in all cases in which specific directions shall not have been given by the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company in such manner as the Executive Committee may deem best for the interests of the Company. Section 4.3: Powers of Other Committees. Other committees shall have such powers as are given them in a resolution of the Board of Directors. Section 4.4: Limitations on Powers of Committees. No committee shall have the power to act with respect to: (a) any action for which the laws of the State of California also require shareholder approval or approval of the outstanding shares; (b) the filling of vacancies on the Board of Directors or in any committee; (c) the fixing of compensation of the directors for serving on the Board of Directors or on any committee; (d) the amendment or repeal of these Bylaws or the adoption of new Bylaws; - 7 -

13 (e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not amendable or repealable; (f) a distribution to the shareholders of the Company, except at a rate or in a periodic amount or within a price range as set forth in the Articles of Incorporation or determined by the Board of Directors; and (g) the appointment of other committees of the Board of Directors or the members thereof. Article V OFFICERS Section 5.1: Election and Qualifications. The officers of the Company shall consist of a President and/or a Chief Executive Officer, a Secretary, a Chief Financial Officer and such other officers, including, but not limited to, a Chairman of the Board of Directors, one or more Vice Presidents, a Treasurer, and Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any number of offices may be held by the same person. Any Vice President, Assistant Treasurer or Assistant Secretary, respectively, may exercise any of the powers of the President, the Chief Financial Officer or the Secretary, respectively, as directed by the Board of Directors, and shall perform such other duties as are imposed upon him or her by these Bylaws or the Board of Directors. Section 5.2: Term of Office and Compensation. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board of Directors from time to time at its pleasure, subject to the rights, if any, of any officer under any contract of employment. Any officer may resign at any time upon written notice to the Company, without prejudice to the rights, if any, of the Company under any contract to which the officer is a party. If any vacancy occurs in any office of the Company, the Board of Directors may appoint a successor to fill such vacancy. Section 5.3: Chief Executive Officer. Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Company are: (a) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Company. (b) To preside at all meetings of the shareholders and, in the absence of the Chairman of the Board of Directors or if there be no Chairman, at all meetings of the Board of Directors. - 8 -

14 (c) To call meetings of the shareholders and meetings of the Board of Directors to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper. (d) To affix the signature of the Company to all deeds, conveyances, mortgages, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Company; to sign certificates for shares of stock of the Company; and, subject to the direction of the Board of Directors, to have general charge of the property of the Company and to supervise and control all officers, agents and employees of the Company. The President shall be the Chief Executive Officer of the Company unless the Board of Directors shall designate the Chairman of the Board or another officer to be the Chief Executive Officer. If there is no President, then the Chairman of the Board shall be the Chief Executive Officer. Section 5.4: Chairman of the Board. The Chairman of the Board of Directors, if there be one, shall have the power to preside at all meetings of the Board of Directors and shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe. Section 5.5: President. Subject to the supervisory powers of the Chief Executive Officer, if not the President, and to such supervisory powers as may be given by the Board of Directors to the Chairman of the Board, if one is elected, or to any other officer, the President shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 5.6: President Pro Tem. If neither the Chairman of the Board of Directors, the President, nor any Vice President is present at any meeting of the Board of Directors, a President pro tem may be chosen by the directors present at the meeting to preside and act at such meeting. If neither the President nor any Vice President is present at any meeting of the shareholders, a President pro tem may be chosen by the shareholders present at the meeting to preside at such meeting. Section 5.7: Vice President. The titles, powers and duties of the Vice President or Vice Presidents, if any, shall be as prescribed by the Board of Directors. In case of the resignation, disability or death of the President, the Vice President, or one of the Vice Presidents, shall exercise all powers and duties of the President. If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be as fixed by the Board of Directors. Section 5.8: Secretary. The powers and duties of the Secretary are: - 9 -

15 (a) To keep a book of minutes at the principal executive office of the Company, or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding of such meeting, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings and the proceedings thereof. (b) To keep the seal of the Company and to affix the same to all instruments which may require it. (c) To keep or cause to be kept at the principal executive office of the Company, or at the office of the transfer agent or agents, a record of the shareholders of the Company, giving the names and addresses of all shareholders and the number and class of shares held by each, the number and date of certificates issued for shares and the number and date of cancellation of every certificate surrendered for cancellation. (d) To keep a supply of certificates for shares of the Company, to fill in all certificates issued, and to make a proper record of each such issuance; provided that, so long as the Company shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the Company, such duties with respect to such shares shall be performed by such transfer agent or transfer agents. (e) To transfer upon the share books of the Company any and all shares of the Company; provided that, so long as the Company shall have one or more duly appointed and acting transfer agents of the shares, or any class or series of shares, of the Company, such duties with respect to such shares shall be performed by such transfer agent or transfer agents, and the method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to whom the certificate is presented for transfer and, if the Company then has one or more duly appointed and acting registrars, subject to the reasonable regulations of the registrar to which a new certificate is presented for registration; and, provided further, that no certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 8.2 hereof. (f) To make service and publication of all notices that may be necessary or proper in connection with meetings of the Board of Directors of the shareholders of the Company. In case of the absence, disability, refusal or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the President or a Vice President, or by any person thereunto authorized by either of them, or by the Board of Directors, or by the holders of a majority of the outstanding shares of the Company. (g) Generally to do and perform all such duties as pertain to such office and as may be required by the Board of Directors. Section 5.9: Chief Financial Officer. The powers and duties of the Chief Financial Officer are: - 10 -

16 (a) To supervise and control the keeping and maintaining of adequate and correct accounts of the Company's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. The books of account shall at all reasonable times be open to inspection by any director. (b) To have the custody of all funds, securities, evidences of indebtedness and other valuable documents of the Company and, at his or her discretion, to cause any or all thereof to be deposited for the account of the Company with such depository as may be designated from time to time by the Board of Directors. (c) To receive or cause to be received, and to give or cause to be given, receipts and acquittances for monies paid in for the account of the Company. (d) To disburse, or cause to be disbursed, all funds of the Company as may be directed by the President or the Board of Directors, taking proper vouchers for such disbursements. (e) To render to the President or to the Board of Directors, whenever either may require, accounts of all transactions as Chief Financial Officer and of the financial condition of the Company. (f) Generally to do and perform all such duties as pertain to such office and as may be required by the Board of Directors. Section 5.10: Instruments in Writing. All checks, drafts, demands for money, notes and written contracts of the Company shall be signed by such officer or officers, agent or agents, as the Board of Directors may from time to time designate. No officer, agent, or employee of the Company shall have the power to bind the Company by contract or otherwise unless authorized to do so by these Bylaws or by the Board of Directors. Article VI INDEMNIFICATION Section 6.1: Indemnification of Directors and Officers. The Company shall indemnify each person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding") by reason of the fact that such person is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director or officer of a foreign or domestic corporation which was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, to the fullest extent permitted by the California Corporations Code, against all expenses, including, without limitation, attorneys' fees and any expenses of establishing a right to indemnification, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such Proceeding, and such indemnification shall continue as to a person who has ceased to be such a - 11 -

17 director or officer, and shall inure to the benefit of the heirs, executors and administrators of such person; provided, however, that the Company shall indemnify any such person seeking indemnity in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors of the Company. Section 6.2: Advancement of Expenses. The Company shall pay all expenses incurred by such a director or officer in defending any Proceeding as they are incurred in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer in advance of the final disposition of a Proceeding shall be made only upon receipt by the Company of an agreement by or on behalf of such director or officer to repay such amount if it shall be determined ultimately that such person is not entitled to be indemnified under this Article VI or otherwise; and provided further that the Company shall not be required to advance any expenses to a person against whom the Company brings an action, alleging that such person committed an act or omission not in good faith or that involved intentional misconduct or a knowing violation of law, or that was contrary to the best interest of the Company, or derived an improper personal benefit from a transaction. Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be deemed exclusive of any other rights that such person may have or hereafter acquire under any statute, by law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. Additionally, nothing in this Article VI shall limit the ability of the Company, in its discretion, to indemnify or advance expenses to persons whom the Company is not obligated to indemnify or advance expenses to pursuant to this Article VI. Section 6.4: Indemnification Contracts. The Board of Directors is authorized to cause the Company to enter into a contract with any director, officer, employee or agent of the Company, or any person serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than (to the extent permitted by the Company's Articles of Incorporation and the California Corporations Code) those provided for in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. Article VII MEETINGS OF, AND REPORTS TO, SHAREHOLDERS Section 7.1: Place of Meetings. Meetings (whether regular, special or adjourned) of the shareholders of the Company shall be held at the principal executive office for the transaction of business of the Company, or at any place within or outside the State of California which may - 12 -

18 be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by resolution of the Board of Directors. Any meeting shall be valid wherever held if held by the written consent of all the shareholders entitled to vote thereat, given either before or after the meeting and filed with the Secretary of the Company. Section 7.2: Annual Meetings. The annual meetings of the shareholders shall be held at the place provided pursuant to Section 7.1 hereof and at such time in a particular year as may be designated by written consent of all the shareholders entitled to vote thereat or which may be designated by resolution of the Board of Directors of the Company. Said annual meetings shall be held for the purpose of the election of directors, for the making of reports of the affairs of the Company and for the transaction of such other business as may properly come before the meeting. Section 7.3: Special Meetings. Special meetings of the shareholders for any purpose or purposes whatsoever may be called at any time by the President, the Chairman of the Board of Directors or by the Board of Directors, or by two or more members thereof, or by one or more holders of shares entitled to cast not less than 10% of the votes at the meeting. Upon request in writing sent by registered mail to the Chairman of the Board of Directors, President, Vice President or Secretary, or delivered to any such officer in person, by any person entitled to call a special meeting of shareholders, it shall be the duty of such officer forthwith to cause notice to be given to the shareholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, which (except where called by the Board of Directors) shall be not less than 35 days nor more than 60 days after the receipt of such request. If the notice is not given within 20 days after receipt of the request, the person entitled to call the meeting may give the notice. Notices of meetings called by the Board of Directors shall be given in accordance with Section 7.4. Section 7.4: Notice of Meetings. Notice of any meeting of shareholders shall be given in writing not less than 10 (or, if sent by third-class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat by the Secretary or an Assistant Secretary, or such other person charged with that duty, or if there be no such officer or person, or in case of his or her neglect or refusal, by any director or shareholder. The notice shall state the place, date and hour of the meeting and (a) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but any proper matter may be presented at the meeting for such action, except that notice must be given or waived in writing of any proposal relating to approval of contracts between the Company and any director of the Company, amendment of the Articles of Incorporation, reorganization of the Company or winding up of the affairs of the Company. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board of Directors for election. Notice of a shareholders' meeting or any report shall be given to any shareholder, either (a) personally or (b) by first-class mail, or, in case the Company has outstanding shares held of record by 500 or more persons on the record date for the shareholders' meeting, notice may be sent by third-class mail, or other means of written -13-

19 communication, charges prepaid, addressed to such shareholder at such shareholder's address appearing on the books of the Company or given by such shareholder to the Company for the purpose of notice. If a shareholder gives no address or no such address appears on the books of the Company, notice shall be deemed to have been given if sent by mail or other means of written communication addressed to the place where the principal executive office of the Company is located, or if published at least once in a newspaper of general circulation in the county in which such office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the United States mail, postage prepaid, or sent by other means of written communication and addressed as hereinbefore provided. An affidavit or declaration of delivery or mailing of any notice or report in accordance with the provisions of this Section 7.4, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the Company is returned to the Company by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the Company for a period of one year from the date of the giving of the notice or report to all other shareholders. Section 7.5: Consent to Shareholders' Meetings. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though they had taken place at a meeting duly held after regular call and notice, if the following conditions are met: (a) a quorum is present, either in person or by proxy, and (b) either before or after the meeting, each of the shareholders entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute both a waiver of notice of and presence at such meeting, except: (a) when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened; or (b) when the person expressly makes an objection at some time during the meeting to the consideration of matters required by law to be included in the notice but not so included. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as to approval of contracts between the Company and any of its directors, amendment of the Articles of Incorporation, reorganization of the Company or winding up the affairs of the Company. Section 7.6: Quorum. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of the shareholders shall constitute a quorum for the -14-

20 transaction of business. Shares shall not be counted to make up a quorum for a meeting if voting of such shares at the meeting has been enjoined or for any reason they cannot be lawfully voted at the meeting. Shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Except as provided herein, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required. Section 7.7: Adjourned Meetings. Any shareholders' meeting, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy thereat, but, except as provided in Section 7.6 hereof, in the absence of a quorum, no other business may be transacted at such meeting. When a meeting is adjourned for more than 45 days or if after adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at a meeting. Except as aforesaid, it shall not be necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken. At any adjourned meeting the shareholders may transact any business which might have been transacted at the original meeting. Section 7.8: Voting Rights. Only persons in whose names shares entitled to vote stand on the stock records of the Company at: (a) the close of business on the business day immediately preceding the day on which notice is given; or (b) if notice is waived, at the close of business on the business day immediately preceding the day on which the meeting is held; or (c) if some other day be fixed for the determination of shareholders of record pursuant to Section 2.8(k) hereof, then on such other day, shall be entitled to vote at such meeting. The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given. In the absence of any contrary provision in the Articles of Incorporation or in any applicable statute relating to the election of directors or to other particular matters, each such person shall be entitled to one vote for each share. Section 7.9: Action by Written Consents. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by holders of outstanding shares having not less than the minimum number of votes that would be necessary to -15-

21 authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Unless the consents of all shareholders entitled to vote have been solicited in writing, the Company shall provide notice of any shareholder approval obtained without a meeting by less than unanimous written consent to those shareholders entitled to vote but who have not yet consented in writing at least 10 days before the consummation of the following actions authorized by such approval: (a) contracts between the Company and any of its directors; (b) indemnification of any person; (c) reorganization of the Company; or (d) distributions to shareholders upon the winding-up of the affairs of the Company. In addition, the Company shall provide, to those shareholders entitled to vote who have not consented in writing, prompt notice of the taking of any other corporate action approved by the shareholders without a meeting by less than unanimous written consent. All notices given hereunder shall conform to the requirements of Section 7.4 hereto and applicable law. When written consents are given with respect to any shares, they shall be given by and accepted from the persons in whose names such shares stand on the books of the Company at the time such respective consents are given, or their proxies. Any shareholder giving a written consent (including any shareholder's proxy holder, or a transferee of the shares or a personal representative of the shareholder, or their respective proxy holders) may revoke the consent by a writing. This writing must be received by the Company prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Company. Such revocation is effective upon its receipt by the Secretary of the Company. Notwithstanding anything herein to the contrary, and subject to Section 305(b) of the California Corporations Code, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. Section 7.10: Election of Directors. Every shareholder entitled to vote at any election of directors of the Company may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as such shareholder thinks fit. No shareholder, however, may cumulate such shareholder's votes for one or more candidates unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting, prior to voting, of such shareholder's intention to cumulate such shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. The candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them up to the number of directors to be elected by such shares shall be declared elected. Votes against the director and votes withheld shall have no legal effect. Election of directors need not be by ballot except upon demand made by a shareholder at the meeting and before the voting begins. Section 7.11: Proxies. Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or such person's duly authorized agent and filed with the Secretary of the Company. No proxy shall be valid (a) after revocation thereof, unless the proxy is specifically made irrevocable and otherwise conforms to this Section and applicable law, or (b) after the expiration of eleven months from the date thereof, unless the person executing it specifies therein -16-

22 the length of time for which such proxy is to continue in force. Revocation may be effected by a writing delivered to the Secretary of the Company stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at the meeting and voting in person by the person executing the proxy. A proxy is not revoked by the death or incapacity of the maker unless, before the vote is counted, a written notice of such death or incapacity is received by the Secretary of the Company. In addition, a proxy may be revoked, notwithstanding a provision making it irrevocable, by a transferee of shares without knowledge of the existence of the provision unless the existence of the proxy and its irrevocability appears on the certificate representing such shares. Section 7.12: Inspectors of Election. Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office as inspectors of election. This appointment shall be valid at the meeting and at any subsequent meeting that is a continuation of the meeting at which the persons were originally appointed to be inspectors. If no inspectors of election are so appointed, the Chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the Chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots, or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. Section 7.13: Annual Reports. Provided that the Company has 100 or fewer shareholders, the making of annual reports to the shareholders is dispensed with and the requirement that such annual reports be made to shareholders is expressly waived, except as may be directed from time to time by the Board of Directors or the President. - 17 -

23 Article VIII SHARES AND SHARE CERTIFICATES Section 8.1: Shares Held By the Company. Shares in other companies standing in the name of the Company may be voted or represented and all rights incident thereto may be exercised on behalf of the Company by any officer of the Company authorized to do so by resolution of the Board of Directors. Section 8.2: Certificates for Shares. There shall be issued to every holder of shares in the Company a certificate or certificates signed in the name of the Company by the Chairman of the Board, if any, or the President or a Vice President and by the Chief Financial Officer or an Assistant Chief Financial Officer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Section 8.3: Lost Certificates. Where the owner of any certificate for shares of the Company claims that the certificate has been lost, stolen or destroyed, a new certificate shall be issued in place of the original certificate if the owner (a) so requests before the Company has notice that the original certificate has been acquired by a bona fide purchaser and (b) satisfies any reasonable requirements imposed by the Company, including without limitation the filing with the Company of an indemnity bond or agreement in such form and in such amount as shall be required by the President or a Vice President of the Company. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate. Section 8.4: Restrictions on Transfer of Shares. (a) Before any shareholder of the Company may sell, assign, gift, pledge or otherwise transfer any shares of the Company's capital stock, such shareholder shall first notify the Company in writing of such transfer and such transfer may not be effected unless and until legal counsel for the Company has concluded that such transfer, when effected as proposed by such shareholder (i) will comply with all applicable provisions of any applicable state and federal securities laws, including but not limited to the Securities Act of 1933, as amended, and the California Corporate Securities Law of 1968, as amended, and (ii) will not jeopardize, terminate or adversely affect the Company's status as an S Corporation, if applicable, as that term is defined in the Internal Revenue Code of 1986, as amended. The Company may require that certificates representing shares of stock of the Company be endorsed with a legend describing the restrictions set forth in this Section. (b) If (i) any two or more shareholders of the Company shall enter into any agreement abridging, limiting or restricting the rights of any one or more of them to sell, assign, transfer, - 18 -

24 mortgage, pledge, hypothecate or transfer on the books of the Company any or all of the shares of the Company held by them, and if a copy of said agreement shall be filed with the Company, or if (ii) shareholders entitled to vote shall adopt any Bylaw provision abridging, limiting or restricting the rights of any shareholders mentioned above, then, and in either of such events, all certificates of shares of stock subject to such abridgments, limitations or restrictions shall have a reference thereto endorsed thereon by an officer of the Company and such certificates shall not thereafter be transferred on the books of the Company except in accordance with the terms and provisions of such as the case may be; however, no restriction shall be binding with respect to shares issued prior to adoption of the restriction unless the holders of such shares voted in favor of, or consented in writing to, the restriction. Section 8.5: Termination of Article VIII. The provisions of this Article VIII will terminate in their entirety on the effective date of a registration statement filed with the Securities and Exchange Commission under the Act with respect to registration of shares of the Company's capital stock for sale to the public. Article IX CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW Section 9.1: Bylaw Provisions Construed as Additional and Supplemental to Provisions of Law. All restrictions, limitations, requirements and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. Section 9.2: Bylaw Provisions Contrary to or Inconsistent with Provisions of Law. Any article, section, subsection, subdivision, sentence, clause or phrase of these Bylaws which, upon being construed in the manner provided in Section 9.1 hereof, shall be contrary to or inconsistent with any applicable provision of law, shall not apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability of any other portion of these Bylaws, it being hereby declared that these Bylaws, and each article, section, subsection, subdivision, sentence, clause or phrase thereof, would have been adopted irrespective of the fact that any one or more articles, sections, subsections, subdivisions, sentences, clauses or phrases is or are illegal. Article X CERTIFICATION, ADOPTION, AMENDMENT OR REPEAL OF BYLAWS Section 10.1: By Shareholders. Bylaws may be adopted, amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. -19-

25 Bylaws specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may be adopted only by the shareholders. Section 10.2: By the Board of Directors. Subject to the right of shareholders to adopt, amend or repeal Bylaws, and other than a Bylaw or amendment thereof specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa, these Bylaws may be adopted, amended or repealed by the Board of Directors. A Bylaw adopted by the shareholders may restrict or eliminate the power of the Board of Directors to adopt, amend or repeal Bylaws. Section 10.3: Certification and Inspection of Bylaws. The Company shall keep at its principal executive office the original or a copy of these Bylaws as amended or otherwise altered to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. -20-

26 CERTIFICATION OF BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. (A CALIFORNIA CORPORATION) KNOW ALL BY THESE PRESENTS: I, Dennis R. DeBroeck, certify that I am Secretary of Brocade Communications Systems, Inc., a California corporation (the "Company"), that I am duly authorized to make and deliver this certification and that the attached Bylaws are a true and correct copy of the Bylaws of the Company in effect as of the date of this certificate. Dated: September 19, 1997 /s/ Dennis R. DeBroeck ---------------------------------- Dennis R. DeBroeck, Secretary

1 EXHIBIT 3.4 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the Corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of the registered agent of the Corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the (i) board of directors, (ii) the chairman of the board, (iii) the president, or (iv) the chief executive officer. If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to

2 be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the Corporation not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; -2-

3 (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting, or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. -3-

4 When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Sections 2.12 and 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Except as otherwise provided in this Section 2.11, any action required by this chapter to be taken at any annual or special meeting of stockholders of a Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is -4-

5 signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. Notwithstanding the foregoing, effective upon the listing of the Common Stock of the Corporation on the Nasdaq Stock Market and the registration of any class of securities of the Corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the stockholders of the Corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder -5-

6 or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock ledger shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. -6-

7 3.2 NUMBER The authorized number of directors of the Corporation shall be five (5). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 CLASSES OF DIRECTORS At such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the Corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced. Unless otherwise provided in the certificate of incorporation or these Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. -7-

8 (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. -8-

9 Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.8 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. 3.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 3.10 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.11 CONDUCT OF BUSINESS Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the chief executive officer, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the -9-

10 meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.13 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these Bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.14 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.14 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the Bylaws of the Corporation, shall have and may exercise -10-

11 all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), Section 3.11 (conduct of business) and 3.12 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. -11-

12 ARTICLE V OFFICERS 5.1 OFFICERS The officers of the Corporation shall be a chief executive officer, one or more vice presidents, a secretary and a chief financial officer. The Corporation may also have, at the discretion of the board of directors, a chairman of the board, a president, a chief operating officer, one or more executive, senior or assistant vice presidents, assistant secretaries and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the Corporation shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower an officer to appoint, such officers and agents of the business as the Corporation may require (whether or not such officer or agent is described in this Article V), each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors or may be filled by the officer, if any, who appointed such officer. 5.3 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by another officer, by such other officer. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 5.4 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. If there -12-

13 is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.5 of these Bylaws. 5.5 CHIEF EXECUTIVE OFFICER The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board at all meetings of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the chief executive officer of a Corporation, including general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. The Chief Executive Officer shall, without limitation, have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. 5.6 PRESIDENT Subject to such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if there be such officers, the president shall have general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the event a Chief Executive Officer shall not be appointed, the President shall have the duties of such office. 5.7 VICE PRESIDENT In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the chief executive officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these Bylaws, the chief executive officer or the chairman of the board. 5.8 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall -13-

14 show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws. 5.9 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws. 5.10 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. -14-

15 5.11 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 THIRD PARTY ACTIONS The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. -15-

16 6.3 SUCCESSFUL DEFENSE To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 6.4 DETERMINATION OF CONDUCT Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 6.5 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another while holding such office. 6.7 INSURANCE INDEMNIFICATION The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI. -16-

17 6.8 THE CORPORATION For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI. 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advanced of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The Corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. -17-

18 Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the chief executive officer, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the board of directors or the chief executive officer or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. -18-

19 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General -19-

20 Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a Corporation and a natural person. 8.7 DIVIDENDS The directors of the Corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. -20-

21 8.9 SEAL The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. -21-

22 ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the Corporation that the Corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. -22-

23 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the Corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. ARTICLE XII LOANS TO OFFICERS The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. -23-

24 EXHIBIT 3.4 BYLAWS OF BROCADE COMMUNICATIONS SYSTEMS, INC. A DELAWARE CORPORATION

25 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE ---- <S> <C> ARTICLE I CORPORATE OFFICES...........................................................................................1 1.1 REGISTERED OFFICE...................................................................................1 1.2 OTHER OFFICES.......................................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................................1 2.1 PLACE OF MEETINGS...................................................................................1 2.2 ANNUAL MEETING......................................................................................1 2.3 SPECIAL MEETING.....................................................................................1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................................................2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.....................................2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................3 2.7 QUORUM..............................................................................................3 2.8 ADJOURNED MEETING; NOTICE...........................................................................4 2.9 VOTING..............................................................................................4 2.10 WAIVER OF NOTICE....................................................................................4 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............................................4 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.........................................5 2.13 PROXIES.............................................................................................5 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................................................6 2.15 CONDUCT OF BUSINESS.................................................................................6 ARTICLE III DIRECTORS.................................................................................................6 3.1 POWERS..............................................................................................6 3.2 NUMBER..............................................................................................7 3.3 CLASSES OF DIRECTORS................................................................................7 3.4 RESIGNATION AND VACANCIES...........................................................................7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................................8 3.6 REGULAR MEETINGS....................................................................................8 3.7 SPECIAL MEETINGS; NOTICE............................................................................8 3.8 QUORUM..............................................................................................9 3.9 WAIVER OF NOTICE....................................................................................9 3.10 ADJOURNED MEETING; NOTICE...........................................................................9 3.11 CONDUCT OF BUSINESS.................................................................................9 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................................................10 3.13 FEES AND COMPENSATION OF DIRECTORS.................................................................10 3.14 REMOVAL OF DIRECTORS...............................................................................10 </TABLE> -i-

26 TABLE OF CONTENTS (CONTINUED) <TABLE> <CAPTION> PAGE ---- <S> <C> ARTICLE IV COMMITTEES................................................................................................10 4.1 COMMITTEES OF DIRECTORS............................................................................10 4.2 COMMITTEE MINUTES..................................................................................11 4.3 MEETINGS AND ACTION OF COMMITTEES..................................................................11 ARTICLE V OFFICERS...................................................................................................12 5.1 OFFICERS...........................................................................................12 5.2 APPOINTMENT OF OFFICERS............................................................................12 5.3 REMOVAL AND RESIGNATION OF OFFICERS................................................................12 5.4 CHAIRMAN OF THE BOARD..............................................................................12 5.5 CHIEF EXECUTIVE OFFICER............................................................................13 5.6 PRESIDENT..........................................................................................13 5.7 VICE PRESIDENT.....................................................................................13 5.8 SECRETARY..........................................................................................13 5.9 CHIEF FINANCIAL OFFICER............................................................................14 5.10 ASSISTANT SECRETARY................................................................................14 5.11 AUTHORITY AND DUTIES OF OFFICERS...................................................................15 ARTICLE VI INDEMNITY.................................................................................................15 6.1 THIRD PARTY ACTIONS................................................................................15 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION......................................................15 6.3 SUCCESSFUL DEFENSE.................................................................................16 6.4 DETERMINATION OF CONDUCT...........................................................................16 6.5 PAYMENT OF EXPENSES IN ADVANCE.....................................................................16 6.6 INDEMNITY NOT EXCLUSIVE............................................................................16 6.7 INSURANCE INDEMNIFICATION..........................................................................16 6.8 THE CORPORATION....................................................................................17 6.9 EMPLOYEE BENEFIT PLANS.............................................................................17 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES........................................17 ARTICLE VII RECORDS AND REPORTS......................................................................................17 7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................................................17 7.2 INSPECTION BY DIRECTORS............................................................................18 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................18 ARTICLE VIII GENERAL MATTERS.........................................................................................18 8.1 CHECKS.............................................................................................18 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................................................19 </TABLE> -ii-

27 TABLE OF CONTENTS (CONTINUED) <TABLE> <CAPTION> PAGE ---- <S> <C> 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................................................19 8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................................19 8.5 LOST CERTIFICATES..................................................................................20 8.6 CONSTRUCTION; DEFINITIONS..........................................................................20 8.7 DIVIDENDS..........................................................................................20 8.8 FISCAL YEAR........................................................................................20 8.9 SEAL...............................................................................................21 8.10 TRANSFER OF STOCK..................................................................................21 8.11 STOCK TRANSFER AGREEMENTS..........................................................................21 8.12 REGISTERED STOCKHOLDERS............................................................................21 ARTICLE IX AMENDMENTS................................................................................................21 ARTICLE X DISSOLUTION...............................................................................................22 ARTICLE XI CUSTODIAN.................................................................................................22 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................................................22 11.2 DUTIES OF CUSTODIAN................................................................................23 ARTICLE XII LOANS TO OFFICERS........................................................................................23 </TABLE> -iii-

1 EXHIBIT 4.2 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE 35,444 SHARES OF SERIES A PREFERRED STOCK OF BROCADE COMMUNICATIONS SYSTEMS, INC. (Void after March 31, 2002) This certifies that VENTURE LENDING & LEASING, INC., a Maryland corporation, or assigns (the "Holder"), for value received, is entitled to purchase from BROCADE COMMUNICATIONS SYSTEMS, INC., a California corporation (the "Company"), 35,444 fully paid and nonassessable shares of the Company's Series A Preferred Stock ("preferred Stock') for cash at a price of $1.00 per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Pacific Time) on March 31, 2002 (the "Expiration Date"), upon surrender to the Company at its principal office at 457 East Evelyn Avenue, Suite E, Sunnyvale, California 94086 (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. (a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at anytime or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Company's Certificate of Incorporation, as amended, an event causing automatic conversion of the Company's Preferred Stock into Common Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference to "preferred Stock" shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares o f Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. (b) The Holder, in lieu of exercising this Warrant by the payment of the Stock purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (I) the difference between

2 (A) the Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. (C) For purposes of clause (b) of this Section 1, "Per Share Price" means the product of: (I) the greater of (A) the average of the closing bid and asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of the Wall Street Journal for the ten (10 trading days prior to the date of the Holder's election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Company's Common Stock pursuant to a registered public offering or that amount which shareholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the company's Common Stock is not quoted by NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be agreed upon by the Holder and the company or, if agreement cannot be reached within ten (10) business days of the Holder' selection hereunder, as such price shall be determined by a panel of three (3) appraisers, one (1) to be chosen by the company, one (1) to be chosen by the Holder and the third to be chosen by the first two (2) appraisers. If the appraisers cannot reach agreement within 30 days of the Holder's election hereunder, then each appraiser shall deliver its appraisal and the appraisal which is neither the highest nor the lowest shall constitute the Per Share Price. In the event either party fails to choose an appraiser within 30 days of the Holder's election hereunder, then the appraisal of the sole appraiser shall constitute the Per Share Price. Each party shall bear the cost of the appraiser selected by such party and the cost of the third appraiser shall be borne one-half by each party. In the event either party fails to choose an appraiser, the cost of the sole appraiser shall be borne one-half by each party. 2. Limitation on Transfer. (a) the Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2 and in compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder and the Common Stock issuable upon conversion of such Preferred stock will cause any proposed transferee of the Warrant or Preferred Stock or such Common Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2. (b) Each certificate representing (I) this Warrant, (ii) the Preferred Stock, (iii) shares of the Company's Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect of the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICAT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN RGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFORM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

3 (c) the Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (I) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the company, that an exemption from such registration is available. 3. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of share so authorized but unissued Preferred Stock or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take nay action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (I) if the total number of shares of preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the company's Certificate of Incorporation. 4. Adjustment of Stock Purchase Price Number of Shares The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment form time to time upon the occurrence eof certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 4.1 subdivision or Combination of Stock. In case the company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 4.2 dividends in Preferred Stock Other Stock, property, Reclassification. If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights

4 or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or (b) any cash paid or payable otherwise than as a cash dividend, or (c) Preferred Stock or other or additional tock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount o stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property. 4.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the effective price of such reorganization is in excess of the exercise price hereof effective at the time of the merger and securities received in such reorganization are publicly traded and resaleable by the holder pursuant to the terms of SEC rule 145, without regard to volume limitations or holding period requirements (other than a reasonable lockup period imposed in order to account for such reorganization as a pooling of interests), then this Warrant shall expire unless exercised prior to the effective day of the reorganization. In any such case, appropriate provision shall be made with respect to the rights and interest of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of share purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets hall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.4 (Deleted). 4.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Stock purchase Price resulting form such adjustment and the increase or decrease, if any, in the number of shares

5 purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4.6 Other Notices. If at any time: (a) the Company shall declare any cash dividend upon its Preferred Stock; (b) The Company shall declare nay dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock; (c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights; (d) there shall be any capital reorganization or reclassification of the capital stock of the company, or consolidation or merger of the company with, or sale of all or substantially all of its assets to, another corporation; (e) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock; then, in any one or more of said cases, Holder shall be entitled to the same notice with respect to such events as provided to holders of the Company's Preferred Stock as set forth in the Company's Certificate of Incorporation. 4.7 (Deleted). 5. Issue Tax. The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof provided however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 6. Closing of Books. The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant in accordance with its terms. 7. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the company, whether such liability is asserted by the company or by its creditors. 8. (Deleted). 9. Registration Rights. The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof (or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be,) to become a party to, and as such be entitled to receive, all of the registration rights set forth in Section 2 of that certain Investors Rights Agreement dated as of August 31, 995 to the same extent an on the same terms and conditions as possessed by the class of Investors thereunder. The company shall take such action as may be

6 reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Company's charter documents or rights of prior Grantees of registration rights. 10. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 9 shall survive the exercise of this Warrant. 11. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (I) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, to each such holder at its address a shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. 13. binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the company by merger, consolidation or acquisition of all or substantially all of the company's assts. All of the obligations of the company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the holder hereof in respect to any rights (including, without limitation, any right to registration of the shares of Common Stock) to which the holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the company tot he Holder hereof in respect of such rights. 14. Descriptive Headings and Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 15. Lost Warrants or Stock Certificates. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate the company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 16. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 17. Representations of Holder. With respect to this Warrant, Holder represents and warrants to the Company as follows (which representations and warranties will be reaffirmed upon any exercise of this Warrant): 17.1 Experience. It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company' it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its

7 officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holder's satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company' and it has such knowledge and experience in financial and business smatters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risks of that investment. 17.2 Investment. It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws. 17.3 Rule 144. It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act. 17.4 Access to Data. It has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and has had the opportunity to inspect the Company" facilities. 17.5 Accredited Investor. Holder is an "accredited investor" within the meaning of the Securities and Exchange Commission Rule 501 of Regulation D, as in effect on the issue date of this Warrant. 17.6 No Substitutions. At no time was Holder presented with any advertisement or other form of solicitation with respect to this Warrant or the Securities issuable hereunder. 18. Additional Representations and Covenants of the Company. The Company hereby represents, warrants and agrees as follows: 18.1 Corporate Power. The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder. 18.2 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms. 18.3 Offering. Subject in part to the truth and accuracy of Holder's representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions. 18.4 Stock Issuance. Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate.

8 18.5 articles and By-Laws. The Company has provided Holder with true and complete copies of the company's Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Company's capital stock, each as amended and in effect on the date of issuance of this Warrant. 18.6 conversion of Preferred Stock. As of the ate hereof, each share of the Preferred Stock is convertible into one share of the Common Stock. 18.7 financial and other Reports. From time to time upon to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (I) within 120 days after the close of each fiscal year of the company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders. IN WITNESS WHEREOF , the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 26 day of December, 1995. BROCADE COMMUNICATIONS SYSTEM, INC. By: /s/ BRUCE J. BERGMAN -------------------------------- Title: CEO Acknowledged and Agreed: VENTURE LENDING & LEASING, INC. By: /s/ RONALD W. SWENSON -------------------------------- Title: President

9 FORM OF SUBSCRIPTION (to be signed only upon exercise of Warrant) To: __________________________________ The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________________ (_____) (1) shares of Preferred Stock of ___________________________ and herewith makes payment of _______________________ Dollars ($______) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, _______________________________________, whose address is ______________________________________. The undersigned represents and warrants that it is acquiring such Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. The undersigned further renews as of the date hereof the representations and warranties set forth in Section 17 of the Warrant. DATED: ____________________________ ________________________________________________________________________________ Signature must conform in all respects to name of holder as specified on the face of the Warrant) ________________________________________________________________________________ ________________________________________________________________________________ (1) Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise.

10 ASSIGNMENT FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Preferred Stock covered thereby set forth hereinbelow, unto: Name of Assignee Address No. of Shares Dated: __________________________ (Signature must conform in all respect to name of holder as specified on the face of the Warrant)

1 EXHIBIT 4.3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. FIRST AMENDED AND RESTATED WARRANT TO PURCHASE 15,753 SHARES OF SERIES A PREFERRED STOCK OF BROCADE COMMUNICATIONS SYSTEMS, INC. (Void after March 31, 2002) This First Amended and Restated Warrant (the "Warrant") certifies that VENTURE LENDING & LEASING, INC., a Maryland corporation, or assigns (the "Holder"), for value received, is entitled to purchase from BROCADE COMMUNICATIONS SYSTEMS, INC., a California corporation (the "Company"), 15,753 fully paid and nonassessable shares of the Company's Series A Preferred Stock ("Preferred Stock") for cash at a price of $4.50 per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Pacific time) on March 31, 2002 (the "Expiration Date"), upon surrender to the Company at its principal office at 2231-B Calle De Luna, Santa Clara, California 95054 (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant. This Warrant amends, restates and supersedes in its entirety that certain Warrant to Purchase Shares of Brocade Communications Systems, Inc. originally issued to Holder and dated December 26, 1995, which is terminated and of no further force or effect. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. (a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Company's Certificate of Incorporation, as amended, an event causing automatic conversion of the Company's Preferred Stock into Common Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference

2 to "Preferred Stock" shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. (b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or after the First Exercise Date and on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. (c) For purposes of clause (b) of this Section 1, "Per Share Price" means the product of: (i) the greater of (A) the average of the closing bid and asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of the Holder's election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Company's Common Stock pursuant to a registered public offering or that amount which shareholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If the Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be agreed upon by the Holder and the Company or, if agreement cannot be reached within ten (10) business days of the Holder's election hereunder, as such price shall be determined by a panel of three (3) appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the Holder and the third to be chosen by the first two (2) appraisers. If the appraisers cannot reach agreement within 30 days of the Holder's election hereunder, then each appraiser shall deliver its appraisal and the appraisal which is neither the highest nor the lowest shall constitute the Per Share Price. In the event either party fails to choose an appraiser within 30 days of the Holder's election hereunder, then 2

3 the appraisal of the sole appraiser shall constitute the Per Share Price. Each party shall bear the cost of the appraiser selected by such party and the cost of the third appraiser shall be borne one-half by each party. In the event either party fails to choose an appraiser, the cost of the sole appraiser shall be borne one-half by each party. 2. Limitation on Transfer. (a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2 and in compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder and the Common Stock issuable upon conversion of such Preferred Stock will cause any proposed transferee of the Warrant or Preferred Stock or such Common Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2. (b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Company's Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect of the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. (c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 3. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon 3

4 exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. 4. Adjustment of Stock Purchase Price Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 4.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification. If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or (b) any cash paid or payable otherwise than as a cash dividend, or 4

5 (c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property. 4.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the effective price of such reorganization is in excess of the exercise price hereof effective at the time of the merger and securities received in such reorganization are publicly traded and resaleable by the holder pursuant to the terms of SEC Rule 145, without regard to volume limitations or holding period requirements (other than a reasonable lockup period imposed in order to account for such reorganization as a pooling of interests), then this Warrant shall expire unless exercised prior to the effective day of the reorganization. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 4.4 (Deleted). 5

6 4.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4.6 Other Notices. If at any time: (a) the Company shall declare any cash dividend upon its Preferred Stock; (b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock; (c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights; (d) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock; then, in any one or more of said cases, Holder shall be entitled to the same notice with respect to such events as provided to holders of the Company's Preferred Stock as set forth in the Company's Certificate of Incorporation. 4.7 (Deleted). 5. Issue Tax. The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 6. Closing of Books. The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant in accordance with its terms. 6

7 7. No Voting or Dividend Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 8. (Deleted). 9. Registration Rights. The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof (or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be,) to become a party to, and as such be entitled to receive, all of the registration rights set forth in Section 2 of that certain Investors Rights Agreement dated as of August 31, 1995, as amended, to the same extent and on the same terms and conditions as possessed by the class of Investors thereunder. The Company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Company's charter documents or rights of prior Grantees of registration rights. 10. Rights and Obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 9 shall survive the exercise of this Warrant. 11. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. 13. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Holder hereof but at the 7

8 Company's expense, acknowledge in writing its continuing obligation to the Holder hereof in respect of any rights (including, without limitation, any right to registration of the shares of Common stock) to which the holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the Holder hereof in respect of such rights. 14. Descriptive Headings and Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 15. Lost Warrants or Stock Certificates. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 16. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. 17. Representations of Holder. With respect to this Warrant, Holder represents and warrants to the Company as follows (which representations and warranties will be reaffirmed upon any exercise of this Warrant): 17.1 Experience. It is experienced in evaluating and investing in companies engaged in business similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holder's satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment. 17.2 Investment. It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws. 17.3 Rule 144. It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the 8

9 Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act. 17.4 Access to Data. It has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and has had the opportunity to inspect the Company's facilities. 17.5 Accredited Investor. Holder is an "accredited investor" within the meaning of the Securities and Exchange Commission Rule 501 of Regulation D, as in effect on the issue date of this Warrant. 17.6 No Substitutions. At no time was Holder presented with any advertisement or other form of solicitation with respect to this Warrant or the Securities issuable hereunder. 18. Additional Representations and Covenants of the Company. The Company hereby represents, warrants and agrees as follows: 18.1 Corporate Power. The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder. 18.2 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms. 18.3 Offering. Subject in part to the truth and accuracy of Holder's representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions. 18.4 Stock Issuance. Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate. 18.5 Articles and By-Laws. The Company has provided Holder with true and complete copies of the Company's Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Company's capital stock, each as amended and in effect on the date of issuance of this Warrant. 9

10 18.6 Conversion of Preferred Stock. As of the date hereof, each share of the Preferred Stock is convertible into two share of the Common Stock. 18.7 Financial and Other Reports. From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 120 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized as of this 3rd day of October, 1996. BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ Bruce J. Bergman ------------------------------------ Title: CEO --------------------------------- Acknowledged and Agreed: VENTURE LENDING & LEASING, INC. By: /s/ Ronald W. Swenson ------------------------------------ Title: CEO --------------------------------- 10

11 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: __________________________________ The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _________________________________ (__________) (1) shares of Preferred Stock of _____________________________________ and herewith makes payment of _______________________________ Dollars ($___________) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, ___________________________________________, whose address is __________________________________________________. The undersigned represents and warrants that it is acquiring such Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. The undersigned further renews as of the date hereof the representations and warranties set forth in Section 17 of the Warrant. DATED: _______________________ ____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ____________________________________ ____________________________________ (Address) ---------- (1) Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. 11

12 ASSIGNMENT FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Preferred Stock covered thereby set forth hereinbelow, unto: <TABLE> <CAPTION> Name of Assignee Address No. of Shares ---------------- ------- ------------- <S> <C> <C> </TABLE> DATED:______________________________ ____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) 12

1 EXHIBIT 4.4 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE 17,500 SHARES OF SERIES B PREFERRED STOCK OF BROCADE COMMUNICATIONS SYSTEMS, INC. (Void after December 31, 2002) This certifies that VENTURE LENDING & LEASING, INC., a Maryland corporation, or assigns (the "Holder"), for value received, is entitled to purchase from BROCADE COMMUNICATIONS SYSTEMS, INC., a California corporation (the "Company"), 17,500 fully paid and nonassessable shares of the Company's Series B Preferred Stock ("Preferred Stock") for cash at a price of $4.00 per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Pacific time) on December 31, 2002 (the "Expiration Date"), upon surrender to the Company at its principal office at 457 East Evelyn Avenue, Suite E, Sunnyvale, California 94086 (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant. This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. (a) Unless an election is made pursuant to clause (b) of this Section 1, this Warrant shall be exercisable at the option of the Holder, at any time or from time to time, on or before the Expiration Date for all or any portion of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder for the Stock Purchase Price multiplied by the number of shares to be purchased. In the event, however, that pursuant to the Company's Certificate of Incorporation, as amended, an event causing automatic conversion of the Company's Preferred Stock into Common Stock shall have occurred prior to the exercise of this Warrant, in whole or in part, then this Warrant shall be exercisable for the number of shares of Common Stock of

2 the Company into which the Preferred Stock not purchased upon any prior exercise of the Warrant would have been so converted (and, where the context requires, reference to "Preferred Stock" shall be deemed to include such Common Stock). The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. Except as provided in clause (b) of this Section 1, in case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder or such other name as shall be designated by such Holder, subject to the limitations contained in Section 2. (b) The Holder, in lieu of exercising this Warrant by the payment of the Stock Purchase Price pursuant to clause (a) of this Section 1, may elect, at any time on or before the Expiration Date, to receive that number of shares of Preferred Stock equal to the quotient of: (i) the difference between (A) the Per Share Price (as hereinafter defined) of the Preferred Stock, less (B) the Stock Purchase Price then in effect, multiplied by the number of shares of Preferred Stock the Holder would otherwise have been entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or such lesser number of shares as the Holder may designate in the case of a partial exercise of this Warrant); over (ii) the Per Share Price. (c) For purposes of clause (b) of this Section 1, "Per Share Price" means the product of: (i) the greater of (A) the average of the closing bid and asked prices of the Company's Common Stock as quoted by NASDAQ or listed on any exchange, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of the Holder's election hereunder or, (B) if applicable at the time of or in connection with the exercise under clause (b) of this Section 1, the gross sales price of one share of the Company's Common Stock pursuant to a registered public offering or that amount which shareholders of the Company will receive for each share of Common Stock pursuant to a merger, reorganization or sale of assets; and (ii) that number of shares of Common Stock into which each share of Preferred Stock is convertible. If 2

3 the Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the Per Share Price of the Preferred Stock (or the equivalent number of shares of Common Stock into which such Preferred Stock is convertible) shall be the price per share which the Company would obtain from a willing buyer for shares sold by the Company from authorized but unissued shares as such price shall be agreed upon by the Holder and the Company or, if agreement cannot be reached within ten (10) business days of the Holder's election hereunder, as such price shall be determined by a panel of three (3) appraisers, one (1) to be chosen by the Company, one (1) to be chosen by the Holder and the third to be chosen by the first two (2) appraisers. If the appraisers cannot reach agreement within 30 days of the Holder's election hereunder, then each appraiser shall deliver its appraisal and the appraisal which is neither the highest nor the lowest shall constitute the Per Share Price. In the event either party fails to choose an appraiser within 30 days of the Holder's election hereunder, then the appraisal of the sole appraiser shall constitute the Per Share Prica. Each party shall bear the cost of the appraiser selected by such party and the cost of the third appraiser shall be borne one-half by each party. In the event either party fails to choose an appraiser, the cost of the sole appraiser shall be borne one-half by each party. 2. Limitation on Transfer. (a) The Warrant and the Preferred Stock shall not be transferable except upon the conditions specified in this Section 2 and in compliance with the provisions of the Securities Act. Each holder of this Warrant or the Preferred Stock issuable hereunder and the Common Stock issuable upon conversion of such Preferred Stock will cause any proposed transferee of the Warrant or Preferred Stock or such Common Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 2. (b) Each certificate representing (i) this Warrant, (ii) the Preferred Stock, (iii) shares of the Company's Common Stock issued upon conversion of the Preferred Stock and (iv) any other securities issued in respect of the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of this Section 2 or unless such securities have been registered under the Securities Act or sold under Rule 144) be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD 3

4 OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. (c) The Holder of this Warrant and each person to whom this Warrant is subsequently transferred represents and warrants to the Company (by acceptance of such transfer) that it will not transfer the Warrant (or securities issuable upon exercise hereof unless a registration statement under the Securities Act was in effect with respect to such securities at the time of issuance thereof) except pursuant to (i) an effective registration statement under the Securities Act, (ii) Rule 144 under the Securities Act (or any other rule under the Securities Act relating to the disposition of securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel for the Company, that an exemption from such registration is available. 3. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other Securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as defined in Section 4 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Company's Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock together with all shares of Common Stock then outstanding and then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. 4

5 4. Adjustment of Stock Purchase Price Number of Shares. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 4.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 4.2 Dividends in Preferred Stock, Other Stock, Property, Reclassification. If at any time or from time to time the holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (a) Preferred Stock, or any shares of stock or other securities whether or not such securities are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or (b) any cash paid or payable otherwise than as a cash dividend, or (c) Preferred Stock or other or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split, adjustments in respect of which shall be covered by the terms of Section 4.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon, and without payment of any additional consideration therefore, the amount of stock and other 5

6 securities and property (including cash in the cases referred to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares and/or all other additional stock and other securities and property. 4.3 Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Preferred Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby the holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the effective price of such reorganization is in excess of the exercise price hereof effective at the time of the merger and securities received in such reorganization are publicly traded and resaleable by the holder pursuant to the terms of SEC Rule 145, without regard to volume limitations or holding period requirements (other than a reasonable lockup period imposed in order to account for such reorganization as a pooling of interests), then this Warrant shall expire unless exercised prior to the effective day of the reorganization. In any such case, appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 6

7 4.4 (Deleted). 4.5 Notice of Adjustment. Upon any adjustment of the Stock Purchase Price, and/or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4.6 Other Notices. If at any time: (a) the Company shall declare any cash dividend upon its Preferred Stock; (b) the Company shall declare any dividend upon its Preferred Stock payable in stock or make any special dividend or other distribution to the holders of its Preferred Stock; (c) the Company shall offer for subscription pro rata to the holders of its Preferred Stock any additional shares of stock of any class or other rights; (d) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; (e) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (f) the Company shall take or propose to take any other action, notice of which is actually provided to holders of the Preferred Stock; then, in any one or more of said cases, Holder shall be entitled to the same notice with respect to such events as provided to holders of the Company's Preferred Stock as set forth in the Company's Certificate of Incorporation. 4.7 (Deleted). 5. Issue Tax. The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance 7

8 and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 6. Closing of Books. The Company will at no time close its transfer books against the transfer of any Warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant in accordance with its terms. 7. No voting or Dividend Rights: Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 8. (Deleted). 9. Registration Rights. The Holder hereof shall be entitled, with respect to the shares of Preferred Stock issued upon exercise hereof (or the shares of Common Stock or other securities issued upon conversion of such Preferred Stock as the case may be,) to become a party to, and as such be entitled to receive, all of the registration rights set forth in Section 2 of that certain First Amended and Restated Investors' Rights Agreement dated as of June 17, 1996 to the same extent and on the same terms and conditions as possessed by the class of Investors thereunder. The Company shall take such action as may be reasonably necessary to assure that the granting of such registration rights to the Holder does not violate the provisions of such agreement or any of the Company's charter documents or rights of prior Grantees of registration rights. 10. Rights and obligations Survive Exercise of Warrant. The rights and obligations of the Company, of the Holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, contained in Sections 6 and 9 shall survive the exercise of this Warrant. 11. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 8

9 12. Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be deemed to have been given (i) upon receipt if delivered personally or by courier (ii) upon confirmation of receipt if by telecopy or (iii) three business days after deposit in the US mail, with postage prepaid and certified or registered, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. 13. Binding Effect on Successors. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assign of the holder hereof. The Company will, at the time of the exercise of this Warrant, in whole or in part, upon request of the Holder hereof but at the Company's expense, acknowledge in writing its continuing obligation to the Holder hereof in respect of any rights (including, without limitation, any right to registration of the shares of Common Stock) to which the holder hereof shall continue to be entitled after such exercise in accordance with this Warrant; provided, that the failure of the holder hereof to make any such request shall not affect the continuing obligation of the Company to the Holder hereof in respect of such rights. 14. Descriptive Headings and Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 15. Lost Warrants or Stock Certificates. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 16. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction 9

10 multiplied by the then effective Stock Purchase Price. 17. Representations of Holder. With respect to this Warrant, Holder represents and warrants to the Company as follows (which representations and warranties will be reaffirmed upon any exercise of this Warrant): 17.1 Experience. It is experienced in evaluating and investing in companies engaged in businesses similar to that of the Company; it understands that investment in the Warrant involves substantial risks; it has made detailed inquiries concerning the Company, its business and services, its officers and its personnel; the officers of the Company have made available to Holder any and all written information it has requested; the officers of the Company have answered to Holder's satisfaction all inquiries made by it; in making this investment it has relied upon information made available to it by the Company; and it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investment in the Company and it is able to bear the economic risk of that investment. 17.2 Investment. It is acquiring the Warrant for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. It understands that the Warrant, the shares of Preferred Stock issuable upon exercise thereof and the shares of Common Stock issuable upon conversion of the Preferred Stock, have not been registered under the Securities Act of 1933, as amended, nor qualified under applicable state securities laws. 17.3 Rule 144. It acknowledges that the Warrant, the Preferred Stock and the Common Stock must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. It has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act. 17.4 Access to Data. It has had an opportunity to discuss the Company's business, management and financial affairs with the Company's management and has had the opportunity to inspect the Company's facilities. 17.5 Accredited Investor. Holder is an "accredited investor" within the meaning of the Securities and Exchange Commission Rule 501 of Regulation D, as in effect on the issue date of this Warrant. 17.6 No Substitutions. At no time was Holder presented with any advertisement m of solicitation with respect to this Warrant or the Securities issuable hereunder. 18. Additional Representations and Covenants of the Company. The Company hereby ents, warrants and agrees as follows: 10

11 18.1 Corporate Power. The Company has all requisite corporate power and corporate authority to issue this Warrant and to carry out and perform its obligations hereunder. 18.2 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance by the Company of this has been taken. This Warrant is a valid and binding obligation of the Company, enforceable in accordance with its terms. 18.3 Offering. Subject in part to the truth and accuracy of Holder's representations set forth in Section 17 hereof, the offer, issuance and sale of the Warrant is, and the issuance of Preferred Stock upon exercise of the Warrant and the issuance of Common Stock upon conversion of the Preferred Stock will be exempt from the registration requirements of the Securities Act, and are exempt from the qualification requirements of any applicable state securities laws; and neither the Company nor anyone acting on its behalf will take any action hereafter that would cause the loss of such exemptions. 18.4 Stock Issuance. Upon exercise of the Warrant, the Company will use its best efforts to cause stock certificates representing the shares of Preferred Stock purchased pursuant to the exercise to be issued in the individual names of Holder, its nominees or assignees, as appropriate at the time of such exercise. Upon conversion of the shares of Preferred Stock to shares of Common Stock, the Company will issue the Common Stock in the individual names of Holder, its nominees or assignees, as appropriate. 18.5 Articles and By-Laws. The Company has provided Holder with true and complete copies of the Company's Articles or Certificate of Incorporation, By-Laws, and each Certificate of Determination or other charter document setting, forth any rights, preferences and privileges of Company's capital stock, each as amended and in effect on the date of issuance of this Warrant. 18.6 Conversion of Preferred Stock. As of the date hereof, each share of the Preferred Stock is convertible into one share of the Common Stock. 18.7 Financial and Other Reports. From time to time up to the earlier of the Expiration Date or the complete exercise of this Warrant, the Company shall furnish to Holder (i) within 120 days after the close of each fiscal year of the Company an audited balance sheet and statement of changes in financial position at and as of the end of such fiscal year, together with an audited statement of income for such fiscal year; (ii) within 45 days after the close of each fiscal quarter of the Company, an unaudited balance sheet and statement of cash flows at and as of the end of such quarter, 11

12 together with an unaudited statement of income for such quarter; and (iii) promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that the Company sends or makes available to its shareholders. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this 11 day of September, 1996. BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ Bruce J. Bergman ------------------------------- Title: CEO ---------------------------- Acknowledged and Agreed: VENTURE LENDING & LEASING, INC. By: /s/ Ronald W. Swenson ------------------------------- Title: CEO ---------------------------- 12

13 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: _______________________ The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________________________________ (_____) (1) shares of Preferred Stock of __________________________________ and herewith makes payment of _____________________________________ Dollars ($ ________) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, __________________________________________, whose address is ____________________________________. The undersigned represents and warrants that it is acquiring such Preferred Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act of 1933, as amended. The undersigned further renews as of the date hereof the representations and warranties set forth in Section 17 of the Warrant. DATED: _____________________________ ____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ____________________________________ ____________________________________ (Address) (1) Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Preferred Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. 13

14 ASSIGNMENT FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Preferred Stock covered thereby set forth hereinbelow, unto: <TABLE> <CAPTION> Name of Assignee Address No. of Shares ---------------- ------- ------------- <S> <C> <C> </TABLE> Dated: __________________________ ____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) 14

1 EXHIBIT 4.5 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE PREFERRED STOCK OF BROCADE COMMUNICATIONS SYSTEMS, INC. THIS CERTIFIES THAT in consideration of certain leasehold improvements provided to Brocade Communications Systems, Inc., a California corporation (the "COMPANY"), receipt of which is hereby acknowledged, Mason Calle De Luna L.P., a California limited partnership, or its permitted registered assigns ("REGISTERED HOLDER"), is entitled, subject to the terms and conditions of this Warrant, to purchase from the Company at any time after the Commencement Date (as defined in Section 2) of this Warrant and prior to 5:00 p.m. Pacific Time on August 31, 1999, unless terminated earlier under Section 12 hereof (the "EXPIRATION DATE"), up to Three Thousand (3,000) shares of Warrant Stock (as defined below) at a price per share equal to the Warrant Price (as defined below), upon surrender of this Warrant at the principal office of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit 1 and simultaneous payment of the full Warrant Price for the shares of Warrant Stock so purchased in lawful money of the United States. The Warrant Price is subject to adjustment as provided herein. 1. CERTAIN DEFINITIONS. The following definitions shall apply for purposes of this Warrant: (a) "CONVERSION STOCK" shall mean Common Stock of the Company or other securities issuable upon conversion of the Warrant Stock. (b) "FINANCING" shall mean the Closing (or first closing if multiple closings) of the Company's next sale of its Preferred Stock in one transaction or series of related transactions occurring on or before August 31, 1997 for aggregate gross proceeds (calculated

2 before the payment of any discounts or commissions to brokers or underwriters) of no less than One Million Dollars ($1,000,000.00) paid to the Company on or before August 31, 1997. (c) "ISSUE DATE" shall mean the date of this Warrant. (d) "MAXIMUM NUMBER OF PURCHASABLE SHARES" shall be Three Thousand (3,000) shares, subject to adjustment as provided herein. (e) "WARRANT PRICE" shall mean: (i) if the Warrant Stock is Preferred Stock of the Company sold in the Financing, an amount equal to the per share selling price of shares of Warrant Stock issued in the Financing, or (ii) if the Warrant Stock is Series B Preferred Stock of the Company, Four Dollars ($4.00) per share. The Warrant Price is subject to adjustment as provided herein. (f) "WARRANT" shall mean this Warrant and any warrant(s) delivered in substitution or exchange therefor, as provided herein. (g) "WARRANT STOCK" shall mean the Company's class or series of Preferred Stock that is sold in the Financing, but if the Financing has not occurred by the earlier of August 31, 1997 or immediately prior to the effectiveness of a Terminating Transaction under Section 12, "Warrant Stock" shall instead mean Series B Preferred Stock of the Company. 2. EXERCISE. Subject to compliance with all applicable securities laws, this Warrant may be exercised in whole or in part, at any time or from time to time, on any business day commencing on the earlier of (i) the closing (or first closing if multiple closings) of the Financing, (ii) August 31, 1997, or (iii) immediately prior to a Terminating Transaction under Section 12 (such date being herein referred to as "Commencement Date") and before the Expiration Date, for up to the Maximum Number of Purchasable Shares by surrendering this Warrant at the principal office of the Company at 457 East Evelyn Avenue, Suite E, Sunnyvale, California 94086, with the subscription form attached hereto duly executed by the Registered Holder, and payment, in cash and/or cancellation of bona fide indebtedness of the Company to the Registered Holder, of an amount equal to the product obtained by multiplying (i) the number of shares of Warrant Stock to be purchased by the Registered Holder by (ii) the Warrant Price or adjusted Warrant Price therefor, if applicable, as determined in accordance with the terms hereof. Upon a partial exercise of this Warrant: (i) the Maximum Purchasable Number of Shares immediately prior to such partial exercise shall be reduced by the number of shares of Warrant Stock purchased upon such exercise of this Warrant, and (ii) this Warrant shall be surrendered by the Registered Holder and replaced with a new Warrant of like tenor with respect to which the new Maximum Purchasable Number of Shares Amount is the former Maximum Purchasable Number of Shares Amount as so reduced. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Warrant Stock issuable upon such exercise. 2

3 3. FULLY PAID SHARES. All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable. 4. TRANSFER AND EXCHANGE. Subject to the foregoing and terms and conditions of this Warrant and compliance with all applicable securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the Company referred to above, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed, the Registered Holder's written instructions as to what quantity of the Maximum Number of Purchasable Shares is being transferred to each transferee's Warrant and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to the Registered Holder and its transferee(s), respectively, a new Warrant or Warrants (of like tenor entitling the Registered Holder and its transferees to purchase shares of Warrant Stock equal in the aggregate to the Maximum Number of Purchasable Shares as determined immediately prior to such transfer, with the portions of the Maximum Number of Purchasable Shares allocated to each such Warrant to be determined by the Registered Holder's written instructions to the Company regarding such transfer not so transferred. Until a transfer of this Warrant is registered on the books of the Company, the Company may treat the Registered Holder hereof as the owner for all purposes. Notwithstanding the foregoing, this Warrant and the rights hereunder may not be transferred unless such transfer complies with all applicable securities laws and the provisions of Section 10 hereof. 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The Maximum Number of Purchasable Shares, and the number and character of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property at the time receivable or issuable upon exercise of this Warrant) and the Warrant Price therefor, are subject to adjustment upon the occurrence of the following events: 5.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc. The Maximum Number of Purchasable Shares, the Warrant Price of this Warrant and the number of shares of Warrant Stock issuable upon exercise of this Warrant shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Warrant Stock that occurs after the date of the Warrant. 5.2 Adjustment for Other Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable respect to the Warrant Stock payable in securities of the Company (other than issuances with respect to which adjustment is made under Section 5.1), then, and in each such case, the Registered Holder of this Warrant, upon exercise of this Warrant at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Warrant Stock issuable upon such exercise prior to such date, the securities or such other assets of the Company to which such Registered Holder would have been entitled upon such date if such Registered Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 3

4 5.3 Adjustment for Reorganization, Consolidation, Merger. Except in the event this Warrant is terminated pursuant to Section 12 hereof, in case of any reorganization of the Company (or of any other corporation, the stock or other securities of which are at the time receivable on the exercise of this Warrant) after the date of this Warrant, or in case, after such date, the Company (or any such corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Registered Holder of this Warrant, upon the exercise of this Warrant (as provided in Section 2), at any time after the consummation of such reorganization, consolidation, merger, or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 5, and the successor or purchasing corporation in such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to the Registered Holder a supplement hereto acknowledging such corporation's obligations under this Warrant; and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after the consummation of such reorganization, consolidation, merger or conveyance. 5.4 Conversion of Warrant Stock. In case all the authorized class or series constituting the Warrant Stock of the Company is converted, pursuant to the Company's Articles of Incorporation, into Common Stock or other securities or property (the "PRIOR WARRANT STOCK CONVERSION PROCEEDS"), or the Warrant Stock otherwise ceases to exist, then, in such case, the Registered Holder of this Warrant, upon exercise of this Warrant at any time after the date on which the Warrant Stock is so converted or ceases to exist (the "WARRANT STOCK TERMINATION DATE"), shall receive, in lieu of the number of shares of Warrant Stock that would have been issuable upon such exercise immediately prior to the Warrant Stock Termination Date (the "FORMER WARRANT STOCK"), the Prior Warrant Stock Conversion Proceeds to which such Registered Holder would have been entitled to receive upon the Warrant Stock Termination Date if such Registered Holder had exercised this Warrant with respect to the Former Warrant Stock immediately prior to the Warrant Stock Termination Date (all subject to further adjustment as provided in this Warrant). 6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale or assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder under this Warrant against wrongful impairment. Without limiting the generality of the foregoing, the Company: (i) will not set nor increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Warrant Stock upon the exercise of this Warrant. 4

5 7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in either the Maximum Number of Purchasable Shares, the Warrant Price or in the number of shares of Warrant Stock, or other stock, securities or property receivable upon the exercise of this Warrant, the Chief Financial Officer of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Maximum Number of Purchasable Shares and the adjusted Warrant Price. The Company will cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Registered Holder. 8. LOSS OR MUTILATION. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership, and the loss, theft, destruction or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 9. RESERVATION OF WARRANT STOCK. If at any time the number of authorized but unissued shares of the Company's class or series of Warrant Stock (or Prior Warrant Stock Conversion Proceeds) or other securities of the Company shall not be sufficient to effect the exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such class or series of Warrant Stock or other securities to such number of shares of such class or series of Warrant Stock or other securities as shall be sufficient for such purpose. 10. RESTRICTIONS ON TRANSFER. 10.1 The Registered Holder understands that neither this Warrant nor the shares of Warrant Stock or Conversion Stock have been registered under the Securities Act of 1933, as amended (the "ACT"), or any state securities laws. As a condition to the issuance of this Warrant and to its exercise the Registered Holder hereby represents and warrants to the Company that: (a) The Warrant and, if applicable, the shares of Warrant Stock and Conversion Stock (collectively, the "SECURITIES") have been acquired by the Registered Holder for investment and not with a view to the sale or other distribution thereof within the meaning of the Act and the Registered Holder has no present intention of selling or otherwise disposing of all or any portion of the Securities. (b) The Registered Holder has acquired (and will acquire) the Securities for the Registered Holder's own account only and no one else has any beneficial ownership in the Securities. (c) The Registered Holder is capable of evaluating the merits and risks of any investment in the Securities, is financially capable of bearing a total loss of this investment and has either: (i) a preexisting personal or business relationship with the Company or its principals; (ii) by reason of the Registered Holder's business or financial experience, has the capacity to protect his or its own interests in connection with this investment; or (iii) is an 5

6 "accredited investor" within the meaning of Regulation D promulgated under the Act, as amended. (d) The Registered Holder has had access to all information regarding the Company, its present and prospective business, assets, liabilities and financial condition that the Registered Holder considers important to making the decision to acquire the Securities and has had ample opportunity to ask questions of and receive answers from the Company's representatives concerning an investment in the Securities and to obtain any and all documents requested in order to supplement or verify any of the information supplied. (e) The Registered Holder understands that the Securities shall be deemed restricted securities under the Act and may not be resold unless they are registered under the Act and any applicable State securities law, or in the opinion of counsel in form and substance satisfactory to the Company, an exemption from such registration is available. (f) The Registered Holder is aware of Rule 144 promulgated under the Act, which rule provides, in substance, that: (i) after two years from the date restricted securities have been purchased and fully paid for, a holder may transfer restricted securities provided certain conditions are met (e.g., certain public information is available about the Company), and specific limitations on the amount of shares which can be sold within certain periods and the manner in which such shares must be sold are complied with; and (ii) after three years from the date the securities have been purchased and fully paid for, holders who are not "affiliates" of the Company may sell restricted securities without satisfying such conditions. (g) The Registered Holder further understands that if the requirements of Rule 144 are not met, registration under the Act, compliance with Regulation A, or some other registration exemption will be required for any disposition of the Securities; and that, although Rule 144 is not exclusive, the Securities and Exchange Commission ("SEC") has expressed its opinion that persons proposing to sell restricted securities other than in a registered offering or other than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and such persons and the brokers who participate in the transactions do so at their own risk. 10.2 The Registered Holder of this Warrant, by acceptance hereof, agrees that, absent an effective registration statement filed with the SEC under the Act, covering the disposition or sale of this Warrant or the Warrant Stock (or Conversion Stock) issued or issuable upon exercise hereof, such Registered Holder will not sell or transfer any or all of such Warrant Stock or Conversion Stock, as the case may be, without first providing the Company with an opinion of counsel satisfactory to the Company to the effect that such sale or transfer will be exempt from the registration and prospectus delivery requirements of the Act, and such Registered Holder consents to the Company making a notation on its records, or giving instructions to any transfer agent of this Warrant, or such Warrant Stock (or Conversion Stock), in order to implement such restriction on transfer. The shares issued upon exercise of this Warrant shall bear legends referring to the restrictions or transfer set forth in this Section 10. As a condition to the transfer of this Warrant or transfer of the shares issuable on exercise hereof, any permitted transferee must execute and deliver to the Company representations and warranties 6

7 similar to these set forth in this Section 10 and agree in writing to accept and be bound by all the terms and conditions of this Warrant. 11. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Warrant does not by itself entitle the Registered Holder to any voting rights or other rights as a shareholder of the Company. In the absence of affirmative action by Registered Holder to purchase Warrant Stock by exercise of this Warrant, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Registered Holder shall cause such Registered Holder to be a shareholder of the Company for any purpose. 12. TERMINATION. The right to exercise this Warrant shall terminate upon the effective date of a merger or consolidation of the Company into or with another corporation, or the sale of all or substantially all of the Company's assets to another corporation or person, if, immediately after any such merger, consolidation or sale of assets, at least fifty percent (50%) of the voting power of the surviving corporation or such other person, as the case may be, is owned by persons who are not shareholders of the Company immediately prior to such merger, consolidation or sale (the "TERMINATING TRANSACTION"). In such event, the Company shall, at least fifteen (15) days prior to the effective date of the Terminating Transaction, give written notice pursuant to Section 14 hereof of the imminence of such Terminating Transaction. 13. LOCK-UP AGREEMENT. The Registered Holder agrees, upon request of the Company or the underwriters managing any firmly underwritten public offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of the Warrant Stock or Common Stock issuable upon conversion of the Warrant Stock acquired pursuant to the exercise of this Warrant (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as the Company or underwriters may specify. 14. AMENDMENT; WAIVER. Any term of this Warrant may be amended, and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) by the written consent of the Company and the Registered Holder. 15. NOTICES. All notices and other communications from the Company to the Registered Holder shall be deemed given when mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder who shall have furnished an address to the Company in writing. 16. ATTORNEYS' FEES. In the event any party is required to engage the services of any attorneys for the purpose of enforcing this Warrant, or any provision thereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and any other related cost or expenses. 17. HEADINGS. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 7

8 18. LAW GOVERNING. This Warrant shall be construed and enforced in accordance with, and governed by, the internal laws of the State of California, excluding that body of law applicable to conflicts of laws. 8

9 19. TERMS BINDING. By acceptance of this Warrant, the Registered Holder of this Warrant (and each subsequent assignee, transferee or Registered Holder of this Warrant) accepts and agrees to be bound by all the terms and conditions of this Warrant. Dated: August 26, 1996 BROCADE COMMUNICATIONS ACKNOWLEDGED AND ACCEPTED SYSTEMS, INC. BY REGISTERED HOLDER: By: /s/ Bruce J. Bergman By: /s/ Steve D. Mason ------------------------ ------------------------ Name: Name: The Mason Property Co. ---------------------- ---------------------- Title: President & CEO Title: President --------------------- --------------------- 9

10 EXHIBIT 1 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: Brocade Communications Systems, Inc. 457 East Evelyn Avenue, Suite E Sunnyvale, CA 94086 (1) The undersigned hereby elects to purchase _________ shares of that class or series of Warrant Stock of Brocade Communications Systems, Inc. (or, if applicable, such Prior Warrant Stock Conversion Proceeds, pursuant to the terms of the attached Warrant) and tenders herewith payment of the purchase price for such shares in full. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the representations and warranties of the undersigned set forth in Section 10 of the Warrant are true and correct as of this date. (3) Please issue a certificate or certificates representing such shares of that class or series of Warrant Stock of Brocade Communications Systems, Inc. (or, if applicable, such Prior Warrant Stock Conversion Proceeds, pursuant to the terms of the attached Warrant) in the name or names specified below: _______________________________ ________________________________ (Name) (Name) _______________________________ ________________________________ (Address) (Address) _______________________________ ________________________________ (City, State, Zip Code) (City, State, Zip Code) (4) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: _______________________________ (Name) _______________________________ ________________________________ (Date) (Signature of Registered Holder)

11 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned Registered Holder of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Warrant Stock set forth below: <TABLE> <CAPTION> Name of Assignee Address Number of Shares of Warrant Stock Transferred ---------------- ------- --------------------------------------------- <S> <C> <C> </TABLE> and does hereby irrevocably constitute and appoint_________________________ Attorney to make such transfer on the books of _____________________________, maintained for the purpose, with full power of substitution in the premises. Dated: ______________ REGISTERED HOLDER By:_________________________________ Name:_______________________________ Title:______________________________

1 EXHIBIT 4.6 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE PREFERRED STOCK OF BROCADE COMMUNICATIONS SYSTEMS, INC. THIS CERTIFIES THAT in partial consideration of that certain leasehold provided to Brocade Communications Systems, Inc., a California corporation (the "COMPANY"), receipt of which is hereby acknowledged, Symmetricom, Inc., a California corporation, or its permitted registered assigns ("REGISTERED HOLDER"), is entitled, subject to the terms and conditions of this Warrant, to purchase from the Company at any time after the Commencement Date (as defined in Section 2) of this Warrant and prior to 5:00 p.m. Pacific Time on May ___, 2002, unless terminated earlier under Section 12 hereof (the "EXPIRATION DATE"), up to Twenty Thousand (20,000) shares of Warrant Stock (as defined below) at a price per share equal to the Warrant Price (as defined below), upon surrender of this Warrant at the principal office of the Company, together with a duly executed subscription form in the form attached hereto as Exhibit 1 and simultaneous payment of the full Warrant Price for the shares of Warrant Stock so purchased in lawful money of the United States. The Warrant Price is subject to adjustment as provided herein. 1. CERTAIN DEFINITIONS. The following definitions shall apply for purposes of this Warrant: (a) "CONVERSION STOCK" shall mean Common Stock of the Company or other securities issuable upon conversion of the Warrant Stock. (b) "ISSUE DATE" shall mean the date of this Warrant.

2 (c) "MAXIMUM NUMBER OF PURCHASABLE SHARES" shall be Twenty Thousand (20,000) shares, subject to adjustment as provided herein. (d) "WARRANT PRICE" shall mean Three Dollars ($3.00) per share. The Warrant Price is subject to adjustment as provided herein. (e) "WARRANT" shall mean this Warrant and any warrant(s) delivered in substitution or exchange therefor, as provided herein. (f) "WARRANT STOCK" shall mean Series C Preferred Stock of the Company. 2. EXERCISE. Subject to compliance with all applicable securities laws, this Warrant may be exercised in whole or in part, at any time or from time to time, on any business day commencing on the earlier of (i) May __, 1998, or (ii) immediately prior to a Terminating Transaction under Section 12 (such date being herein referred to as "Commencement Date") and before the Expiration Date, for up to the Maximum Number of Purchasable Shares by surrendering this Warrant at the principal office of the Company at 1901 Guadalupe Parkway, San Jose, California, 95110, with the subscription form attached hereto duly executed by the Registered Holder, and payment, in cash and/or cancellation of bona fide indebtedness of the Company to the Registered Holder, of an amount equal to the product obtained by multiplying (i) the number of shares of Warrant Stock to be purchased by the Registered Holder by (ii) the Warrant Price or adjusted Warrant Price therefor, if applicable, as determined in accordance with the terms hereof. Upon a partial exercise of this Warrant: (i) the Maximum Purchasable Number of Shares immediately prior to such partial exercise shall be reduced by the number of shares of Warrant Stock purchased upon such exercise of this Warrant, and (ii) this Warrant shall be surrendered by the Registered Holder and replaced with a new Warrant of like tenor with respect to which the new Maximum Purchasable Number of Shares Amount is the former Maximum Purchasable Number of Shares Amount as so reduced. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Warrant Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date. As soon as practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of whole shares of Warrant Stock issuable upon such exercise. 3. FULLY PAID SHARES. All shares of Warrant Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable. 4. TRANSFER AND EXCHANGE. Subject to the foregoing and terms and conditions of this Warrant and compliance with all applicable securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company maintained for such purpose at the principal office of the Company referred to above, by the Registered Holder hereof in person, or by duly authorized attorney, upon surrender of this Warrant properly endorsed, the Registered Holder's written instructions as to what quantity of the Maximum Number of Purchasable Shares 2

3 is being transferred to each transferee's Warrant and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to the Registered Holder and its transferee(s), respectively, a new Warrant or Warrants (of like tenor entitling the Registered Holder and its transferees to purchase shares of Warrant Stock equal in the aggregate to the Maximum Number of Purchasable Shares as determined immediately prior to such transfer, with the portions of the Maximum Number of Purchasable Shares allocated to each such Warrant to be determined by the Registered Holder's written instructions to the Company regarding such transfer not so transferred. Until a transfer of this Warrant is registered on the books of the Company, the Company may treat the Registered Holder hereof as the owner for all purposes. Notwithstanding the foregoing, this Warrant and the rights hereunder may not be transferred unless such transfer complies with all applicable securities laws and the provisions of Section 10 hereof. 5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The Maximum Number of Purchasable Shares, and the number and character of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of stock or other securities or property at the time receivable or issuable upon exercise of this Warrant) and the Warrant Price therefor, are subject to adjustment upon the occurrence of the following events: 5.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc. The Maximum Number of Purchasable Shares, the Warrant Price of this Warrant and the number of shares of Warrant Stock issuable upon exercise of this Warrant shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Warrant Stock that occurs after the date of the Warrant. 5.2 Adjustment for Other Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution payable with respect to the Warrant Stock payable in securities of the Company (other than issuances with respect to which adjustment is made under Section 5.1), then, and in each such case, the Registered Holder of this Warrant, upon exercise of this Warrant at any time after the consummation, effective date or record date of such event, shall receive, in addition to the shares of Warrant Stock issuable upon such exercise prior to such date, the securities or such other assets of the Company to which such Registered Holder would have been entitled upon such date if such Registered Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5.3 Adjustment for Reorganization, Consolidation, Merger. Except in the event this Warrant is terminated pursuant to Section 12 hereof, in case of any reorganization of the Company (or of any other corporation, the stock or other securities of which are at the time receivable on the exercise of this Warrant) after the date of this Warrant, or in case, after such date, the Company (or any such corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then, and in each such case, the Registered Holder of this Warrant, upon the exercise of this Warrant (as provided in Section 2), at any time after the consummation of such reorganization, consolidation, merger, 3

4 or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such Registered Holder would have been entitled upon the consummation of such reorganization, consolidation, merger or conveyance if such Registered Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 5, and the successor or purchasing corporation in such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver to the Registered Holder a supplement hereto acknowledging such corporation's obligations under this Warrant; and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after the consummation of such reorganization, consolidation, merger or conveyance. 5.4 Conversion of Warrant Stock. In case all the authorized class or series constituting the Warrant Stock of the Company is converted, pursuant to the Company's Articles of Incorporation, into Common Stock or other securities or property (the "PRIOR WARRANT STOCK CONVERSION PROCEEDS"), or the Warrant Stock otherwise ceases to exist, then, in such case, the Registered Holder of this Warrant, upon exercise of this Warrant at any time after the date on which the Warrant Stock is so converted or ceases to exist (the "WARRANT STOCK TERMINATION DATE"), shall receive, in lieu of the number of shares of Warrant Stock that would have been issuable upon such exercise immediately prior to the Warrant Stock Termination Date (the "FORMER WARRANT STOCK"), the Prior Warrant Stock Conversion Proceeds to which such Registered Holder would have been entitled to receive upon the Warrant Stock Termination Date if such Registered Holder had exercised this Warrant with respect to the Former Warrant Stock immediately prior to the Warrant Stock Termination Date (all subject to further adjustment as provided in this Warrant). 6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or Bylaws, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Registered Holder under this Warrant against wrongful impairment. Without limiting the generality of the foregoing, the Company: (i) will not set nor increase the par value of any shares of stock issuable upon the exercise of this Warrant above the amount payable therefor upon such exercise, and (ii) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Warrant Stock upon the exercise of this Warrant. 7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in either the Maximum Number of Purchasable Shares, the Warrant Price or in the number of shares of Warrant Stock, or other stock, securities or property receivable upon the exercise of this Warrant, the Chief Financial Officer of the Company shall compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of the adjusted Maximum Number of Purchasable Shares and the adjusted Warrant Price. The Company will 4

5 cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Registered Holder. 8. LOSS OR MUTILATION. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership, and the loss, theft, destruction or mutilation, of this Warrant, and of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver in lieu thereof a new Warrant of like tenor. 9. RESERVATION OF WARRANT STOCK. If at any time the number of authorized but unissued shares of the Company's class or series of Warrant Stock (or Prior Warrant Stock Conversion Proceeds) or other securities of the Company shall not be sufficient to effect the exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of such class or series of Warrant Stock or other securities to such number of shares of such class or series of Warrant Stock or other securities as shall be sufficient for such purpose. 10. RESTRICTIONS ON TRANSFER. 10.1 The Registered Holder understands that neither this Warrant nor the shares of Warrant Stock or Conversion Stock have been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws. As a condition to the issuance of this Warrant and to its exercise the Registered Holder hereby represents and warrants to the Company that: (a) The Warrant and, if applicable, the shares of Warrant Stock and Conversion Stock (collectively, the "Securities") have been acquired by the Registered Holder for investment and not with a view to the sale or other distribution thereof within the meaning of the Act and the Registered Holder has no present intention of selling or otherwise disposing of all or any portion of the Securities. (b) The Registered Holder has acquired (and will acquire) the Securities for the Registered Holder's own account only and no one else has any beneficial ownership in the Securities. (c) The Registered Holder is capable of evaluating the merits and risks of any investment in the Securities, is financially capable of bearing a total loss of this investment and has either: (i) a preexisting personal or business relationship with the Company or its principals; (ii) by reason of the Registered Holder's business or financial experience, has the capacity to protect his or its own interests in connection with this investment; or (iii) is an "accredited investor" within the meaning of Regulation D promulgated under the Act, as amended. (d) The Registered Holder has had access to all information regarding the Company, its present and prospective business, assets, liabilities and financial condition that the Registered Holder considers important to making the decision to acquire the Securities and 5

6 has had ample opportunity to ask questions of and receive answers from the Company's representatives concerning an investment in the Securities and to obtain any and all documents requested in order to supplement or verify any of the information supplied. (e) The Registered Holder understands that the Securities shall be deemed restricted securities under the Act and may not be resold unless they are registered under the Act and any applicable State securities law, or in the opinion of counsel in form and substance satisfactory to the Company, an exemption from such registration is available. (f) The Registered Holder is aware of Rule 144 promulgated under the Act, which rule provides, in substance, that: (i) after two years from the date restricted securities have been purchased and fully paid for, a holder may transfer restricted securities provided certain conditions are met (e.g., certain public information is available about the Company), and specific limitations on the amount of shares which can be sold within certain periods and the manner in which such shares must be sold are complied with; and (ii) after three years from the date the securities have been purchased and fully paid for, holders who are not "affiliates" of the Company may sell restricted securities without satisfying such conditions. (g) The Registered Holder further understands that if the requirements of Rule 144 are not met, registration under the Act, compliance with Regulation A, or some other registration exemption will be required for any disposition of the Securities; and that, although Rule 144 is not exclusive, the Securities and Exchange Commission ("SEC") has expressed its opinion that persons proposing to sell restricted securities other than in a registered offering or other than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and such persons and the brokers who participate in the transactions do so at their own risk. 10.2 The Registered Holder of this Warrant, by acceptance hereof, agrees that, absent an effective registration statement filed with the SEC under the Act, covering the disposition or sale of this Warrant or the Warrant Stock (or Conversion Stock) issued or issuable upon exercise hereof, such Registered Holder will not sell or transfer any or all of such Warrant Stock or Conversion Stock, as the case may be, without first providing the Company with an opinion of counsel satisfactory to the Company to the effect that such sale or transfer will be exempt from the registration and prospectus delivery requirements of the Act, and such Registered Holder consents to the Company making a notation on its records, or giving instructions to any transfer agent of this Warrant, or such Warrant Stock (or Conversion Stock), in order to implement such restriction on transfer. The shares issued upon exercise of this Warrant shall bear legends referring to the restrictions or transfer set forth in this Section 10. As a condition to the transfer of this Warrant or transfer of the shares issuable on exercise hereof, any permitted transferee must execute and deliver to the Company representations and warranties similar to these set forth in this Section 10 and agree in writing to accept and be bound by all the terms and conditions of this Warrant. 11. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Warrant does not by itself entitle the Registered Holder to any voting rights or other rights as a shareholder of the Company. In 6

7 the absence of affirmative action by Registered Holder to purchase Warrant Stock by exercise of this Warrant, no provisions of this Warrant, and no enumeration herein of the rights or privileges of the Registered Holder shall cause such Registered Holder to be a shareholder of the Company for any purpose. 12. TERMINATION. The right to exercise this Warrant shall terminate upon the effective date of a merger or consolidation of the Company into or with another corporation, or the sale of all or substantially all of the Company's assets to another corporation or person, if, immediately after any such merger, consolidation or sale of assets, at least fifty percent (50%) of the voting power of the surviving corporation or such other person, as the case may be, is owned by persons who are not shareholders of the Company immediately prior to such merger, consolidation or sale (the "Terminating Transaction"). In such event, the Company shall, at least fifteen (15) days prior to the effective date of the Terminating Transaction, give written notice pursuant to Section 14 hereof the imminence of such Terminating Transaction. 13. LOCK-UP AGREEMENT. The Registered Holder agrees, upon request of the Company or the underwriters managing any firmly underwritten public offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of the Warrant Stock or Common Stock issuable upon conversion of the Warrant Stock acquired pursuant to the exercise of this Warrant (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as the Company or underwriters may specify. 14. AMENDMENT; WAIVER. Any term of this Warrant may be amended, and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) by the written consent of the Company and the Registered Holder. 15. NOTICES. All notices and other communications from the Company to the Registered Holder shall be deemed given when mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder who shall have furnished an address to the Company in writing. 16. ATTORNEYS' FEES. In the event any party is required to engage the services of any attorneys for the purpose of enforcing this Warrant, or any provision thereof, the prevailing party shall be entitled to recover its reasonable attorneys' fees and any other related cost or expenses. 17. HEADINGS. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof. 7

8 18. LAW GOVERNING. This Warrant shall be construed and enforced in accordance with, and governed by, the internal laws of the State of California, excluding that body of law applicable to conflicts of laws. 19. TERMS BINDING. By acceptance of this Warrant, the Registered Holder of this Warrant (and each subsequent assignee, transferee or Registered Holder of this Warrant) accepts and agrees to be bound by all the terms and conditions of this Warrant. Dated: May 6, 1997 BROCADE COMMUNICATIONS ACKNOWLEDGED AND ACCEPTED SYSTEMS, INC. BY REGISTERED HOLDER: By: /s/ B. Carl Lee By: /s/ J. Scott Kamsler ------------------------------- -------------------------------- Name: B. Carl Lee Name: J. Scott Kamsler ----------------------------- ------------------------------ Title: VP & CFO Title: VP & CEO ---------------------------- ----------------------------- 8

9 EXHIBIT 1 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: Brocade Communications Systems, Inc. 1901 Guadalupe Parkway San Jose, CA 95110 (1) The undersigned hereby elects to purchase _____ shares of that class or series of Warrant Stock of Brocade Communications Systems, Inc. (or, if applicable, such Prior Warrant Stock Conversion Proceeds, pursuant to the terms of the attached Warrant) and tenders herewith payment of the purchase price for such shares in full. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the representations and warranties of the undersigned set forth in Section 10 of the Warrant are true and correct as of this date. (3) Please issue a certificate or certificates representing such shares of that class or series of Warrant Stock of Brocade Communications Systems, Inc. (or, if applicable, such Prior Warrant Stock Conversion Proceeds, pursuant to the terms of the attached Warrant) in the name or names specified below: -------------------------------- -------------------------------- (Name) (Name) -------------------------------- -------------------------------- (Address) (Address) -------------------------------- -------------------------------- (City, State, Zip Code) (City, State, Zip Code) (4) Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below: -------------------------------- (Name) -------------------------------- -------------------------------- (Date) (Signature of Registered Holder)

10 FORM OF ASSIGNMENT FOR VALUE RECEIVED the undersigned Registered Holder of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Warrant Stock set forth below: Name of Assignee Address Number of Shares of Warrant Stock Transferred and does hereby irrevocably constitute and appoint ___________________________ Attorney to make such transfer on the books of ____________________________, maintained for the purpose, with full power of substitution in the premises. Dated: _________________ REGISTERED HOLDER By:_______________________________ Name:_____________________________ Title:____________________________

1 EXHIBIT 4.8 SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Seventh Amended and Restated Investors' Rights Agreement (this "Agreement") is made and entered into effective as of December 3, 1997 by and among Brocade Communications Systems, Inc., a California corporation (the "Company"), and the persons and entities listed on Exhibit A attached hereto (the "Investors"). RECITALS A. The existing Investors and warrantholders who are identified on the signature page to this Agreement as "Previous Investors Who Are Not Investing in the Second Series D Transaction" or "Previous Investors Who Are Investing in the Second Series D Transaction" (collectively, the "Previous Investors") are parties to the Sixth Amended and Restated Investors' Rights Agreement entered into as of October 24, 1997 (the "Prior Rights Agreement"); such Previous Investors include persons who purchased Series D Preferred Stock of the Company on or about September 29, 1997, pursuant to which purchase such investors were granted warrants to purchase shares of the Company's Series D Preferred Stock equal to ten percent (10%) of the number of shares of Series D Preferred Stock purchased by each such Investor (the "First Series D Transaction Investors"). B. The Company desires for those certain Investors who are or will be identified on the signature page to this Agreement as either "Previous Investors Who Are Investing in the Second Series D Transaction" or "Second Series D Transaction Investors" (collectively, the "Second Series D Transaction Investors") to purchase shares of the Company's Series D Preferred Stock pursuant to that certain Series D Preferred Stock Purchase Agreement made effective on or about the date hereof between the Company and the Second Series D Transaction Investors, as may be amended from time to time (the "Second Series D Agreement"). C. As a condition of such investment by the Second Series D Transaction Investors, and to induce such investment, the Investors and the Company wish to enter into this Agreement which shall supersede the Prior Rights Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. INFORMATION RIGHTS. 1.1 Financial Information. The Company covenants and agrees that, commencing on the date of this Agreement, for so long as any Investor holds shares of Preferred Stock convertible into at least 50,000 shares of Common Stock of the Company issued pursuant to that certain Series A Preferred Stock Purchase Agreement dated August 28, 1995 (the "Series A Agreement"), that certain Series B Preferred Stock Purchase Agreement dated June 17, 1996 (the "Series B Agreement"), that certain Series C Preferred Stock Purchase Agreement dated December 6, 1996, that certain Series D Preferred Stock Purchase Agreement dated September 29, 1997 and/or the Second Series D Agreement (such agreements, including any future amendments thereto, are collectively referred to as the "Preferred Stock Purchase

2 Agreements" and any single such agreement is referred to as a "Preferred Stock Purchase Agreement") and/or the equivalent number (on an as-converted basis) of shares of Common Stock of the Company ("Common Stock") issued upon the conversion of such shares of Preferred Stock ("Conversion Stock"), or any combination thereof, the Company will: (a) Annual Reports. Furnish to such Investor, as soon as practicable and in any event within 120 days after the end of each fiscal year of the Company, a consolidated Balance Sheet as of the end of such fiscal year, a consolidated Statement of Income and a consolidated Statement of Cash Flows of the Company and its subsidiaries for such year, setting forth in each case in comparative form the figures from the Company's previous fiscal year (if any), all prepared in accordance with generally accepted accounting principles and practices and audited by nationally recognized independent certified public accountants; (b) Quarterly Reports. Furnish to such Investor as soon as practicable, and in any case within forty-five (45) days of the end of each fiscal quarter of the Company (except the last quarter of the Company's fiscal year), quarterly unaudited financial statements, including an unaudited Balance Sheet and an unaudited Statement of Income and an unaudited Statement of Cash Flows; (c) Monthly Reports. Furnish to such Investor as soon as practicable, and in any case within forty-five (45) days of the end of each calendar month (except the last month of the Company's fiscal year), monthly unaudited financial statements, including an unaudited Balance Sheet and an unaudited Statement of Income and an unaudited Statement of Cash Flows; and (d) Annual Budget. Furnish to such Investor as soon as practicable and in any event no later than thirty (30) days after the close of each fiscal year of the Company, an annual operating plan and budget, prepared on a monthly basis, for the next immediate fiscal year. The Company shall also furnish to such Investor, within a reasonable time of its preparation, amendments to the annual budget, if any. (e) Confidentiality. Each Investor agrees to hold all information received pursuant to this Section in confidence, and not to use or disclose any of such information to any third party, except to the extent such information may be made publicly available by the Company. 1.2 Inspection Rights. The Company shall permit each Investor holding shares of the Company's Preferred Stock convertible into at least 500,000 shares of Common Stock of the Company issued pursuant to any one or more of the Preferred Stock Purchase Agreements and/or the equivalent number (on an as-converted basis) of shares of Conversion Stock, or any combination thereof, at such Investor's expense and at such reasonable times as may be requested by such Investor, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers. Each Investor agrees to hold all information received from such inspections in confidence, and not to use or disclose any of such information to any third party, except to the extent such information may be made publicly available by the Company. The Company shall have no obligation under this Section 1.2 to disclose any information to an Investor who is a competitor, works or consults for or is an investor in a competitor, and further shall have no obligation to disclose confidential information to any Investor. 2

3 1.3 Termination of Rights. The Company's obligations under Sections 1.1 and 1.2 above will terminate upon the earlier of (i) the closing of the Company's initial public offering of Common Stock pursuant to an effective registration statement filed under the U.S. Securities Act of 1933, as amended (the "Securities Act") or (ii) upon (a) the acquisition of all or substantially all the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction. 2. REGISTRATION RIGHTS. 2.1 Definitions. For purposes of this Section 2: (a) Registration. The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. (b) Registrable Securities. The term "Registrable Securities" means: (1) all the shares of Common Stock of the Company issued or issuable upon the conversion of: (A) any shares of Preferred Stock issued under any Preferred Stock Purchase Agreement, (B) any shares of Series A Preferred Stock that are issued or issuable upon exercise of those certain warrants issued by the Company as of December 26, 1995 to purchase 35,444 and 15,753 shares of the Company's Series A Preferred Stock (which warrant to purchase 15,753 shares of Series A Preferred Stock was amended and restated as of October 3, 1996) (the "Series A Warrants"), (C) any shares of Series B Preferred Stock that are issued or issuable upon exercise of that certain warrant issued by the Company as of September 11, 1996 (the "Series B Warrant"), (D) any shares of Series C Preferred Stock that are issued or issuable upon exercise of that certain warrant issued by the Company as of June 13, 1997 (the "Series C Warrant"), and (E) any shares of Series D Preferred Stock that are issued or issuable upon exercise of those certain warrants issued by the Company pursuant to the Series D Agreement (the "Series D Warrants") and (2) any shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, all such shares of Common Stock described in clause (1) of this subsection (b); excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which rights under this Section 2 are not assigned in accordance with this Agreement or any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Securities Act. (c) Registrable Securities Then Outstanding. The number of shares of "Registrable Securities then outstanding" shall mean the number of shares of Common Stock which are Registrable Securities and (1) are then issued and outstanding or (2) are then issuable pursuant to the exercise or conversion of then outstanding and then exercisable options, warrants or convertible securities. (d) Holder. For purposes of this Section 2 and Sections 3 and 4 hereof, the term "Holder" means any person owning of record Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any assignee of record of such Registrable Securities to whom rights under this Section 2 have been 3

4 duly assigned in accordance with this Agreement; provided, however, that for purposes of this Agreement, a record holder of shares of Preferred Stock shall be deemed to be the Holder of Registrable Securities into which such Preferred Stock is convertible solely for the purposes of Sections 2 and 3 of this Agreement; provided, further, that for purposes of this Agreement, a record holder of Series A Warrants, the Series B Warrant or the Series D Warrants exercisable for such Registrable Securities shall be deemed to be the Holder of such Registrable Securities solely for purposes of Section 2 of this Agreement; and provided further, that for purposes of this Agreement, a record holder of the Series C Warrant exercisable for such Registrable Securities shall be deemed to be the Holder of such Registrable Securities solely for purposes of Section 2 of this Agreement excluding Subsection 2.2; provided, further, that the Company shall in no event be obligated to register shares of Preferred Stock, the Series A Warrants, the Series B Warrant, the Series C Warrant or the Series D Warrants, and that Holders of Registrable Securities will not be required to convert their shares of Preferred Stock into Common Stock or exercise their Series A Warrants, Series B Warrant, Series C Warrant or Series D Warrants in order to exercise the registration rights granted hereunder, until immediately before the closing of the offering to which the registration relates. (e) Form S-3. The term "Form S-3" means such form under the Securities Act as is in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (f) SEC. The term "SEC" or "Commission" means the U.S. Securities and Exchange Commission. 2.2 Demand Registration. (a) Request by Holders. If the Company shall receive at any time after six (6) months after the effective date of the Company's initial public offering of its securities pursuant to a registration filed under the Securities Act, a written request from the Holders of at least a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities pursuant to this Section 2.2, then the Company shall, within ten (10) business days of the receipt of such written request, give written notice of such request ("Request Notice") to all Holders, and effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities which Holders request to be registered and included in such registration by written notice given such Holders to the Company within twenty (20) days after receipt of the Request Notice, subject only to the limitations of this Section 2.2; provided that the Registrable Securities requested by all Holders to be registered pursuant to such request must either (i) be at least fifty percent (50%) of all Registrable Securities then outstanding or (ii) have an anticipated aggregate public offering price (before any underwriting discounts and commissions) of not less than $2,000,000. (b) Underwriting. If the Holders initiating the registration request under this Section 2.2 ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, then they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the Request Notice. In such event, the right of any Holder to include his 4

5 Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 2.2, if the underwriter(s) advise(s) the Company in writing that marketing factors require a limitation of the number of securities to be underwritten then the Company shall so advise all Holders of Registrable Securities which would otherwise be registered and underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be reduced as required by the underwriter(s) and allocated among the Holders of Registrable Securities on a pro rata basis according to the number of Registrable Securities then outstanding held by each Holder requesting registration (including the Initiating Holders); provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and registration. Any Registrable Securities excluded and withdrawn from such underwriting shall be withdrawn from the registration. (c) Maximum Number of Demand Registrations. The Company is obligated to effect only two (2) such registrations pursuant to this Section 2.2. (d) Deferral. Notwithstanding the foregoing, if the Company shall furnish to Holders requesting the filing of a registration statement pursuant to this Section 2.2, a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve (12) month period. (e) Expenses. All expenses incurred in connection with a registration pursuant to this Section 2.2, including without limitation all registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders (but excluding underwriters' discounts and commissions), shall be borne by the Company. Each Holder participating in a registration pursuant to this Section 2.2 shall bear such Holder's proportionate share (based on the total number of shares sold in such registration other than for the account of the Company) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such offering. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to this Section 2.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, unless the Holders of a majority of the Registrable Securities then outstanding agree to forfeit their right to one (1) demand registration pursuant to this Section 2.2 (in which case such right shall be forfeited by all Holders of Registrable Securities); provided, further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the 5

6 Company not known to the Holders at the time of their request for such registration and have withdrawn their request for registration with reasonable promptness after learning of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to this Section 2.2. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to any registration under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit plan or a corporate reorganization) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If a registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in good faith that marketing factors require a limitation of the number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, and second, to each of the Holders requesting inclusion of their Registrable Securities in such registration statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder; provided however, that the right of the underwriters to exclude shares (including Registrable Securities) from the registration and underwriting as described above shall be restricted so that the number of Registrable Securities included in any such registration is not reduced below twenty percent (20%) of the shares included in the registration, except for a registration relating to the Company's initial public offering from which all Registrable Securities may be excluded. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a 6

7 partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder", and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder", as defined in this sentence. (b) Expenses. All expenses incurred in connection with a registration pursuant to this Section 2.3 (excluding underwriters' and brokers' discounts and commissions), including, without limitation all federal and "blue sky" registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company. 2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of at least twenty percent (20%) of all Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, then the Company will: (a) Notice. Promptly give written notice of the proposed registration and the Holder's or Holders' request therefor, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) Registration. As soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000; (3) if the Company shall furnish to the Holders a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement no more than once during any twelve month period for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 2.4; 7

8 (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected any registration on Form S-3 for the Holders pursuant to this Section 2.4; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Expenses. Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered pursuant to this Section 2.4 as soon as practicable after receipt of the request or requests of the Holders for such registration. The Company shall pay all expenses incurred in connection with registrations requested pursuant to this Section 2.4 (excluding underwriters' or brokers' discounts and commissions), including without limitation all filing, registration and qualification, printers' and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders and counsel for the Company. (d) Not Demand Registration. Form S-3 registrations shall not be deemed to be demand registrations as described in Section 2.2 above. 2.5 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 8

9 (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 2.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to timely effect the registration of their Registrable Securities. 2.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. 2.8 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) By the Company. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; 9

10 (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this subsection 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) By Selling Holders. To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder within the meaning of the Securities Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner or director, officer or controlling person of such other Holder may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that the total amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of any Violation shall not exceed the net proceeds received by such Holder in the registered offering out of which such Violation arises. (c) Notice. Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), 10

11 such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8. (d) Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. (e) Contribution. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.8; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 11

12 (f) Survival. The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise. 2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, sell or otherwise transfer or dispose of any Registrable Securities or other shares of stock of the Company then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly bound) for up to one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers securities to be sold on its behalf to the public in an underwritten offering but not to Registrable Securities sold pursuant to such registration statement; and (b) all executive officers and directors of the Company then holding Common Stock of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section and to impose stop transfer instructions with respect to the Registrable Securities and such other shares of stock of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 2.10 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements); and (c) So long as a Holder owns any Registrable Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the 1934 Act (at any time after it has become subject to the reporting requirements of the 1934 Act), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration (at any time after the Company has become subject to the reporting requirements of the 1934 Act). 12

13 2.11 Termination of the Company's Obligations. The Company shall have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (i) any request or requests for registration made by any Holder on a date more than five (5) years after the closing date of the Company's initial public offering; or (ii) any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may be sold in a three-month period without registration under the Securities Act pursuant to Rule 144 under the Securities Act. 3. RIGHT OF FIRST REFUSAL. 3.1 General. Each Holder (as defined in Section 2.1(d) but not including any parties that are not under such Section deemed Holders for purposes of this Section 3) and any party to whom such Holder's rights under this Section 3 have been duly assigned in accordance with Section 4.1(b) (each such Holder or assignee being hereinafter referred to as a "Rights Holder") has the right of first refusal to purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of any "New Securities" (as defined in Section 3.2) that the Company may from time to time issue after the date of this Agreement. A Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is the ratio of (a) the number of Registrable Securities as to which such Rights Holder is the Holder (and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of shares of Common Stock of the Company equal to the sum of (i) the total number of shares of Common Stock of the Company then outstanding plus (ii) the total number of shares of Common Stock of the Common Stock of the Company into which all then outstanding shares of Preferred Stock of the Company are then convertible plus (iii) the number of shares of Common Stock of the Company reserved for issuance under outstanding options and warrants plus (iv) the number of shares of Common Stock of the Company reserved for issuance upon conversion of Preferred Stock issuable under outstanding options or warrants. 3.2 New Securities. "New Securities" shall mean any Common Stock or Preferred Stock of the Company, whether now authorized or not, and rights, options or warrants to purchase such Common Stock or Preferred Stock, and securities of any type whatsoever that are, or may become, convertible or exchangeable into such Common Stock or Preferred Stock; provided, however, that the term "New Securities" does not include: (i) shares of the Company's Common Stock (and/or options or warrants therefor) issued to employees, officers, directors, contractors, advisors or consultants of the Company pursuant to agreements or plans approved by the Board of Directors of the Company; (ii) shares of Preferred Stock and Series D Warrants issued under the Preferred Stock Purchase Agreements, as such agreements may be amended, or any securities issued or issuable upon conversion or exercise with respect to any Preferred Stock or Series D Warrants issued under the Preferred Stock Agreements, as such agreements may be amended; (iii) any securities issuable upon conversion of or with respect to any then outstanding shares of Preferred Stock of the Company or Common Stock or other securities issuable upon conversion thereof; 13

14 (iv) any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Company outstanding on the date of this Agreement ("Warrant Securities") and any securities issuable upon the conversion of any Warrant Securities; (v) shares of the Company's Common Stock or Preferred Stock issued in connection with any stock split or stock dividend; (vi) securities offered by the Company to the public pursuant to a registration statement filed under the Securities Act; (vii) shares of the Company's stock (and/or options or warrants therefor) issued or issuable to parties providing the Company with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar financing; or (viii) securities issued pursuant to the acquisition of another corporation or entity by the Company by consolidation, merger, purchase of all or substantially all of the assets, or other reorganization in which the Company acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity or fifty percent (50%) or more of the voting power of such other corporation or entity or fifty percent (50%) or more of the equity ownership of such other entity. 3.3 Procedures. In the event that the Company proposes to undertake an issuance of New Securities, it shall give to each Rights Holder written notice of its intention to issue New Securities (the "Notice"), describing the type of New Securities and the price and the general terms upon which the Company proposes to issue such New Securities. Each Rights Holder shall have fifteen (15) days from the date of mailing of any such Notice to agree in writing to purchase such Rights Holder's Pro Rata Share of such New Securities for the price and upon the general terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so agree in writing within such fifteen (15) day period to purchase such Rights Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to purchase that part of his Pro Rata Share of such New Securities that he did not so agree to purchase. 3.4 Failure to Exercise. In the event that the Rights Holders fail to exercise in full the right of first refusal within such fifteen (15) day period, then the Company shall have 120 days thereafter to sell the New Securities with respect to which the Rights Holders' rights of first refusal hereunder were not exercised, at a price and upon general terms not materially more favorable to the purchasers thereof than specified in the Company's Notice to the Rights Holders. In the event that the Company has not issued and sold the New Securities within such 120 day period, then the Company shall not thereafter issue or sell any New Securities without again first offering such New Securities to the Rights Holders pursuant to this Section 3. 14

15 3.5 Termination. This right of first refusal shall terminate (and not be applicable to such terminating transaction) upon the earlier of (i) immediately before the closing of the first underwritten sale of Common Stock of the Company to the public pursuant to a registration statement filed with, and declared effective by, the SEC under the Securities Act, covering the offer and sale of Common Stock to the public, or (ii) upon (a) the acquisition of all or substantially all the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction. 4. ASSIGNMENT AND AMENDMENT. 4.1 Assignment. Notwithstanding anything herein to the contrary: (a) Information Rights. The rights of an Investor under Section 1.1 or 1.2 hereof may be assigned only to a party who acquires from an Investor (or an Investor's permitted assigns) at least that number of shares of Preferred Stock and/or an equivalent number (on an as-converted basis) of shares of Conversion Stock described in Section 1.1 or 1.2 hereof, respectively. (b) Registration Rights; Refusal Rights. The registration rights of a Holder under Section 2 hereof and the rights of first refusal of a Rights Holder under Section 3 hereof may be assigned only to a party who acquires shares of Preferred Stock issued under any Preferred Stock Purchase Agreement or pursuant to the Series A Warrants, Series B Warrant, Series C Warrant or Series D Warrants which are convertible into at least 50,000 shares of Common Stock and/or an equivalent number (on an as-converted basis) of Registrable Securities issued upon conversion thereof. (c) Notice. Notwithstanding Section 4.1(a) and (b) no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that any such assignee shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 4. 4.2 Amendment of Rights. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors (and/or any of their permitted successors or assigns) holding shares of Preferred Stock and/or Conversion Stock representing and/or convertible into a majority of all the Investors' Shares (as defined below); provided, however, that no such amendment shall affect any Investor in any manner different from other Investors without such Investor's consent; provided, further, that no such amendment shall affect the rights of holders of the Company's Series D Preferred Stock without the consent of the holders of a majority of the Series D Preferred Stock and Common Stock issued upon conversion of Series D Preferred Stock outstanding. As used herein, the term "Investors' Shares" shall mean (i) the shares of Common Stock then issuable upon conversion of all (x) then outstanding shares of Preferred Stock issued under the any Preferred Stock Purchase Agreement or (y) shares of Preferred Stock issuable and/or then issued upon exercise of the 15

16 Series A Warrants, the Series B Warrant, the Series C Warrant or the Series D Warrants, plus (ii) all then outstanding shares of Conversion Stock that were issued upon the conversion of any shares of Preferred Stock issued under any Preferred Stock Purchase Agreement, the Series A Warrants, the Series B Warrant, the Series C Warrant or the Series D Warrants. Any amendment or waiver effected in accordance with this Section 4.2 shall be binding upon each Investor, each Holder, each permitted successor or assignee of such Investor or Holder and the Company. 5. GENERAL PROVISIONS. 5.1 Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if deposited in the U.S. mail by registered or certified mail, return receipt requested, postage prepaid, as follows: (a) if to an Investor, at such Investor's respective address as set forth on Exhibit A hereto. (b) if to the Company, at 1901 Guadalupe Parkway, San Jose, California 95131. Any party hereto (and such party's permitted assigns) may by notice so given change its address for future notices hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above. 5.2 Entire Agreement. This Agreement, together with all the Exhibits hereto, constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter hereof. This Agreement will amend and restate the Prior Rights Agreement to read as set forth herein, when it has been duly executed by parties having the right to so amend and restate the Prior Rights Agreement. 5.3 Governing Law. This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California, excluding that body of law relating to conflict of laws and choice of law. 5.4 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 5.5 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. 16

17 5.6 Successors And Assigns. Subject to the provisions of Section 4.1, the provisions of this Agreement shall insure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties hereto. 5.7 Captions. The captions to sections of this Agreement have been inserted for identification and reference purposes only and shall not be used to construe or interpret this Agreement. 5.8 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.9 Costs And Attorneys' Fees. In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such party's costs and attorneys' fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom. 5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock or Preferred Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the affect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend. 5.11 Aggregation of Stock. All shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.12 Prior Rights Agreement Superseded and Waived. Pursuant to Section 4.2 of the Prior Rights Agreement, the undersigned parties who are parties to such Prior Rights Agreement hereby (i) amend and restate the Prior Rights Agreement to read in its entirety as set forth in this Agreement, all with the intent and effect that the Prior Rights Agreement shall be hereby terminated and entirely replaced and superseded by this Agreement and (ii) waive any rights under such Prior Rights Agreement or any predecessor to such Prior Rights Agreement relating to the purchase of the Series D Preferred Stock, or the Series D Warrants. [The rest of this page left intentionally blank] 17

18 IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. THE COMPANY BROCADE COMMUNICATIONS SYSTEMS, INC. By: /s/ Bruce J. Bergman --------------------------- Name: ------------------------- Title: ------------------------ SIGNATURE PAGE #1 TO SEVENTH AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT 18

19 PREVIOUS INVESTORS WHO ARE NOT ALSO INVESTING IN THE SECOND SERIES D TRANSACTION MOHR, DAVIDOW VENTURES IV, L.P. CROSSPOINT VENTURE PARTNERS 1993 By: Fourth MDV Partners, By: /s/ Seth D. Neiman L.L.C., General Partner ________________________________ ____________________________ Name: /s/ Jonathan D. Fei Name: Seth D. Neiman ____________________________ ______________________________ Title: Member Title:_____________________________ ___________________________ MDV IV ENTREPRENEURS' CROSSPOINT 1993 ENTREPRENEURS' FUND NETWORK FUND, L.P. By: Fourth MDV Partners, By: /s/ Seth D. Neiman L.L.C., General Partner ________________________________ ____________________________ Name: /s/ Jonathan D. Fei Name: Seth D. Neiman ____________________________ ______________________________ Title: Member Title:_____________________________ ___________________________ WILLIAM N. JOY VENTURE LENDING & LEASING, INC. /s/ W. N. Joy By:________________________________ _________________________________ Name:______________________________ Title:_____________________________ JAPAN ASSOCIATED FINANCE CO., LTD. By: /s/ Mitsumasa Murase ________________________________ Name: Mitsumasa Murase Title: President JAFCO Co., Ltd. Its Executive Partner SIGNATURE PAGE #2 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 19

20 BAY PARTNERS SBIC, L.P. J.F. SHEA CO. INC, By: Bay Management Company 1995 General Partner By: /s/ E. H. SHEA, JR. ---------------------------- By: /s/ [SIG] Name: -------------------------------- -------------------------- Title: General Partner Title: Vice President ------------------------- JAFCO R-2 INVESTMENT JAFCO R-3 INVESTMENT ENTERPRISE PARTNERSHIP ENTERPRISE PARTNERSHIP By: /s/ MITSUMASA MURASE By: /s/ MITSUMASA MURASE -------------------------------- ---------------------------- Name: Mitsumasa Murase Name: Mitsumasa Murase Title: President Title: President JAFCO Co., Ltd. JAFCO Co., Ltd. Its Executive Partner Its Executive Partner LSI LOGIC CORPORATION U.S. INFORMATION TECHNOLOGY INVESTMENT ENTERPRISE PARTNERSHIP By: /s/ R. D. NORBY By: /s/ MITSUMASA MURASE -------------------------------- --------------------------- Name: Mitsumasa Murase Name: R. Douglas Norby Title: President ------------------------------ JAFCO Co., Ltd. Title: Executive Vice President/CFO Its Executive Partner ----------------------------- F&W INVESTMENTS 1996 II By: /s/ JOEL D. KELLER -------------------------------- Name: ------------------------------ Title: ----------------------------- SIGNATURE PAGE #3 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 20

21 WPG ENTERPRISE FUND III, L.P. WEISS, PECK & GREER VENTURE ASSOCIATES IV, L.P. By: WPG Venture Partners IV, L.L.C., By: WPG Venture Partners IV, L.L.C., General Partner General Partner By: /s/ Christopher J. Schaepe By: /s/ Christopher J. Schaepe ---------------------------------- --------------------------------- Christopher J. Schaepe, Christopher J. Schaepe, Managing Member Managing Member WEISS, PECK & GREER VENTURE NORWEST EQUITY PARTNERS V ASSOCIATES IV CAYMAN, L.P. A Minnesota Limited Partnership By: WPG Venture Advisors, Ltd., By: Itasca Partners V, L.L.P., Administrative General Partner General Partner By: /s/ Ian Dungate By: /s/ Kevin Hall ---------------------------------- --------------------------------- Ian Dungate, Kevin Hall, Partner, Director General Partner (strike out name of non-signatory) THE JOHN D. HAMM AND IMPERIAL VENTURES, INC. GRETA R. HAMM TRUST By: /s/ John Hamm By: /s/ Christian Hobbs Name:________________________________ Name:_______________________________ Title: Trustee Title: VP SIGNATURE PAGE #4 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 21

22 JAFCO CO., LTD. By: /s/ MITSUMASA MURASE -------------------------- Name: Mitsumasa Murase Title: President JAFCO Co., Ltd. Its Executive Partner SIGNATURE PAGE #5 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT 22

23 PREVIOUS INVESTORS WHO ARE INVESTING IN THE SECOND SERIES D TRANSACTION ANDREAS V. BECHTOLSHEIM /s/ Andreas V. Bechtolsheim ----------------------------------- TPK UNITRUST By: /s/ Andreas V. Bechtolsheim ------------------------------- Andreas V. Bechtolsheim, Trustee SIGNATURE PAGE #6 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

24 SECOND SERIES D TRANSACTION INVESTORS CROSSPOINT VENTURE PARTNERS L.S. 1997 FUND By: /s/ SETH NEIMAN ------------------------ Name: Seth Neiman ----------------------- Title: General Partner ---------------------- SIGNATURE PAGE #7 TO SEVENTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

25 EXHIBIT A LIST OF INVESTORS <TABLE> <CAPTION> INVESTOR NUMBER OF SHARES <S> <C> WPG Enterprise Fund III, L.P. 537,111 (Series D) c/o Weiss, Peck & Greer, LLC 53,711 (Series D Warrants) 555 California Street, Suite 3130 San Francisco, CA 94104 Attn: Christopher J. Schaepe General Partner Ph. (415) 622-6864 Fax: (415) 989-5108 Weiss, Peck & Greer Venture 596,453 (Series D) Associates IV, L.P. 59,645 (Series D Warrants) c/o Weiss, Peck & Greer, LLC 555 California Street, Suite 3130 San Francisco, CA 94104 Attn: Christopher J. Schaepe General Partner Ph. (415) 622-6864 Fax: (415) 989-5108 Weiss, Peck & Greer Venture 77,509 (Series D) Associates IV Cayman, L.P. 7,750 (Series D Warrants) c/o Mr. Patrick Keating BankAmerica Trust & Banking Corporation (Cayman) Limited Fort Street George Town, Grand Cayman British West Indies Ph. (345) 949-7888 Fax: (345) 949-7883 WPG Information Services Entrepreneur Fund, 20,762 (Series D) L.P. 2,076 (Series D Warrants) c/o Weiss, Peck & Greer, LLC 555 California Street, Suite 3130 San Francisco, CA 94104 Attn: Christopher J. Schaepe General Partner Ph. (415) 622-6864 Fax: (415) 989-5108 </TABLE>

26 <TABLE> <CAPTION> INVESTOR NUMBER OF SHARES <S> <C> RHB Management 152,248 (Series D) 373 First Street 15,224 (Series D Warrants) Los Altos, CA 94022 Attn: Rajiv Bahl Norwest Equity Partners, V 1,000,000 (Series D) A Minnesota Limited Partnership 100,000 (Series D Warrants) 245 Lytton Avenue, Suite 250 Palo Alto, CA 94301 Attn: Kevin Hall, Partner at Norwest Venture Capital Ph. (415) 321-8000 Fax: (415) 321-8010 The John D. Hamm and 43,253 (Series D) Greta R. Hamm Trust 4,325 (Series D Warrants) 24292 Elise Court Los Altos Hills, CA 94024 Attn: John D. Hamm Bay Partners SBIC, L.P. 114,187 (Series D) 10600 N. De Anza Blvd., Suite 100 666,667 (Series C) Cupertino, CA 95014 11,418 (Series D Warrants) Attn: Bay Management Company, 1995 John Freidenrich, General Partner J.F. Shea Co. Inc. 86,505 (Series D) 655 Brea Canyon Road 333,333 (Series C) Walnut, CA 91789 8,650 (Series D Warrants) Attn: Edmond Shea JAFCO Co., Ltd. (formerly known as Japan 5,190 (Series D) Associated Finance Co., Ltd.) 26,667 (Series C) 505 Hamilton Avenue, Ste. 310 519 (Series D Warrants) Palo Alto, CA 94301 Contact: Mitsumasa Murase, President Tekko Building 1-8-2 Marunouchi, Chiyoda-ku Tokyo 100, Japan </TABLE> 2

27 <TABLE> <CAPTION> INVESTOR NUMBER OF SHARES <S> <C> JAFCO R-2 Investment Enterprise 10,640 (Series D) Partnership 54,481 (Series C) 505 Hamilton Avenue, Ste. 310 1,064 (Series D Warrants) Palo Alto, CA 94301 Attn: Mitsumasa Murase, President Tekko Building 1-8-2 Marunouchi, Chiyoda-ku Tokyo 100, Japan JAFCO R-3 Investment Enterprise 10,122 (Series D) Partnership 52,185 (Series C) 505 Hamilton Avenue, Ste. 310 1,012 (Series D Warrants) Palo Alto, CA 94301 Attn: Mitsumasa Murase, President Tekko Building 1-8-2 Marunouchi, Chiyoda-ku Tokyo 100, Japan U.S. Information Technology 103,806 (Series D) Investment Enterprise Partnership 533,333 (Series C) 505 Hamilton Avenue, Ste. 310 10,380 (Series D Warrants) Palo Alto, CA 94301 Attn: Mitsumasa Murase, President Tekko Building 1-8-2 Marunouchi, Chiyoda-ku Tokyo 100, Japan Mohr, Davidow Ventures IV, L.P. 315,959 (Series C) 600,000 (Series B) MDV IV Entrepreneurs' Network Fund, L.P. 13,164 (Series C) 25,000 (Series B) 3000 Sand Hill Road Building 1, Suite 240 Menlo Park, CA 94028 </TABLE> 3

28 <TABLE> <CAPTION> INVESTOR NUMBER OF SHARES <S> <C> Andreas V. Bechtolsheim 105,650 (Series D) 1140 Hamilton Avenue 1,000,000 (Series C) Palo Alto, CA 94301 William N. Joy 13,164 (Series C) 0057 Sabin Drive 75,000 (Series B) Aspen, CO 81611 TPK Unitrust 13,164 (Series C) 1140 Hamilton Avenue 25,000 (Series B) Palo Alto, CA 94301 Crosspoint Venture Partners L.S. 1997 Fund 586,392 (Series D) Crosspoint Venture Partners 1993 283,932 (Series C) 56,250 (Series B) Crosspoint 1993 Entrepreneurs' Fund 1,381,906 (Series A) 8,854 (Series C) One First Street, Suite Two 43,094 (Series A) Los Altos, CA 94022 LSI Logic Corporation 173,010 (Series D) 1551 McCarthy Blvd. 16,456 (Series C) Milpitas, CA 95035 31,250 (Series B) Attn: Dave Sanders 17,301 (Series D Warrants) F&W Investments 1996 II 3,460 (Series D) Two Palo Alto Square, Suite 800 1,974 (Series C) Palo Alto, CA 94306 3,750 (Series B) 346 (Series D Warrants) Venture Lending & Leasing, Inc. 51,197 (Series A Warrants) 2010 North First Street, Suite 310 17,500 (Series B Warrants) San Jose, CA 95131 Imperial Ventures, Inc. 34,602 (Series D) 9920 S. La Cienega Blvd., 14th Floor 25,000 (Series C Warrants) Inglewood, CA 90301 3,460 (Series D Warrants) Attn: Christian Hobbs TOTAL 1,476,197 (SERIES A OR EQUIVALENTS) 833,750 (SERIES B OR EQUIVALENTS) 3,358,333 (SERIES C OR EQUIVALENTS) 3,957,781 (SERIES D OR EQUIVALENTS) </TABLE> 4

1 EXHIBIT 10.1 BROCADE COMMUNICATIONS SYSTEMS, INC. INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is made as of ___________, 1999, by and between Brocade Communications Systems, Inc. (the "Company"), a Delaware corporation, and _____________ (the "Indemnitee"), and shall become effective as of the time the Securities and Exchange Commission declares effective the Company's Registration Statement on Form S-1 relative to its initial underwritten public offering of Common Stock. WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and the Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. Certain Definitions. (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same

2 proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to Brocade Communications Systems, Inc., any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Brocade Communications Systems, Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim regarding any Indemnifiable Event and any federal, state, local or foreign

3 taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (e) "Expense Advance" shall mean an advance payment of Expenses to Indemnitee pursuant to Section 3(a). (f) "Indemnifiable Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(c) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel. (j) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. Indemnification. (a) Indemnification of Expenses. The Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim by reason of (or arising in part out of) any Indemnifiable Event against Expenses, including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. Such payment of Expenses shall be made by the Company as soon as practicable but in any event no

4 later than five (5) business days after written demand by Indemnitee therefor is presented to the Company. (b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 2(c) hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expense Advance shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by the Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (c) Change in Control. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), then with respect to all matters thereafter arising concerning the rights of Indemnitee to payments of Expenses and Expense Advances under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel, if desired by Indemnitee, shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement

5 pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (d) Mandatory Payment of Expenses. Notwithstanding any other provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expenses; Indemnification Procedure. (a) Advancement of Expenses. The Company shall advance all Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid by the Company to Indemnitee as soon as practicable but in any event no later than five (5) business days after written demand by Indemnitee therefor to the Company. Expenses incurred in defending any proceeding may be advanced by the Company prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be determined ultimately that Indemnitee is not entitled to be indemnified. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to Indemnitee's right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.

6 (d) Notice to Insurers. If, at the time of the receipt by the Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated hereunder to pay the Expenses of any Claim the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (not to be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be at the expense of the Company. 4. Additional Indemnification Rights; Nonexclusivity. (a) Scope. The Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 9(a) hereof. (b) Nonexclusivity. The indemnification provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though Indemnitee may have ceased to serve in such capacity.

7 5. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable hereunder. 6. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 8. Liability Insurance. To the extent the Company maintains liability insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 9. Exceptions. Notwithstanding any other provision of this Agreement, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify Indemnitee for acts, omissions or transactions from which Indemnitee may not be indemnified under applicable law. (b) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Indemnifiable Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be.

8 (c) Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Indemnitee in such proceeding was not made in good faith or was frivolous. (d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 11. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, regardless of whether Indemnitee is ultimately successful in such action, and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court of competent jurisdiction over such action determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action),

9 and shall be entitled to the advancement of Expenses with respect to such action, unless as a part of such action a court having jurisdiction over such action determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 14. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 15. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 16. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitations, each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 17. Choice of Law. This Agreement shall be governed by and its provisions construed and enforced in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely within the State of Delaware. 18. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 19. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 20. Integration and Entire Agreement. This Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations,

10 commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 21. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities.

11 IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. "COMPANY" BROCADE COMMUNICATIONS SYSTEMS, INC. By: -------------------------------------- Name: ------------------------------------ Title: ----------------------------------- Address: 1901 Guadalupe Parkway San Jose, CA 95131 ------------------------------- "INDEMNITEE" ------------------------------- Address: -------------------------------- -------------------------------- -------------------------------- [SIGNATURE PAGE TO BROCADE COMMUNICATIONS SYSTEMS, INC. INDEMNIFICATION AGREEMENT]

1 EXHIBIT 10.2 BROCADE COMMUNICATIONS SYSTEMS, INC. 1995 EQUITY INCENTIVE PLAN As Adopted August 24, 1995 and amended on March 21, 1996, July 18, 1996, November 25, 1996, and August 28, 1997 1. PURPOSE. The purpose of the Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent, Subsidiaries and Affiliates, by offering them an opportunity to participate in the Company's future performance through awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in the text are defined in Section 24. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the total number of Shares reserved and available for grant and issuance pursuant to the Plan shall be 3,807,000 Shares. Subject to Sections 2.2 and 18, Shares shall again be available for grant and issuance in connection with future Awards under the Plan that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option, (b) are subject to an Award granted hereunder but are forfeited or are repurchased by the Company at the original issue price, or (c) are subject to an Award that otherwise terminates without Shares being issued. 2.2 Adjustment of Shares. In the event that the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under the Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options, and (c) the number of Shares subject to other outstanding Awards shall be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share shall not be issued but shall either be paid in cash at Fair Market Value or shall be rounded up to the nearest Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. All other Awards may be granted to employees, officers, directors, consultants, independent contractors and advisers of the Company or any Parent, Subsidiary or Affiliate of the Company; provided such consultants, contractors and advisers render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under the Plan.

2 4. ADMINISTRATION. 4.1 Committee Authority. The Plan shall be administered by the Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of the Plan, and to the direction of the Board, the Committee shall have full power to implement and carry out the Plan. The Committee shall have the authority to: (a) construe and interpret the Plan, any Award Agreement and any other agreement or document executed pursuant to the Plan; (b) prescribe, amend and rescind rules and regulations relating to the Plan; (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination, in tandem with, in replacement of, or as alternatives to, other Awards under the Plan or any other incentive or compensation plan of the Company or any Parent, Subsidiary or Affiliate of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in the Plan, any Award or any Award Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of the Plan. 4.2 Committee Discretion. Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under the Plan to Participants who are not Insiders of the Company. 4.3 Exchange Act Requirements. If the Company is subject to the Exchange Act, the Company will take appropriate steps to comply with the disinterested director requirements of Section 16(b) of the Exchange Act, including but not limited to, the appointment by the Board of a Committee consisting of not less than two persons (who are members of the Board), each of whom is a Disinterested Person. 2

3 5. OPTIONS. The Committee may grant Options to eligible persons and shall determine whether such Options shall be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under the Plan shall be evidenced by an Award Agreement which shall expressly identify the Option as an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such provisions (which need not be the same for each Participant) as the Committee shall from time to time approve, and which shall comply with and be subject to the terms and conditions of the Plan. 5.2 Date of Grant. The date of grant of an Option shall be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of the Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options shall be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement; provided, however, that no Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted, and provided further that no Option granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company ("Ten Percent Shareholder") shall be exercisable after the expiration of five (5) years from the date the Option is granted. The Committee also may provide for the exercise of Options to become exercisable at one time or from time to time, periodically or otherwise, in such number or percentage as the Committee determines. 5.4 Exercise Price. The Exercise Price shall be determined by the Committee when the Option is granted and may be not less than 85% of the Fair Market Value of the Shares on the date of grant; provided that (i) the Exercise Price of an ISO shall be not less than 100% of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any Option granted to a Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased may be made in accordance with Section 8 of the Plan. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares, if any, and such representations and agreements regarding Participant's investment intent and access to information, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price for the number of Shares being purchased. 5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option shall always be subject to the following: 3

4 (a) If the Participant is Terminated for any reason except death or Disability, then Participant may exercise such Participant's Options only to the extent that such Options would have been exercisable upon the Termination Date no later than three (3) months after the Termination Date (or such shorter time period, but not less than thirty (30) days, as may be specified in the Stock Option Agreement), but in any event, no later than the expiration date of the Options. (b) If the Participant is terminated because of death or Disability (or the Participant dies within three (3) months of such termination), then Participant's Options may be exercised only to the extent that such Options would have been exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee) no later than twelve (12) months after the Termination Date (or such shorter time period, but not less than six (6) months, as may be specified in the Stock Option Agreement), but in any event no later than the expiration date of the Options. 5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent Participant from exercising the Option for the full number of Shares for which it is then exercisable. 5.8 Limitations on ISOs. The aggregate Fair Market Value (determined as of the date of grant) of Shares with respect to which ISOs are exercisable for the first time by a Participant during any calendar year (under the Plan or under any other incentive stock option plan of the Company or any Affiliate, Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair Market Value of Shares on the date of grant with respect to which ISOs are exercisable for the first time by a Participant during any calendar year exceeds $100,000, the Options for the first $100,000 worth of Shares to become exercisable in such calendar year shall be ISOs and the Options for the amount in excess of $100,000 that become exercisable in that calendar year shall be NQSOs. In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date of the Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit shall be automatically incorporated herein and shall apply to any Options granted after the effective date of such amendment. 5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of Participant, impair any of Participant's rights under any Option previously granted. Any outstanding ISO that is modified, extended, renewed or otherwise altered shall be treated in accordance with Section 424(h) of the Code. The Committee may reduce the Exercise Price of outstanding Options without the consent of Participants affected by a written notice to them; provided, however, that the Exercise Price may not be reduced below the minimum Exercise Price that would be permitted under Section 5.4 of the Plan for Options granted on the date the action is taken to reduce the Exercise Price. 5.10 No Disqualification. Notwithstanding any other provision in the Plan, no term of the Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or 4

5 authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code. 6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to sell to an eligible person Shares that are subject to restrictions. The Committee shall determine to whom an offer will be made, the number of Shares the person may purchase, the price to be paid (the "Purchase Price"), the restrictions to which the Shares shall be subject, and all other terms and conditions of the Restricted Stock Award, subject to the following: 6.1 Form of Restricted Stock Award. All purchases under a Restricted Stock Award made pursuant to the Plan shall be evidenced by an Award Agreement ("Restricted Stock Purchase Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. The offer of the Restricted Stock shall be accepted by the Participant's execution and delivery of the Restricted Stock Purchase Agreement and full payment for the Shares to the Company within thirty (30) days from the date of the Restricted Stock Purchase Agreement is delivered to the person. If such person does not execute and deliver the Restricted Stock Purchase Agreement along with full payment for the Shares to the Company within thirty (30) days, then the offer shall terminate, unless otherwise determined by the Committee. 6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock Award shall be determined by the Committee and shall be at least 85% of the Fair Market Value of the Shares on the date the Restricted Stock Award is granted, except in the case of a sale to a Ten Percent Shareholder, in which case the Purchase Price shall be 100% of the Fair Market Value. Payment of the Purchase Price may be made in accordance with Section 8 of the Plan. 6.3 Restrictions. Restricted Stock Awards shall be subject to such restrictions as the Committee may impose. The Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or part, based on length of service, performance or such other factors or criteria as the Committee may determine; provided that Restricted Stock Awards containing restrictions which are subject to lapse at a rate of less than 20% of the shares per year may be granted only to employees of the Company earning at least $60,000 per year and having adequate sophistication and sufficient empowerment to enable such employees to achieve the performance goals. 7. STOCK BONUSES. 7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of Restricted Stock) for services rendered to the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus may be awarded for past services already rendered to the Company, or any Parent, Subsidiary or Affiliate of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. A Stock Bonus may be awarded upon satisfaction of such performance goals as are set out in advance in Participant's individual 5

6 Award Agreement (the "Performance Stock Bonus Agreement") that shall be in such form (which need not be the same for each Participant) as the Committee shall from time to time approve, and shall comply with and be subject to the terms and conditions of the Plan. Stock Bonuses may vary from Participant to Participant and between groups of Participants, and may be based upon the achievement of the Company, Parent, Subsidiary or Affiliate and/or individual performance factors or upon such other criteria as the Committee may determine; provided, however, that performance-based bonuses that do not vest at least as to 20% of the shares per year shall be restricted to individuals earnings at least $60,000 per year and having adequate sophistication and sufficient empowerment to enable such individuals to achieve the performance goals. 7.2 Terms of Stock Bonuses. The Committee shall determine the number of Shares to be awarded to the Participant and whether such Shares shall be Restricted Stock. If the Stock Bonus is being earned upon the satisfaction of performance goals pursuant to a Performance Stock Bonus Agreement, then the Committee shall determine: (a) the nature, length and starting date of any period during which performance is to be measured (the "Performance Period") for each Stock Bonus; (b) the performance goals and criteria to be used to measure the performance, if any; (c) the number of Shares that may be awarded to the Participant; and (d) the extent to which such Stock Bonuses have been earned. Performance Periods may overlap and Participants may participate simultaneously with respect to Stock Bonuses that are subject to different Performance Periods and different performance goals and other criteria. The number of Shares may be fixed or may vary in accordance with such performance goals and criteria as may be determined by the Committee. The Committee may adjust the performance goals applicable to the Stock Bonuses to take into account changes in law and accounting or tax rules and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. 7.3 Form of Payment. The earned portion of a Stock Bonus may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee may determine. Payment may be made in the form of cash, whole Shares, including Restricted Stock, or a combination thereof, either in a lump sum payment or in installments, all as the Committee shall determine. 7.4 Termination During Performance Period. If a Participant is Terminated during a Performance Period for any reason, then such Participant shall be entitled to payment (whether in Shares, cash or otherwise) with respect to the Stock Bonus only to the extent earned as of the date of Termination in accordance with the Performance Stock Bonus Agreement, unless the Committee shall determine otherwise. 8. PAYMENT FOR SHARE PURCHASES. 8.1 Payment. Payment for Shares purchased pursuant to the Plan may be made in cash (by check) or, where expressly approved for the Participant by the Committee and where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; 6

7 (b) by surrender of Shares that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 (and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such Shares); or (2) were obtained by Participant in the public market; (c) by tender of a full recourse promissory note having such terms as may be approved by the Committee and bearing interest at a rate sufficient to avoid imputation of income under Sections 483 and 1274 of the Code; provided, however, that Participants who are not employees of the Company shall not be entitled to purchase Shares with a promissory note unless the note is adequately secured by collateral other than the Shares; (d) by waiver of compensation due or accrued to Participant for services rendered; (e) by tender of property; (f) with respect only to purchases upon exercise of an Option, and provided that a public market for the Company's stock exists: (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (2) through a "margin" commitment from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the exercise price directly to the Company; or (g) by any combination of the foregoing. 8.2 Loan Guarantees. The Committee may help the Participant pay for Shares purchased under the Plan by authorizing a guarantee by the Company of a third-party loan to the Participant. 9. WITHHOLDING TAXES. 9.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of Awards granted under the Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements 7

8 prior to the delivery of any certificate or certificates for such Shares. Whenever, under the Plan, payments in satisfaction of Awards are to be made in cash, such payment shall be net of an amount sufficient to satisfy federal, state, and local withholding tax requirements. 9.2 Stock Withholding. When, under applicable tax laws, a Participant incurs tax liability in connection with the exercise or vesting of any Award that is subject to tax withholding and the Participant is obligated to pay the Company the amount required to be withheld, the Committee may in its sole discretion, allow the Participant to satisfy the minimum withholding tax obligation by electing to have the Company withhold from the Shares to be issued that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld, determined on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). All elections by a Participant to have Shares withheld for this purpose shall be made in writing in a form acceptable to the Committee and shall be subject to the following restrictions: (a) the election must be made on or prior to the applicable Tax Date; (b) once made, then except as provided below, the election shall be irrevocable as to the particular Shares as to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Committee; (d) if the Participant is an Insider and if the Company is subject to Section 16(b) of the Exchange Act: (1) the election may not be made within six (6) months of the date of grant of the Award, except as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and (2) either (A) the election to use stock withholding must be irrevocably made at least six (6) months prior to the Tax Date (although such election may be revoked at any time at least six (6) months prior to the Tax Date) or (B) the exercise of the Option or election to use stock withholding must be made in the ten (10) day period beginning on the third day following the release of the Company's quarterly or annual summary statement of sales or earnings; (e) in the event that the Tax Date is deferred until six (6) months after the delivery of Shares under Section 83(b) of the Code, the Participant shall receive the full number of Shares with respect to which the exercise occurs, but such Participant shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date. 10. PRIVILEGES OF STOCK OWNERSHIP. 10.1 Voting and Dividends. No Participant shall have any of the rights of a shareholder with respect to any Shares until the Shares are issued to the Participant. After Shares are issued to the Participant, the Participant shall be a shareholder and have all the rights of a shareholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided, that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become 8

9 entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company shall be subject to the same restrictions as the Restricted Stock; provided, further, that the Participant shall have no right to retain such stock dividends or stock distributions with respect to Shares that are later repurchased at the Participant's original Purchase Price pursuant to Section 12. 10.2 Financial Statements. The Company shall provide financial statements to each Participant prior to such Participant's purchase of Shares under the Plan, and to each Participant annually during the period such Participant has Awards outstanding; provided, however, the Company shall not be required to provide such financial statements to Participants whose services in connection with the Company assure them access to equivalent information. 11. TRANSFERABILITY. Awards granted under the Plan, and any interest therein, shall not be transferable or assignable by Participant, and may not be made subject to execution, attachment or similar process, otherwise than by will or by the laws of descent and distribution or as consistent with the specific Plan and Award Agreement provisions relating thereto. During the lifetime of the Participant an Award shall be exercisable only by the Participant, and any elections with respect to an Award, may be made only by the Participant. 12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) in the Award Agreement (a) a right of first refusal to purchase all Shares that a Participant (or a subsequent transferee) may propose to transfer to a third party, and/or (b) a right to repurchase all, or if the Participant consents a portion, of the Shares held by a Participant following such Participant's Termination at any time within ninety (90) days after the later of Participant's Termination Date and the date Participant purchases Shares under the Plan, for cash or cancellation of purchase money indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in the Award Agreement), the higher of: (l) Participant's original Purchase Price, or (2) the Fair Market Value of such Shares on Participant's Termination Date, provided, such right of repurchase terminates when the Company's securities become publicly traded; or (B) with respect to Shares that are not "Vested" (as defined in the Award Agreement), at the Participant's original Purchase Price, provided, that except with respect to Awards granted to employees of the Company earning at least $60,000 per year and having adequate sophistication and sufficient empowerment to enable such employees to achieve the performance goals, the right to repurchase at the original Purchase Price lapses at the rate of at least 20% per year over 5 years from the date the Shares were purchased, and if the right to repurchase is assignable, the assignee must pay the Company, upon assignment of the right to repurchase, cash equal to the excess of the Fair Market Value of the Shares over the original Purchase Price. 13. CERTIFICATES. All certificates for Shares or other securities delivered under the Plan shall be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed. 14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participant's Shares, the Committee may require the Participant to deposit all certificates representing Shares, 9

10 together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates. Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under the Plan shall be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of Participant's obligation to the Company under the promissory note; provided, however, that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company shall have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant's Shares or other collateral. In connection with any pledge of the Shares, Participant shall be required to execute and deliver a written pledge agreement in such form as the Committee shall from time to time approve. The Shares purchased with the promissory note may be released from the pledge on a prorata basis as the promissory note is paid. 15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time, authorize the Company, with the consent of the respective Participants, to issue new Awards in exchange for the surrender and cancellation of any or all outstanding Awards. The Committee may at any time buy from a Participant an Award previously granted with payment in cash, Shares (including Restricted Stock) or other consideration, based on such terms and conditions as the Committee and the Participant shall agree. 16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any other provision in the Plan, the Company shall have no obligation to issue or deliver certificates for Shares under the Plan prior to (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable, and/or (b) completion of any registration or other qualification of such shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable. The Company shall be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company shall have no liability for any inability or failure to do so. 17. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted under the Plan shall confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 10

11 18. CORPORATE TRANSACTIONS. 18.1 Assumption or Replacement of Awards by Successor. In the event of (a) a merger or consolidation in which the Company is not the surviving corporation (other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the Company in a different jurisdiction, or other transaction in which there is no substantial change in the shareholders of the Company and the Awards granted under the Plan are assumed or replaced by the successor corporation, which assumption shall be binding on all Participants), (b) a dissolution or liquidation of the Company, (c) the sale of substantially all of the assets of the Company, or (d) any other transaction which qualifies as a "corporate transaction" under Section 424(a) of the Code wherein the shareholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company) any or all outstanding Awards may be assumed or replaced by the successor corporation (if any), which assumption or replacement shall be binding on all Participants. In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to shareholders (after taking into account the existing provisions of the Awards). The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant. In the event such successor corporation, if any, refuses to assume or substitute the Options, as provided above, pursuant to a transaction described in this Subsection 18.1, such Awards shall expire in connection with such transaction at such time and such conditions as the Board shall determine. 18.2 Other Treatment of Awards. Subject to any greater rights granted to Participants under the foregoing provisions of this Section 18, in the event of the occurrence of any transaction described in Section 18.1, any outstanding Awards shall be treated as provided in the applicable agreement or plan of merger, consolidation, dissolution, liquidation, sale of assets or other "corporate transaction." 18.3 Assumption of Awards by the Company. The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either (a) granting an Award under the Plan in substitution of such other company's award, or (b) assuming such award as if it had been granted under the Plan if the terms of such assumed award could be applied to an Award granted under the Plan. Such substitution or assumption shall be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under the Plan if the other company had applied the rules of the Plan to such grant. In the event the Company assumes an award granted by another company, the terms and conditions of such award shall remain unchanged (except that the exercise price and the number and nature of Shares issuable upon exercise of any such option will be adjusted appropriately pursuant to Section 424(a) of the Code). In the event the Company elects to grant a new Option rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. 11

12 19. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective on the date that it is adopted by the Board (the "Effective Date"). The Plan shall be approved by the shareholders of the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws, within twelve months before or after the Effective Date. Upon the Effective Date, the Board may grant Awards pursuant to the Plan; provided, however, that: (a) no Option may be exercised prior to initial shareholder approval of the Plan; (b) no Option granted pursuant to an increase in the number of Shares approved by the Board shall be exercised prior to the time such increase has been approved by the shareholders of the Company; and (c) in the event that shareholder approval is not obtained within the time period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant to any Award shall be cancelled and any purchase of Shares hereunder shall be rescinded. After the Company becomes subject to Section 16(b) of the Exchange Act, the Company will comply with the requirements of Rule 16b-3 (or its successor), as amended, with respect to shareholder approval. 20. TERM OF PLAN. The Plan will terminate ten (10) years from the Effective Date or, if earlier, the date of shareholder approval. 21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend the Plan in any respect, including without limitation amendment of any form of Award Agreement or instrument to be executed pursuant to the Plan; provided, however, that the Board shall not, without the approval of the shareholders of the Company, amend the Plan in any manner that requires such shareholder approval pursuant to the Code or the regulations promulgated thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder. 22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board, the submission of the Plan to the shareholders of the Company for approval, nor any provision of the Plan shall be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock options and bonuses otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 23. GOVERNING LAW. The Plan and all agreements, documents and instruments entered into pursuant to the Plan shall be governed by and construed in accordance with the internal laws of the State of California, excluding that body of law pertaining to conflict of laws. 24. DEFINITIONS. As used in the Plan, the following terms shall have the following meanings: "Affiliate" means any corporation that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another corporation, where "control" (including the terms "controlled by" and "under common control with") means the possession, direct or indirect, of the power to cause the direction of the management and policies of the corporation, whether through the ownership of voting securities, by contract or otherwise. 12

13 "Award" means any award under the Plan, including any Option, Restricted Stock or Stock Bonus. "Award Agreement" means, with respect to each Award, the signed written agreement between the Company and the Participant setting forth the terms and conditions of the Award. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee appointed by the Board to administer the Plan, or if no committee is appointed, the Board. "Company" means Brocade Communications Systems, Inc., a corporation organized under the laws of the State of California or any successor corporation. "Disability" means a permanent or total disability, whether temporary or permanent, partial or total, within the meaning of Section 22(e)(3) of the Code or a temporary or partial disability as determined by the Committee. "Disinterested Person" means a director who has not, during the period that person is a member of the Committee and for one year prior to service as a member of the Committee, been granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate of the Company, except in accordance with the requirements set forth in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by the SEC under Section 16(b) of the Exchange Act, as such rule is amended from time to time and as interpreted by the SEC. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Price" means the price at which a holder of an Option may purchase the Shares issuable upon exercise of the Option. "Fair Market Value" means, as of any date, the value of a share of the Company's Common Stock determined as follows: (a) if such Common Stock is then quoted on the Nasdaq National Market, its last reported sale price on the Nasdaq National Market or, if no such reported sale takes place on such date, the average of the closing bid and asked prices; (b) if such Common Stock is publicly traded and is then listed on a national securities exchange, the last reported sale price or, if no such reported sale takes place on such date, the average of the closing bid and asked prices on the principal national securities exchange on which the Common Stock is listed or admitted to trading; (c) if such Common Stock is publicly traded but is not quoted on the Nasdaq National Market nor listed or admitted to trading on a national securities exchange, the 13

14 average of the closing bid and asked prices on such date, as reported by The Wall Street Journal, for the over-the-counter market; or (d) if none of the foregoing is applicable, by the Board of Directors of the Company in good faith. "Insider" means an officer or director of the Company or any other person whose transactions in the Company's Common Stock are subject to Section 16 of the Exchange Act. "Option" means an award of an option to purchase Shares pursuant to Section 5. "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if at the time of the granting of an Award under the Plan, each of such corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Participant" means a person who receives an Award under the Plan. "Plan" means this Brocade Communications Systems, Inc., 1995 Equity Incentive Plan, as amended from time to time. "Restricted Stock Award" means an award of Shares pursuant to Section 6. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shares" means shares of the Company's Common Stock reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 15, and any successor security. "Stock Bonus" means an award of Shares, or cash in lieu of Shares, pursuant to Section 7. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of the Award, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Termination" or "Terminated" means, for purposes of the Plan with respect to a Participant, that the Participant has ceased to provide services as an employee, director, consultant, independent contractor or adviser, to the Company or a Parent, Subsidiary or Affiliate of the Company, except in the case of sick leave, military leave, or any other leave of absence approved by the Committee, provided, that such leave is for a period of not more than ninety (90) days, or reinstatement upon the expiration of such leave is guaranteed by contract or statute. The Committee shall have sole discretion to determine whether a Participant has ceased to provide services and the effective date on which the Participant ceased to provide services (the "Termination Date"). 14

15 BROCADE COMMUNICATIONS SYSTEMS, INC. 1995 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT This Stock Option Agreement ("Agreement") is made and entered into as of the date of grant set forth below (the "Date of Grant") by and between Brocade Communications Systems, Inc., a California corporation (the "Company"), and the participant named below ("Participant"). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company's Equity Incentive Plan (the "Plan"). <TABLE> <S> <C> PARTICIPANT: ------------------------------------------------- SOCIAL SECURITY NUMBER: ------------------------------------------------- ADDRESS: ------------------------------------------------- TOTAL OPTION SHARES: ------------------------------------------------- EXERCISE PRICE PER SHARE: ------------------------------------------------- DATE OF GRANT: ------------------------------------------------- FIRST VESTING DATE: ------------------------------------------------- EXPIRATION DATE: ------------------------------------------------- TYPE OF STOCK OPTION (CHECK ONE): [ ] INCENTIVE STOCK OPTION [ ] NONQUALIFIED STOCK OPTION </TABLE> 1. GRANT OF OPTION. The Company hereby grants to Participant an option (the "Option") to purchase the total number of shares of Common Stock of the Company set forth above (the "Shares") at the Exercise Price Per Share set forth above (the "Exercise Price"), subject to all of the terms and conditions of this Agreement and the Plan. If designated as an Incentive Stock Option above, the Option is intended to qualify as an "incentive stock option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

16 2. EXERCISE PERIOD. 2.1 Exercise Period of Option. Provided Participant continues to provide services to the Company or any Subsidiary, Parent or Affiliate of the Company throughout the specified period, the Option will become vested and exercisable as to portions of the Shares as follows: (a) This Option shall not vest nor be exercisable with respect to any of the Shares until the First Vesting Date set forth on page 1 hereof (the "First Vesting Date"); (b) on the First Vesting Date the Option will become vested and exercisable as to twenty-five percent (25%) of the Shares and (c) thereafter at the end of each full succeeding month the Option shall become vested and exercisable as to two and eighty-three one thousandths percent (2.083%) of the Shares. If application of the vesting percentage causes a fractional Share, such Share shall be rounded down to a whole Share. 2.2 Expiration. The Option shall expire on the Expiration Date set forth above and must be exercised, if at all, on or before the Expiration Date. 3. TERMINATION. 3.1 Termination for Any Reason Except Death or Disability. If Participant is Terminated for any reason, except death or Disability, the Option, to the extent (and only to the extent) that it would have been exercisable by Participant on the Termination Date, may be exercised by Participant no later than three (3) months after the Termination Date, but in any event no later than the Expiration Date. 3.2 Termination Because of Death or Disability. If Participant is Terminated because of death or Disability of Participant, the Option, to the extent that it is exercisable by Participant on the Termination Date, may be exercised by Participant (or Participant's legal representative) no later than twelve (12) months after the Termination Date, but in any event no later than the Expiration Date. 3.3 No Obligation to Employ. Nothing in the Plan or this Agreement shall confer on Participant any right to continue in the employ of, or other relationship with, the Company or any Parent, Subsidiary or Affiliate of the Company, or limit in any way the right of the Company or any Parent, Subsidiary or Affiliate of the Company to terminate Participant's employment or other relationship at any time, with or without cause. 4. MANNER OF EXERCISE. 4.1 Stock Option Exercise Agreement. To exercise this Option, Participant (or in the case of exercise after Participant's death, Participant's executor, administrator, heir or legatee, as the case may be) must deliver to the Company an executed stock option exercise agreement substantially in the form attached hereto as Exhibit A, or in such other form as may be approved by the Company from time to time (the "Exercise Agreement"), which shall set forth, inter alia, Participant's election to exercise the Option, the number of Shares being purchased, any restrictions imposed on the Shares and any representations, warranties and agreements regarding Participant's investment intent and access to information as

17 may be required by the Company to comply with applicable securities laws. If someone other than Participant exercises the Option, then such person must submit documentation reasonably acceptable to the Company that such person has the right to exercise the Option. 4.2 Limitations on Exercise. The Option may not be exercised unless such exercise is in compliance with all applicable federal and state securities laws, as they are in effect on the date of exercise. The Option may not be exercised as to fewer than 100 Shares unless it is exercised as to all Shares as to which the Option is then exercisable. 4.3 Payment. The Exercise Agreement shall be accompanied by full payment of the Exercise Price for the Shares being purchased in cash (by check), or where permitted by law: (a) by cancellation of indebtedness of the Company to the Participant; (b) at the discretion of the Committee, by surrender of shares of the Company's Common Stock that either: (1) have been owned by Participant for more than six (6) months and have been paid for within the meaning of SEC Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares); or (2) were obtained by Participant in the open public market; and (3) are clear of all liens, claims, encumbrances or security interests; (c) by waiver of compensation due or accrued to Participant for services rendered; (d) provided that a public market for the Company's stock exists, (1) through a "same day sale" commitment from Participant and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company, or (2) through a "margin" commitment -- from Participant and an NASD Dealer whereby Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company; or (e) by any combination of the foregoing. 4.4 Tax Withholding. Prior to the issuance of the Shares upon exercise of the Option, Participant must pay or provide for any applicable federal, state and local

18 withholding obligations of the Company. If the Committee permits, Participant may provide for payment of withholding taxes upon exercise of the Option by requesting that the Company retain Shares with a Fair Market Value equal to the minimum amount of taxes required to be withheld. In such case, the Company shall issue the net number of Shares to the Participant by deducting the Shares retained from the Shares issuable upon exercise. 4.5 Issuance of Shares. Provided that the Exercise Agreement and payment are in form and substance satisfactory to counsel for the Company, the Company shall issue the Shares registered in the name of Participant, Participant's authorized assignee, or Participant's legal representative, and shall deliver certificates representing the Shares with the appropriate legends affixed thereto. 5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option is an ISO, and if Participant sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, and (2) the date one year after transfer of such Shares to Participant upon exercise of the Option, Participant shall immediately notify the Company in writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized by Participant from the early disposition by payment in cash or out of the current wages or other compensation payable to Participant. 6. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of the Option and the issuance and transfer of Shares shall be subject to compliance by the Company and Participant with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company's Common Stock may be listed at the time of such issuance or transfer. Participant understands that the Company is under no obligation to register or qualify the Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance. 7. NONTRANSFERABILITY OF OPTION. The Option may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of Participant only by Participant. The terms of the Option shall be binding upon the executors, administrators, successors and assigns of Participant. 8. TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of Grant of some of the federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES. 8.1 Exercise of ISO. If the Option qualifies as an ISO, there will be no regular federal or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as a tax preference item for federal income tax purposes and may subject the Participant to the alternative minimum tax in the year of exercise.

19 8.2 Exercise of Nonqualified Stock Option. If the Option does not qualify as an ISO, there may be a regular federal and California income tax liability upon the exercise of the Option. Participant will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company will be required to withhold from Participant's compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 8.3 Disposition of Shares. If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of the Option and, in the case of an ISO, are disposed of more than two years after the Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one year or two year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. The Company may be required to withhold from Participant's compensation or collect from Participant and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 9. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the rights of a shareholder with respect to any Shares until Participant exercises the Option and pays the Exercise Price. 10. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Participant or the Company to the Committee for review. The resolution of such a dispute by the Committee shall be final and binding on the Company and Participant. 11. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This Agreement and the Plan constitute the entire agreement of the parties and supersede all prior undertakings and agreements with respect to the subject matter hereof. 12. NOTICES. Any notice required to be given or delivered to the Company under the terms of this Agreement shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated above or to such other address as such party may designate in writing from time to time to the Company. All notices shall be deemed to have been given or delivered upon: personal delivery; three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested); one (1) business day after deposit with any return receipt express courier (prepaid); or one (1) business day after transmission by rapifax or telecopier. 13. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement. This Agreement shall be binding upon and inure to the benefit of the successors

20 and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement shall be binding upon Participant and Participant's heirs, executors, administrators, legal representatives, successors and assigns. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 15. ACCEPTANCE. Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. Participant has read and understands the terms and provisions thereof, and accepts the Option subject to all the terms and conditions of the Plan and this Agreement. Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares and that Participant should consult a tax adviser prior to such exercise or disposition. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Participant has executed this Agreement in duplicate as of the Date of Grant. BROCADE COMMUNICATIONS SYSTEMS, INC. PARTICIPANT By: --------------------------------------- ----------------------------- (Signature) ------------------------------------------ ----------------------------- (Please print name) (Please print name) ------------------------------------------ (Please print title) [SIGNATURE PAGE TO BROCADE COMMUNICATIONS SYSTEMS, INC. STOCK OPTION AGREEMENT]

21 EXHIBIT A BROCADE COMMUNICATIONS SYSTEMS, INC. 1995 EQUITY INCENTIVE PLAN STOCK OPTION EXERCISE AGREEMENT This Exercise Agreement is made and entered into as of ______________, 19___ (the "Effective Date") by and between Brocade Communications Systems, Inc., a California corporation (the "Company"), and the purchaser named below (the "Purchaser"). Capitalized terms not defined herein shall have the meaning ascribed to them in the Company's 1995 Equity Incentive Plan (the "Plan"). <TABLE> <S> <C> PURCHASER: ------------------------------------------------- SOCIAL SECURITY NUMBER: ------------------------------------------------- ADDRESS: ------------------------------------------------- ------------------------------------------------- TOTAL NUMBER OF SHARES: ------------------------------------------------- PURCHASE PRICE PER SHARE: ------------------------------------------------- TOTAL PURCHASE PRICE: ------------------------------------------------- DATE OF GRANT: ------------------------------------------------- TYPE OF OPTION: [ ] INCENTIVE STOCK OPTION [ ] NONQUALIFIED STOCK OPTION </TABLE> 1. EXERCISE OF OPTION. 1.1 EXERCISE. Pursuant to exercise of that certain option ("Option") granted to Purchaser under the Plan and subject to the terms and conditions of this Agreement, Purchaser hereby purchases from the Company, and the Company hereby sells to Purchaser, the total number of shares set forth above ("Shares") of the Company's Common Stock at the Purchase Price Per Share set forth above for a Total Purchase Price set forth above (the "Purchase Price"). As used in this Agreement, the term "Shares" refers to the Shares purchased

22 under this Exercise Agreement and includes all securities received (a) in replacement of the Shares, (b) as a result of stock dividends or stock splits with respect to the Shares, and (c) all securities received in replacement of the Shares in a merger, recapitalization, reorganization or similar corporate transaction. 1.2 TITLE TO SHARES. The exact spelling of the name(s) under which Purchaser will take title to the Shares is: Purchaser desires to take title to the Shares as follows: [ ] Individual, as separate property [ ] Husband and wife, as community property [ ] Joint Tenants [ ] Alone or with spouse as trustee(s) of the following trust (including date): --------------------------------------------------------------- --------------------------------------------------------------- [ ] Other; please specify: --------------------------------------- --------------------------------------------------------------- 1.3 PAYMENT. Purchaser hereby delivers payment of the Purchase Price in the manner permitted in the Stock Option Agreement as follows (check and complete as appropriate): [ ] in cash in the amount of $____________, receipt of which is acknowledged by the Company; [ ] by cancellation of indebtedness of the Company to Purchaser in the amount of $__________; [ ] at the discretion of the Committee, by delivery of _________ fully-paid, nonassessable and vested shares of the Common Stock of the Company owned by Purchaser for at least six (6) months prior to the date hereof which have been paid for within the meaning of SEC Rule 144, if purchased by use of a promissory note, such note has been fully paid with respect to such vested shares), or obtained by Purchaser in the open public market, and owned free and clear of all liens, claims, encumbrances or security interests, valued at the current Fair Market Value of $___________ per share; or [ ] by the waiver hereby of compensation due or accrued for services rendered in the amount of $_________.

23 2. DELIVERY. 2.1 DELIVERIES BY PURCHASER. Purchaser hereby delivers to the Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached hereto (the "Stock Powers"), both executed by Purchaser (and Purchaser's spouse, if any), (iii) if Purchaser is married, a Consent of Spouse in the form of Exhibit 2 attached hereto (the "Spouse Consent") executed by Purchaser's spouse, and (iv) the Purchase Price. 2.2 DELIVERIES BY THE COMPANY. Upon its receipt of the Purchase Price and all the documents to be executed and delivered by Purchaser to the Company under Section 2.1, the Company will issue a duly executed stock certificate evidencing the Shares in the name of Purchaser, to be placed in escrow as provided in Section 10 until expiration or termination of the Company's Right of First Refusal described in Section 8. 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to the Company that: 3.1 AGREES TO TERMS OF THE PLAN. Purchaser has received a copy of the Plan and the Stock Option Agreement, has read and understands the terms of the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to be bound by their terms and conditions. Purchaser acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Shares, and that Purchaser should consult a tax adviser prior to such exercise or disposition. 3.2 PURCHASE FOR OWN ACCOUNT FOR INVESTMENT. Purchaser is purchasing the Shares for Purchaser's own account for investment purposes only and not with a view to, or for sale in connection with, a distribution of the Shares within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser has no present intention of selling or otherwise disposing of all or any portion of the Shares and no one other than Purchaser has any beneficial ownership of any of the Shares. 3.3 ACCESS TO INFORMATION. Purchaser has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that Purchaser reasonably considers important in making the decision to purchase the Shares, and Purchaser has had ample opportunity to ask questions of the Company's representatives concerning such matters and this investment. 3.4 UNDERSTANDING OF RISKS. Purchaser is fully aware of: (i) the highly speculative nature of the investment in the Shares; (ii) the financial hazards involved; (iii) the lack of liquidity of the Shares and the restrictions on transferability of the Shares (e.g., that Purchaser may not be able to sell or dispose of the Shares or use them as collateral for loans); (iv) the qualifications and backgrounds of the management of the Company; and (v) the tax consequences of investment in the Shares. Purchaser is capable of evaluating the merits and risks of this investment, has the ability to protect Purchaser's own interests in this transaction and is financially capable of bearing a total loss of this investment.

24 3.5 NO GENERAL SOLICITATION. At no time was Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Shares. 4. COMPLIANCE WITH SECURITIES LAWS. 4.1 COMPLIANCE WITH FEDERAL SECURITIES LAWS. Purchaser understands and acknowledges that the Shares have not been registered with the Securities and Exchange Commission ("SEC") under the Securities Act and that, notwithstanding any other provision of the Stock Option Agreement to the contrary, the exercise of any rights to purchase any Shares is expressly conditioned upon compliance with the Securities Act and all applicable state securities laws. Purchaser agrees to cooperate with the Company to ensure compliance with such laws. The Shares are being issued under the Securities Act pursuant to (the Company will check the applicable box): [ ] the exemption provided by SEC Rule 701; [ ] the exemption provided by SEC Rule 504; [ ] Section 4(2) of the Securities Act; [ ] other: ____________________________. 4.2 COMPLIANCE WITH CALIFORNIA SECURITIES LAWS. THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE. 5. RESTRICTED SECURITIES. 5.1 NO TRANSFER UNLESS REGISTERED OR EXEMPT. Purchaser understands that Purchaser may not transfer any Shares unless such Shares are registered under the Securities Act or qualified under applicable state securities laws or unless, in the opinion of counsel to the Company, exemptions from such registration and qualification requirements are available. Purchaser understands that only the Company may file a registration statement with the SEC and that the Company is under no obligation to do so with respect to the Shares. Purchaser has also been advised that exemptions from registration and qualification may not be available or may not permit Purchaser to transfer all or any of the Shares in the amounts or at the times proposed by Purchaser. 5.2 SEC RULE 144. In addition, Purchaser has been advised that SEC Rule 144 promulgated under the Securities Act, which permits certain limited sales of unregistered securities, is not presently available with respect to the Shares and, in any event, requires that the

25 Shares be held for a minimum of two years, and in certain cases three years, after they have been purchased and paid for (within the meaning of Rule 144). Purchaser understands that Rule 144 may indefinitely restrict transfer of the Shares so long as Purchaser remains an "affiliate" of the Company or if "current public information" about the Company (as defined in Rule 144) is not publicly available. 5.3 SEC RULE 701. The Shares may become freely tradeable by non-affiliates if issued pursuant to SEC Rule 701 promulgated under the Securities Act (under limited conditions regarding the method of sale) 90 days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC, subject to the lengthier market standoff agreement contained in Section 7 of this Exercise Agreement or any other agreement entered into by Purchaser. Affiliates must comply with the provisions (other than the holding period requirements) of Rule 144. 5.4 STATE LAW RESTRICTIONS ON TRANSFER. Purchaser understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Commissioner of Corporations, a copy of which is attached hereto as Exhibit 3, and that the certificate(s) representing the Shares may bear a legend to that effect. 6. RESTRICTIONS ON TRANSFERS. 6.1 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser shall make no disposition of the Shares (other than as permitted by this Agreement) unless and until: (a) Purchaser shall have notified the Company of the proposed disposition and provided a written summary of the terms and conditions of the proposed disposition; (b) Purchaser shall have complied with all requirements of this Exercise Agreement applicable to the disposition of the Shares; (c) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to counsel for the Company, that (i) the proposed disposition does not require registration of the Shares under the Securities Act or (ii) all appropriate action necessary for compliance with the registration requirements of the Securities Act or of any exemption from registration available under the Securities Act (including Rule 144) has been taken; and (d) Purchaser shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that the proposed disposition will not result in the contravention of any transfer restrictions applicable to the Shares pursuant to the provisions of the Commissioner Rules identified in Section 4.2. 6.2 RESTRICTION ON TRANSFER. Purchaser shall not transfer, assign, grant a lien or security interest in, pledge, hypothecate, encumber or otherwise dispose of any of the Shares which are subject to the Company's Right of First Refusal, except as permitted by this Agreement.

26 6.3 TRANSFEREE OBLIGATIONS. Each person (other than the Company) to whom the Shares are transferred by means of one of the permitted transfers specified in this Agreement must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Exercise Agreement and that the transferred shares are subject to (i) the Company's Right of First Refusal granted hereunder and (ii) the market stand-off provisions of Section 7, to the same extent such shares would be so subject if retained by the Purchaser. 7. MARKET STANDOFF AGREEMENT. Purchaser agrees in connection with any registration of the Company's securities that, upon the request of the Company or the underwriters managing any public offering of the Company's securities, Purchaser will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. 8. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or any transferee of such Shares (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including without limitation a transfer by gift or operation of law), the Company and/or its assignee(s) shall have an assignable right of first refusal to purchase the Shares to be sold or transferred (the "Offered Shares") on the terms and conditions set forth in this Section (the "Right of First Refusal"). 8.1 NOTICE OF PROPOSED TRANSFER. The Holder of the Offered Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer the Offered Shares; (ii) the name of each proposed bona fide purchaser or other transferee ("Proposed Transferee"); (iii) the number of Offered Shares to be transferred to each Proposed Transferee; (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Offered Shares (the "Offered Price"); and (v) that the Holder will offer to sell the Offered Shares to the Company and/or its assignee(s) at the Offered Price as provided in this Section. 8.2 EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days after the date of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all of the Offered Shares proposed to be transferred to any one or more of the Proposed Transferees named in the Notice, at the purchase price determined as specified below. 8.3 PURCHASE PRICE. The purchase price for the Offered Shares purchased under this Section will be the Offered Price. If the Offered Price includes consideration other than cash, then the cash equivalent value of the non-cash consideration shall conclusively be deemed to be the value of such non-cash consideration as determined in good faith by the Company's Board of Directors.

27 8.4 PAYMENT. Payment of the purchase price for Offered Shares will be payable, at the option of the Company and/or its assignee(s) (as applicable), by check or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or to such assignee, in the case of a purchase of Offered Shares by such assignee) or by any combination thereof. The purchase price will be paid without interest within sixty (60) days after the Company's receipt of the Notice, or, at the option of the Company and/or its assignee(s), in the manner and at the time(s) set forth in the Notice. 8.5 HOLDER'S RIGHT TO TRANSFER. If all of the Offered Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Offered Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice, and provided further, that (i) any such sale or other transfer is effected in compliance with all applicable securities laws and (ii) the Proposed Transferee agrees in writing that the provisions of this Section will continue to apply to the Offered Shares in the hands of such Proposed Transferee. If the Offered Shares described in the Notice are not transferred to the Proposed Transferee within such 120 day period, then a new Notice must be given to the Company, and the Company will again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. 8.6 EXEMPT TRANSFERS. Notwithstanding anything to the contrary in this Section, the following transfers of Shares will be exempt from the Right of First Refusal: (i) the transfer of any or all of the Shares during Purchaser's lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's "immediate family" (as defined below) or to a trust for the benefit of Purchaser or Purchaser's immediate family, provided that each transferee or other recipient agrees in a writing satisfactory to the Company that the provisions of this Section will continue to apply to the transferred Shares in the hands of such transferee or other recipient; (ii) any transfer of Shares made pursuant to a statutory merger or statutory consolidation of the Company with or into another corporation or corporations (except that the Right of First Refusal will continue to apply thereafter to such Shares, in which case the surviving corporation of such merger or consolidation shall succeed to the rights of the Company under this Section unless the agreement of merger or consolidation expressly otherwise provides); or (iii) any transfer of Shares pursuant to the winding up and dissolution of the Company. As used herein, the term "immediate family" will mean Purchaser's spouse, the lineal descendant or antecedent, father, mother, brother or sister, adopted child or grandchild of the Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child, grandchild or adopted grandchild of Purchaser or the Purchaser's spouse. 8.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal will terminate as to all Shares on the effective date of the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the SEC under the Securities Act (other than a registration statement relating solely to the issuance of Common Stock pursuant to a business combination or an employee incentive or benefit plan).

28 9. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this Exercise Agreement, Purchaser will have all of the rights of a shareholder of the Company with respect to the Shares from and after the date that Purchaser delivers payment of the Purchase Price until such time as Purchaser disposes of the Shares or the Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an exercise of the Right of First Refusal, Purchaser will have no further rights as a holder of the Shares so purchased upon such exercise, except the right to receive payment for the Shares so purchased in accordance with the provisions of this Exercise Agreement, and Purchaser will promptly surrender the stock certificate(s) evidencing the Shares so purchased to the Company for transfer or cancellation. 10. ESCROW. As security for Purchaser's faithful performance of this Agreement, Purchaser agrees, immediately upon receipt of the stock certificate(s) evidencing the Shares, to deliver such certificate(s), together with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any (with the date and number of Shares left blank), to the Secretary of the Company or other designee of the Company ("Escrow Holder"), who is hereby appointed to hold such certificate(s) and Stock Powers in escrow and to take all such actions and to effectuate all such transfers and/or releases of such Shares as are in accordance with the terms of this Agreement. Purchaser and the Company agree that Escrow Holder will not be liable to any party to this Exercise Agreement (or to any other party) for any actions or omissions unless Escrow Holder is grossly negligent or intentionally fraudulent in carrying out the duties of Escrow Holder under this Exercise Agreement. Escrow Holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may rely on the advice of counsel and obey any order of any court with respect to the transactions contemplated by this Agreement. The Shares will be released from escrow upon termination of the Right of First Refusal. 11. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. 11.1 LEGENDS. Purchaser understands and agrees that the Company will place the legends set forth below or similar legends on any stock certificate(s) evidencing the Shares, together with any other legends that may be required by state or federal securities laws, the Company's Articles of Incorporation or Bylaws, any other agreement between Purchaser and the Company or any agreement between Purchaser and any third party: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION

29 OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON PUBLIC RESALE, TRANSFER, AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. The California Commissioner of Corporations may require that the following legend also be placed upon the share certificate(s) evidencing ownership of the Shares: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES. 11.2 STOP-TRANSFER INSTRUCTIONS. Purchaser agrees that, to ensure compliance with the restrictions imposed by this Agreement, the Company may issue appropriate "stop-transfer" instructions to its transfer agent, if any, and if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. 11.3 REFUSAL TO TRANSFER. The Company will not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares, or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares have been so transferred. 12. TAX CONSEQUENCES. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF THE SHARES. PURCHASER REPRESENTS THAT PURCHASER HAS CONSULTED WITH ANY TAX ADVISER PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE SHARES AND THAT PURCHASER IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date of this Exercise Agreement of some of the federal and California tax consequences of exercise of the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS

30 AND REGULATIONS ARE SUBJECT TO CHANGE. PURCHASER SHOULD CONSULT A TAX ADVISER BEFORE EXECUTING THIS OPTION OR DISPOSING OF THE SHARES. 12.1 EXERCISE OF INCENTIVE STOCK OPTION. If the Option qualifies as an incentive stock option, there will be no regular federal income tax liability or California income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Purchase Price Per Share will be treated as a tax preference item for federal income tax purposes and may subject Purchaser to the alternative minimum tax in the year of exercise. 12.2 EXERCISE OF NONQUALIFIED STOCK OPTION. If the Option does not qualify as an incentive stock option, there may be a regular federal income tax liability and a California income tax liability upon the exercise of the Option. Purchaser will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Purchase Price Per Share. The Company will be required to withhold from Purchaser's compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 12.3 DISPOSITION OF SHARES. If the Shares are held for more than twelve (12) months after the date of the transfer of the Shares pursuant to the exercise of the Option and, in the case of an ISO, are disposed of more than two years after the Option Date of Grant, any gain realized on disposition of the Shares will be treated as long term capital gain for federal and California income tax purposes. If Shares purchased under an ISO are disposed of within the applicable one year or two year period, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the fair market value of the Shares on the date of exercise over the Purchase Price Per Share. The Company may be required to withhold from Purchaser's compensation or collect from Purchaser and pay to the applicable taxing authorities an amount equal to a percentage of this compensation income at the time of exercise. 13. COMPLIANCE WITH LAWS AND REGULATIONS. The issuance and transfer of the Shares will be subject to and conditioned upon compliance by the Company and Purchaser with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company's Common Stock may be listed or quoted at the time of such issuance or transfer. 14. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement, including its rights to repurchase Shares under the Right of First Refusal. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement will be binding upon Purchaser and Purchaser's heirs, executors, administrators, legal representatives, successors and assigns. 15. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California as such laws are applied

31 to agreements between California residents entered into and to be performed entirely within California. If any provision of this Agreement is determined by a court of law to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable. 16. NOTICES. Any notice required to be given or delivered to the Company shall be in writing and addressed to the Corporate Secretary of the Company at its principal corporate offices. Any notice required to be given or delivered to Purchaser shall be in writing and addressed to Purchaser at the address indicated above or to such other address as Purchaser may designate in writing from time to time to the Company. All notices shall be deemed effectively given upon personal delivery, three (3) days after deposit in the United States mail by certified or registered mail (return receipt requested), one (1) business day after its deposit with any return receipt express courier (prepaid), or one (1) business day after transmission by rapifax or telecopier. 17. FURTHER INSTRUMENTS. The parties agree to execute such further instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 18. HEADINGS. The captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. All references herein to Sections will refer to Sections of this Agreement. 19. ENTIRE AGREEMENT. The Plan, the Stock Option Agreement and this Exercise Agreement, together with all its Exhibits, constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between the parties hereto with respect to the specific subject matter hereof. [REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]

32 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in duplicate by its duly authorized representative and Purchaser has executed this Agreement in duplicate as of the Effective Date. BROCADE COMMUNICATIONS SYSTEMS, INC. PURCHASER By: ----------------------------- ----------------------------- (Signature) -------------------------------- ----------------------------- (Please print Name) (Please print name) ------------------------------- (Please print title) [SIGNATURE PAGE TO BROCADE COMMUNICATIONS SYSTEMS, INC. STOCK OPTION EXERCISE AGREEMENT]

33 LIST OF EXHIBITS Exhibit 1: Stock Power and Assignment Separate from Stock Certificate Exhibit 2: Spouse Consent Exhibit 3: California Commissioner Rule 260.141.11 Exhibit 4: Copy of Purchaser's Check

34 EXHIBIT 1 STOCK POWER AND ASSIGNMENT SEPARATE FROM STOCK CERTIFICATE FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise Agreement No. ___ dated as of _______________, 19___, (the "Agreement"), the undersigned hereby sells, assigns and transfers unto _______________________________, shares of the Common Stock of Brocade Communications Systems, Inc., a California corporation (the "Company"), standing in the undersigned's name on the books of the Company represented by Certificate No(s). ______ delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned's attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO. Dated: _______________, 19____ PURCHASER ----------------------------- (Signature) ----------------------------- (Please Print Name) ----------------------------- (Spouse's Signature, if any) ----------------------------- (Please Print Spouse's Name) INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this Stock Power and Assignment is to enable the Company to acquire the shares upon exercise of its "Right of First Refusal" set forth in the Agreement without requiring additional signatures on the part of the Purchaser or Purchaser's Spouse, if any.

35 EXHIBIT 2 SPOUSE CONSENT The undersigned spouse of Purchaser has read, understands, and hereby approves the Stock Option Exercise Agreement between Purchaser and the Company (the "Agreement"). In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, the undersigned hereby agrees to be irrevocably bound by the Agreement and further agrees that any community property interest shall similarly be bound by the Agreement. The undersigned hereby appoints Purchaser as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. Date: ---------------------------- ------------------------------- Signature of Purchaser's Spouse Address: ------------------------------- -------------------------------

36 EXHIBIT 3 CALIFORNIA COMMISSIONER RULE 260.141.11 (a) The issuer of any security upon which a restriction on transfer has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be delivered to each issuee or transferee of such security at the time the certificate evidencing the security is delivered to the issuee or transferee. (b) It is unlawful for the holder of any such security to consummate a sale or transfer of such security, or any interest therein, without the prior written consent of the Commissioner (until this condition is removed pursuant to Section 260.141.12 of these rules), except: (1) to the issuer; (2) pursuant to the order or process of any court; (3) to any person described in Subdivision (i) of Section 25102 of the Code or Section 260.105.14 of these rules: (4) to the transferor's ancestors, descendants or spouse, or any custodian or trustee for the account of the transferor or the transferor's ancestors, descendants, or spouse; or to a transferee by a trustee or custodian for the account of the transferee or the transferee's ancestors, descendants or spouse; (5) to holders of securities of the same class of the same issuer; (6) by way of gift or donation intervivos or on death; (7) by or through a broker-dealer licensed under the Code (either acting as such or as a finder) to a resident of a foreign state, territory or country who is neither domiciled in this state to the knowledge of the broker-dealer, nor actually present in this state if the sale of such securities is not in violation of any securities law of the foreign state, territory or country concerned; (8) to a broker-dealer licensed under the Code in a principal transaction, or as an underwriter or member of an underwriting syndicate or selling group; (9) if the interest sold or transferred is a pledge or other lien given by the purchaser to the seller upon a sale of the security for which the Commissioner's written consent is obtained or under this rule not required; (10) by way of a sale qualified under Section 25111, 25112, 25113, or 25121 of the Code, of the securities to be transferred, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (11) by a corporation to a wholly owned subsidiary of such corporation, or by a wholly owned subsidiary of a corporation to such corporation; (12) by way of an exchange qualified under Section 25111, 25112 or 25113 of the Code, provided that no order under Section 25140 or subdivision (a) of Section 25143 is in effect with respect to such qualification; (13) between residents of foreign states, territories or countries who are neither domiciled nor actually present in this state; (14) to the State Controller pursuant to the Unclaimed Property Law or the administrator of the unclaimed property law of another state; or (15) by the State Controller pursuant to the Unclaimed Property Law or by the administrator of the unclaimed property law of another state if, in either such case, such person (i) discloses to potential purchasers at the sale that transfer of the securities is restricted under this rule, (ii) delivers to each purchaser a copy of this rule, and (iii) advises the Commissioner of the name of each purchaser; (16) by a trustee to a successor trustee when such transfer does not involve a change in the beneficial ownership of the securities; (17) by way of an offer and sale of outstanding securities in an issuer transaction that is subject to the qualification requirements of Section 25110 of the Code but exempt from that qualification requirement by subdivision (f) of Section 25102; provided that any such transfer is on the condition that any certificate evidencing the security issued to such transferee shall contain the legend required by this section. (c) The certificates representing all such securities subject to such a restriction on transfer, whether upon initial issuance or upon any transfer thereof, shall bear on their face a legend, prominently stamped or printed thereon in capital letters of not less than 10-point size, reading as follows: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.

37 EXHIBIT 4 COPY OF PURCHASER'S CHECK

1 EXHIBIT 10.3 BROCADE COMMUNICATIONS SYSTEMS, INC. 1998 EQUITY INCENTIVE PLAN AS ADOPTED FEBRUARY 26, 1998 AND AS AMENDED OCTOBER 9, 1998 1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, its Parent and Subsidiaries, by offering them an opportunity to participate in the Company's future performance through awards of Options and Restricted Stock. Capitalized terms not defined in the text are defined in Section 22 hereof. This Plan is intended to be a written compensatory benefit plan within the meaning of Rule 701 promulgated under the Securities Act. 2. SHARES SUBJECT TO THE PLAN. 2.1 Number of Shares Available. Subject to Sections 2.2 and 17 hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan will be 2,400,000 Shares or such lesser number of Shares as permitted under Section 260.140.45 of Title 10 of the California Code of Regulations. Subject to Sections 2.2 and 17 hereof, Shares will again be available for grant and issuance in connection with future Awards under this Plan that: (a) are subject to issuance upon exercise of an Option but cease to be subject to such Option for any reason other than exercise of such Option or (b) are subject to a Restricted Stock Award that otherwise terminates without Shares being issued. At all times the Company will reserve and keep available a sufficient number of Shares as will be required to satisfy the requirements of all Awards granted under this Plan. 2.2 Adjustment of Shares. In the event that the number of outstanding shares of the Company's Common Stock is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company without consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the Exercise Prices of and number of Shares subject to outstanding Options and (c) the Purchase Prices of and number of Shares subject to other outstanding Awards will be proportionately adjusted, subject to any required action by the Board or the shareholders of the Company and compliance with applicable securities laws; provided, however, that fractions of a Share will not be issued but will either be paid in cash at Fair Market Value of such fraction of a Share or will be rounded down to the nearest whole Share, as determined by the Committee. 3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) may be granted only to employees (including officers and directors who are also employees) of the Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in Section 5 hereto) and Restricted Stock Awards may be granted to employees, officers, directors and consultants of the Company or any Parent or Subsidiary of the Company; provided such consultants render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction. A person may be granted more than one Award under this Plan. 4. ADMINISTRATION. 4.1 Committee Authority. This Plan will be administered by the Committee or the Board acting as the Committee. Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. Without limitation, the Committee will have the authority to: (a) construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan; (b) prescribe, amend and rescind rules and regulations relating to this Plan;

2 (c) select persons to receive Awards; (d) determine the form and terms of Awards; (e) determine the number of Shares or other consideration subject to Awards; (f) determine whether Awards will be granted singly, in combination with, in tandem with, in replacement of, or as alternatives to, other Awards under this Plan or awards under any other incentive or compensation plan of the Company or any Parent or Subsidiary of the Company; (g) grant waivers of Plan or Award conditions; (h) determine the vesting, exercisability and payment of Awards; (i) correct any defect, supply any omission, or reconcile any inconsistency in this Plan, any Award, any Award Agreement, any Exercise Agreement or any Restricted Stock Purchase Agreement; (j) determine whether an Award has been earned; and (k) make all other determinations necessary or advisable for the administration of this Plan. 4.2 Committee Discretion. Any determination made by the Committee with respect to any Award will be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of this Plan or Award, and subject to Section 5.9 hereof, at any later time, and such determination will be final and binding on the Company and on all persons having an interest in any Award under this Plan. The Committee may delegate to one or more officers of the Company the authority to grant an Award under this Plan. 5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether such Options will be Incentive Stock Options within the meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may be exercised, and all other terms and conditions of the Option, subject to the following: 5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an Award Agreement which will expressly identify the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such form and contain such provisions (which need not be the same for each Participant) as the Committee may from time to time approve, and which will comply with and be subject to the terms and conditions of this Plan. 5.2 Date of Grant. The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, unless otherwise specified by the Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option. 5.3 Exercise Period. Options may be exercisable immediately (subject to repurchase pursuant to Section 11 hereof) or may be exercisable within the times or upon the events determined by the Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who directly or by attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company ("TEN PERCENT SHAREHOLDER") will be exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines. Subject to earlier termination of the Option as provided herein, each Participant who is not an officer, director or consultant of the -2-

3 Company or of a Parent or Subsidiary of the Company shall have the right to exercise an Option granted hereunder at the rate of at least twenty percent (20%) per year over five (5) years from the date such Option is granted. 5.4 Exercise Price. The Exercise Price of an Option will be determined by the Committee when the Option is granted and may not be less than eighty-five percent (85%) of the Fair Market Value of the Shares on the date of grant; provided that (a) the Exercise Price of an ISO will not be less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (b) the Exercise Price of any Option granted to a Ten Percent Shareholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant. Payment for the Shares purchased must be made in accordance with Section 7 hereof. 5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the same for each Participant), stating the number of Shares being purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any, and such representations and agreements regarding Participant's investment intent and access to information and other matters, if any, as may be required or desirable by the Company to comply with applicable securities laws, together with payment in full of the Exercise Price, and any applicable taxes, for the number of Shares being purchased. 5.6 Termination. Subject to earlier termination pursuant to Sections 17 and 18 hereof and notwithstanding the exercise periods set forth in the Stock Option Agreement, exercise of an Option will always be subject to the following: (a) If the Participant is Terminated for any reason except death, Disability or for Cause, then the Participant may exercise such Participant's Options only to the extent that such Options are exercisable upon the Termination Date and such Options must be exercised by the Participant, if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within three (3) months after the Termination Date (or within such shorter time period, not less than thirty (30) days, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond three (3) months after the Termination Date deemed to be an NQSO) but in any event, non later than the expiration date of the Options. (b) If the Participant is Terminated because of Participant's death or Disability (or the Participant dies within three (3) months after a Termination other than for Cause), then Participant's Options may be exercised only to the extent that such Options are exercisable by Participant on the Termination Date and must be exercised by Participant (or Participant's legal representative or authorized assignee), if at all, as to all or some of the Vested Shares calculated as of the Termination Date, within twelve (12) months after the Termination Date (or within such shorter time period, not less than six (6) months, or within such longer time period, not exceeding five (5) years, after the Termination Date as may be determined by the Committee, with any exercise beyond (i) three (3) mont